Xbox may not be done with major internal cuts just yet. According to a new report by Mike Straw from Insider Gaming, Microsoft is reportedly expected to shut down at least two Xbox studios before the end of 2026.
One of the potential closures could come as a real shock to fans. While no studio names have been confirmed yet, the report specifically states that Rare and Obsidian are not among the studios reportedly being considered for closure.
Since Rare is tied to Sea of Thieves, and Obsidian is one of Xbox’s busiest and most productive first-party teams, it isn’t surprising that they are safe from the chopping block. But still, the idea of more Xbox studio closures is enough to make the gaming community nervous again.
Rare and Obsidian Are Reportedly Safe
The biggest highlight from the report is that Rare and Obsidian are reportedly not part of the current closure list.
Rare has remained a recognizable Xbox name for decades, while Obsidian has become a major part of Microsoft’s RPG lineup following its acquisition in 2018. With games like Avowed, The Outer Worlds 2, Grounded, and Pentiment keeping the studio in the conversation, Obsidian has often been seen as one of Xbox’s stronger creative assets.
Rare, meanwhile, still carries huge brand value thanks to Sea of Thieves and its legacy catalog. Even with Everwild’s troubled history, fans would likely see any threat to Rare as a major blow to Xbox’s identity.
Xbox Could Be Facing Another Round of Studio Closures
The concern is not coming out of nowhere. Microsoft has already gone through multiple waves of gaming layoffs and studio cuts in recent years. In 2024, Xbox shut down several Bethesda and ZeniMax studios, including Arkane Austin, Alpha Dog Games, Tango Gameworks, and Roundhouse Games.
Those closures were widely criticized by players, especially because Tango Gameworks had recently released Hi-Fi Rush, one of Xbox’s most praised first-party games at the time. Since then, every new report about Xbox restructuring has been met with more frustration from fans who feel Microsoft has struggled to protect its creative teams.
The latest report adds more fuel to that fire. If two more studios really are on the chopping block, it would suggest Xbox is still trying to reshape its first-party business instead of simply moving past the turbulence.
Xbox Is Still Trying to Find a Sustainable Path
Microsoft’s gaming strategy has changed dramatically over the last few years. The company has pushed Game Pass, expanded onto more platforms, acquired Activision Blizzard, and continued to juggle console hardware, cloud gaming, and PC releases at the same time.
Xbox now owns a massive portfolio of studios, but managing all of them while delivering consistent hits has proven difficult. Some projects have taken years without clear release dates, while others have reportedly failed to meet internal expectations.
Which Xbox Studio Could Be the Shocking One?
At the moment, no studio names have been officially confirmed. That means any guesses should be treated as speculation. However, the “shock” part of the report is what will keep people talking.
Xbox owns a wide range of teams, from massive Call of Duty support studios to smaller creative developers under Bethesda and Xbox Game Studios. If the report is accurate, the surprise may come from a studio that fans assumed was safe, or one connected to a recognizable franchise.
Until Microsoft or Insider Gaming shares more specific details, the safest read is simple. Xbox may be preparing more cuts, but the exact targets remain unknown.
Microsoft Has Not Officially Confirmed the Report
As of now, Microsoft has not officially announced any new Xbox studio closures tied to this report.
Still, the report arrives at a time when Xbox fans are already watching the company closely. Between past layoffs, canceled projects, and ongoing questions about the future of Xbox hardware and Game Pass, the community is already sensitive to any sign of more restructuring.
