Microsoft has delivered a crushing blow to its gaming division with the cancellation of the highly anticipated Perfect Dark reboot and the fantasy title Everwild, alongside the closure of Xbox studio The Initiative. This decision comes amid a sweeping round of layoffs affecting approximately 9,000 employees worldwide, with Xbox and Microsoft Gaming bearing the brunt of the cuts.
The Initiative, a Santa Monica-based studio founded by Xbox in 2018 and led by Darrell Gallagher, was tasked with steering the Perfect Dark reboot to completion. The game, a revival of Rare’s classic stealth IP from the early 2000s, had been in development for nearly seven years. Crystal Dynamics, known for its work on Tomb Raider, was also brought on board to assist with development. Despite a promising reveal at The Game Awards in 2020 and a gameplay showcase in 2024 that earned positive feedback for its slick art style and immersive gameplay, Perfect Dark never received a release date. Now, with the studio’s closure, the reboot will never see the light of day.
Xbox Game Studios head Matt Booty confirmed the cancellations and studio shutdown in an internal memo obtained by multiple outlets on July 2, 2025. "We have made the decision to stop development of Perfect Dark and Everwild as well as wind down several unannounced projects across our portfolio. As part of this, we are closing one of our studios, The Initiative," Booty stated. He emphasized that these difficult choices reflect a broader effort to adjust priorities and focus resources to set up teams for greater success amid a changing industry landscape. "We did not make these choices lightly, as each project and team represent years of effort, imagination, and commitment," he added.
Rare’s Everwild, a fantasy game in development for around a decade, was also canceled, though the studio itself remains open. The layoffs and cancellations mark the most recent and significant upheaval in Microsoft's gaming sector, which has seen multiple rounds of cuts over the past 18 months. Earlier in 2025, Microsoft laid off 6,000 employees, adding to previous reductions of 1,900 in January and 650 in September 2024. This latest wave is part of a company-wide downsizing that has seen over 15,000 job cuts in 2025 alone, despite Microsoft reporting record profits.
Phil Spencer, CEO of Microsoft Gaming, addressed staff in a memo on the same day, explaining that the layoffs "end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness." He acknowledged the difficulty of these decisions, noting, "We must make choices now for continued success in future years and a key part of that strategy is the discipline to prioritize the strongest opportunities." Spencer also stressed that the company’s platform, hardware, and game roadmap remain strong, with more than 40 projects actively in development and a solid slate headed into 2026.
The Initiative is the only Xbox studio being closed in this round, though other teams, including Turn 10 Studios—the developer behind Forza Motorsport—have faced significant layoffs. Forza Motorsport itself received mixed reviews, which may have contributed to the cuts. Other affected areas include QA, marketing, and sales teams within Activision and Blizzard, as well as Undead Labs, despite ongoing development of their upcoming zombie apocalypse simulator.
Microsoft has encouraged employees impacted by the layoffs to apply for open roles within Xbox and Microsoft Gaming, offering priority consideration and support including severance packages and career transition assistance. The company has pledged to assist affected staffers through HR and studio leadership to ease the transition.
Perfect Dark’s cancellation is particularly poignant given the franchise’s legacy. The original game debuted on the Nintendo 64 in 2000, developed by Rare, and enjoyed critical acclaim for its innovative stealth gameplay. It was followed by a remaster for Xbox 360 in 2010, a Game Boy Color spinoff, and a prequel, Perfect Dark Zero, in 2005. The reboot had promised to blend first-person shooter mechanics with immersive sim and stealth-action elements, set against a near-future war over advanced technology threatening millions—a narrative direction that captured fans' imaginations when revealed.
The shutdown of The Initiative and the end of Perfect Dark, alongside Everwild and other unannounced projects—including reportedly ZeniMax Online’s new MMORPG Blackbird, intended as a successor to The Elder Scrolls Online—highlight the challenges facing the gaming industry amid shifting market dynamics and economic pressures.
While Microsoft’s gaming division navigates this turbulent period, sources close to the company have assured that all games featured at the Xbox Games Showcase in June 2025, including titles like Clockwork Revolution and State of Decay 3, remain in active development and are unaffected by the layoffs.
This marks yet another chapter in the ongoing consolidation and restructuring within the video game industry, as major players like Sony’s PlayStation have also undergone multiple rounds of layoffs and studio closures over the past two years. The pressure to innovate while managing costs in an evolving landscape dominated by new technologies such as artificial intelligence continues to reshape how games are developed and delivered.
Despite these setbacks, Microsoft is moving forward with plans for next-generation Xbox consoles and maintains a robust pipeline of projects. However, the loss of The Initiative and the cancellation of Perfect Dark serve as a stark reminder of the high stakes and volatility inherent in the gaming business.
As the dust settles, the community and industry watchers alike will be reflecting on what might have been for Perfect Dark, a title that had rekindled hope for a beloved franchise’s revival. For now, Xbox and Microsoft Gaming are focusing on consolidating their strengths, prioritizing key franchises, and steering their teams through a challenging but strategically necessary transformation.
