Xbox upheaval news: Rumors, changes, and cancelled games in 2026

The last several months have been a roller coaster for Xbox. Microsoft's gaming division saw a major leadership turnover back in February, with CEO Phil Spencer abruptly leaving the company along with his heir apparent Sarah Bond. Incoming CEO Asha Sharma and chief content officer Matt Booty moved quickly to reestablish trust in the flagging brand. They ditched the unpopular and confusing "This is an Xbox" advertising campaign. They cut prices on Xbox Game Pass after a 50% price hike sparked an exodus from the service. They reaffirmed that new high-end hardware was in the works, in the form of Project Helix. They boldly declared that their organization would no longer be called "Microsoft Gaming" (nerdish, uncool) and instead adopt an all-caps XBOX (shouty, uncool in a different way). Xbox hosted a barnstorming summer showcase on June 7, and gave away hundreds of translucent green Series X consoles to fans who attended live.

It seemed like everything was going great! And then the wheels promptly fell off the wagon. Just three days after the showcase, on June 10, Bloomberg reported that Sharma had planned a massive slate of layoffs that would begin in July. Sharma and Booty essentially confirmed these reports in a post on Xbox Wire that outlined plans for an "Xbox reset" over the coming 100 days, citing lousy revenue, increasing hardware costs, and excessive expansion during the pandemic years.

It may take weeks or even months until we get an exact picture of all the changes taking place at Xbox, but here's what we know at present. The stories below are presented in reverse chronological order, so the newest developments will appear at the top.

Bond developer caught in the crossfire

On June 30, IO Interactive cryptically announced on X that a "relationship with an external partner on our own IP, Project Fantasy, has come to an end." It was soon confirmed that Xbox was the external partner pulling out of the deal. IO will continue developing Project Fantasy, but said it will have to make "staffing decisions" in response to the funding change, which doesn't sound great.

Blade gets screwed over again

Image: Arkane Studios/Microsoft

Marvel's beloved vampire badass just can't catch a break lately. On June 30, The Verge reported that Microsoft is considering shutting down Arkane Studios, best known for the Dishonored series, Deathloop, and Prey (2017). That would also mean the end of Arkane’s upcoming game based on the comic book icon. Marvel’s Blade was originally supposed to debut later this year, but its internal ship date has allegedly slipped to late 2027.

State of Decay maker Undead Labs under threat

On July 29, GamesBeat reported that Undead Labs, alongside the three previously named studios — Compulsion Games, Double Fine, and Ninja Theory — was at risk of closure. Undead Labs is currently working on State of Decay 3, which was featured in Xbox's June 7 showcase and slated to release sometime in 2027.

Third-party developers claim their Xbox deals are on hold

On June 29, a variety of reports claimed that Xbox was planning further adjustments to Game Pass. According to Fernando Rizo, a consultant who advises self-publishing indie studios, Xbox has suspended discussions with third-party studios to sign deals to put their games on Game Pass. Rizo recently said on The Business of Video Games podcast that he'd spoken to a number of developers negotiating with Xbox who "got the rug pulled out from under them." Rizo's impression is that the deals were "on pause" rather than canceled, as Xbox seeks to reassess its Game Pass operation.

No more freebies, Call of Duty fans

Image: Infinity Ward/Activision

On June 29, Call of Duty fan site CharlieIntel reported that Activision and Xbox were currently running ads for the upcoming sequel Modern Warfare 4 that prominently featured text proclaiming the game is "not on Xbox Game Pass this year." (Naturally, it was written in all-caps.) Sharma had removed new entries in the military shooter series from Game Pass as part of the April price changes, but I suppose Xbox wants to be as clear about this change as possible so you won't yell at them on the internet.

Prestige studios rumored to be on the chopping block

A few days after the initial Bloomberg report, on June 15, we started to get a clearer sense of which studios Xbox top brass was considering shutting down. These included:

• Compulsion Games, the makers of Peabody Award-winning South of Midnight
• Double Fine, the makers of the Psychonauts games, Keeper, and Kiln
• Ninja Theory, the makers of the Hellblade series. (The studio had just debuted a trailer for its new game, Senua, during the June 7 Xbox showcase.)

Sharma fast-tracks major franchises

Shortly after news of upcoming layoffs broke, reports surfaced that Sharma planned to prioritize releasing new installments of major Xbox franchises, including Bethesda's Fallout and The Elder Scrolls. The studio announced The Elder Scrolls 6 all the way back in 2018, back when it was still independent and E3 was still a thing, and hasn't shared any footage of the game in the eight years since. Meanwhile, despite the popularity of Amazon's adaptation of Fallout since it debuted in 2024, the studio still hasn't announced a new game in the series. Expect that to change in the months ahead.

Related

Microsoft isn't giving up on Xbox as a console — even if others have