XBOX’s 2026 reset causes major changes for its gaming model

By Tyler McCready

On October 8th, XBOX announced it will add a new division, XP, intended to expand the company into TV, live events, sponsorships, and more. XBOX’s Chief Strategy Officer, Matthew Ball, notes that XP’s goal is “helping our franchises reach more people, create deeper connections with players and new fans, and unlock new opportunities for these fandoms to grow around the world.” These are some of the first public steps XBOX has taken toward its new company model, but while the company is currently forming new divisions, it has also cut others recently.

Late last month, XBOX laid off more than 200 employees to rebuild the company into what it believes will be a healthier model. This is the second set of layoffs from Xbox this year; in early July, they laid off over 1,000 employees to reduce their team size.

In their statement on the July 6th layoffs, XBOX CEO Asha Sharma noted that the company invested in ventures like Game Pass and “a broader portfolio of content”; however, its margins were noticeably lower than its competitors’. Sharma mentioned that “as that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”

XBOX’s layoffs have already led to major changes in their game development departments. The biggest change comes from Activision taking over production of the Halo series from Halo Studios. Activision is the studio behind the Call of Duty series; however, the team working on the new Halo games will be separate from the Call of Duty series. While some from Halo Studios will continue working on the Halo series, over 200 roles have been laid off to align with Xbox’s business changes. Halo Studios (formerly known as 343 Industries) had been working on the series since 2007, and their most recent titles for the series, Halo: Campaign Evolved and Halo Infinite, have received mixed reviews on Steam, one of the largest online gaming platforms.

Another major change is that Obsidian, the gaming studio behind the Grounded and Outer Worlds series, will take over development of the Fallout series from Bethesda; however, the original studio will still oversee the game’s development. The franchise hasn’t had a new entry since Fallout 76 in 2018.

One looming question around XBOX is whether, and how, artificial intelligence will play a role in the company’s reset. Microsoft, XBOX’s parent company, has developed AI with Copilot, and XBOX has promised in the past to use the generative AI Muse specifically to make gaming better and more fun for players.

AI in gaming has been controversial, with many people vocally for and against its use in game development, and XBOX’s future decisions remain to be seen. Sultan A. Alharthi notes in their research paper on generative AI in gaming that “while generative AI has the potential to significantly streamline content creation and encourage more experimental and innovative design approaches, several critical questions remain unanswered—particularly regarding the perception and adoption of these tools by game designers and their concerns about originality, creative dependency, and human-authored content.”

XBOX is also still investing in Game Pass, with this weekend’s Free Play Days event letting any XBOX member play timed trials of games like Little Nightmares III, Rogue Waters, High on Life 2, and more, along with games on sale. This model could help XBOX’s longevity, as Tamanna Pathan notes in her marketing analysis paper on Game Pass that “consumer expectations have shifted toward access-based consumption models, with younger generations demonstrating preference for subscription services over ownership.”

Microsoft’s gaming revenue reached over $5 billion in the first two quarters of 2026, according to Statista charts, and the future remains unclear on how XBOX decisions will influence profits. But their CEO Asha Sharma makes it clear she wants the company to stick around for a while. “I want XBOX to be one of the few companies that entertains more than a billion people each day and gives everyone the opportunity to create and connect,” Sharma notes in her July 6th layoff announcement. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”