Xbox’s games division is reportedly preparing a major restructuring that could begin with mass layoffs on July 6 and may include the closure of Arkane Lyon and the cancellation of Marvel’s Blade, according to reports relayed by multiple outlets.
Marvel’s Blade project reportedly over budget and delayed
Announced at The Game Awards 2023 and developed by Arkane Lyon, Marvel’s Blade has not received new footage or significant updates since its reveal. Sources suggest the project has been experiencing delays and budget overruns, factors that have led Microsoft to consider canceling the title.
Several studios under review
Microsoft is said to be evaluating a range of options for multiple studios within its Xbox organization, including possible sales, closures or team reorganizations. The studios named in reporting include Compulsion Games, Double Fine, Ninja Theory, Undead Labs and Arkane Lyon.
There is no official word on which specific measures will be taken for each studio.
New leadership cites overexpansion
Reports say the possibility of another round of cuts followed an internal memo from Xbox division CEO Asha Sharma and content chief Matt Booty, which acknowledged that the organization had grown beyond sustainable levels. The memo allegedly stated: “We find ourselves overstaffed. Moving forward, this cannot continue.”
Employee unions representing Xbox workers criticized the company’s lack of transparency and requested negotiations prior to implementing any cuts.
Arkane already affected by earlier closures
If Arkane Lyon is closed, it would follow earlier closures within the Arkane family: Microsoft shut down Arkane Austin in 2024, during a prior round of cuts that also impacted Tango Gameworks, Alpha Dog Games and several Bethesda teams.
At the time of those 2024 closures, Arkane Lyon’s creative director Dinga Bakaba publicly criticized the decision and urged executives to treat developers as artists rather than assets.
Broader restructuring context and past job losses
The reported moves come amid ongoing reorganization since Microsoft completed its roughly US$69 billion acquisition of Activision Blizzard in 2023. In 2024, about 1,900 employees across Xbox, Activision, Blizzard and ZeniMax were laid off, with an additional roughly 650 roles cut later that year.
In 2025, another wave of reductions affected approximately 9,000 employees across different areas of the company. Rumors tied to the July 2026 cuts suggest partners have also been affected; IO Interactive reportedly ended a partnership with an external company and reduced staff, while the project OD from Hideo Kojima is not expected to be impacted.
No official confirmation from Microsoft
Microsoft has not commented publicly on the specific rumors about Arkane Lyon or the future of Marvel’s Blade.
