Microsoft is reportedly cutting down the number of developers managed directly through Xbox Game Studios (XGS). Instead, teams are being moved into its Bethesda and Activision organizations.
According to the reports, Obsidian Entertainment now sits under Bethesda. Rare, Halo development, and World’s Edge have reportedly moved under Activision.
XGS is only one publishing label inside Microsoft Gaming. Bethesda and Activision are separate Microsoft-owned companies with their own brands, bosses, and publishing teams. A studio moving from XGS to Bethesda still belongs to Microsoft. It just reports to different executives.
Microsoft Gaming reportedly now works through a few big units instead of a long list of separate studios:
- Xbox Game Studios
- Bethesda/ZeniMax
- Activision
- Blizzard
- King
- Mojang
Obsidian joins the Fallout family
Obsidian’s reported move to Bethesda puts it next to the publisher that owns Fallout. The studio made Fallout: New Vegas in 2010, so fans are already dreaming of a sequel.
Nothing confirms that yet. There’s also no sign that Obsidian is dropping The Outer Worlds, Grounded, or Pillars of Eternity. The more likely goal is simpler management of shared RPG brands, tech, and publishing.
Rare and World’s Edge head to Activision
Rare reportedly now reports through Activision. The studio is still running Sea of Thieves, and there’s no evidence its plans have changed. Rare already took a hit in July 2025, when Everwild was canceled during Microsoft’s wider layoffs.
World’s Edge, which looks after Age of Empires and Age of Mythology, has also reportedly moved under Activision after staff cuts. The size of those cuts hasn’t been confirmed.
Asobo Studio, which makes Microsoft Flight Simulator, isn’t affected. Microsoft publishes its games but doesn’t own it.
How Xbox got this big
Microsoft went on a studio shopping spree in 2018. It picked up Playground, Ninja Theory, Undead Labs, Compulsion, Obsidian, and inXile, and it created The Initiative.
Then came ZeniMax for $7.5bn in March 2021. Activision Blizzard King followed in October 2023 for about $68.7bn. Both kept their own publishing machines. That’s exactly why Microsoft can now move teams into them.
The cuts started soon after. Around 1,900 gaming jobs went in January 2024. In May 2024, Arkane Austin, Tango Gameworks, and Alpha Dog Games were closed. Tango was later rescued by Krafton. The July 2025 layoffs closed The Initiative and canceled Perfect Dark.
Those were closures. This reported change is about who reports to whom, which is a different thing.
There’s no evidence for any sale. Predictions that inXile will join Bethesda, that The Coalition will join Activision, or that studios will close after shipping their next games are also just guesses for now.
