Arkane Lyon Caught in New Xbox Layoffs, Blade’s Future Now Uncertain
Arkane Lyon, the French studio behind Dishonored and Deathloop, has been pulled into Microsoft’s largest-ever Xbox restructuring, with its future — and that of its in-development Marvel’s Blade — left unresolved while roughly 3,200 jobs disappear across the wider Xbox division. Unlike four sister studios that were sold or spun out on the spot, Arkane Lyon has instead entered a mandatory labour consultation under French law, meaning no final call on its ownership has been made yet.
Sharma’s “Resetting Xbox” Memo Confirms 3,200 Cuts
The cuts were confirmed on July 6, 2026, in a staff memo from Xbox CEO Asha Sharma titled “Resetting Xbox.” Xbox is set to reduce its workforce by up to 3,200 employees — or 20% of total staff — over the next year in what new CEO Asha Sharma calls the “most significant restructure” in the Microsoft division’s history. Sharma confirmed that the division plans to let around 3,200 employees go over the next year across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, with 1,600 job cuts taking place immediately. The reductions form part of a wider corporate cut, as these are part of broader layoffs taking place at Microsoft, which is culling 4,800 positions today — around 2.1% of its global workforce.
Sharma did not soften the language around why. “Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” she wrote. She added that the plan to grow through Game Pass and a broader studio portfolio had fallen short, concluding bluntly that “we must reset Xbox.”
Four Studios Leave Xbox, Arkane Lyon Left in Limbo
Of the studios named in the memo, four have a settled outcome. South of Midnight developer Compulsion Games and Double Fine Productions will go independent “with their IP, catalog, and runway for their next games.” Meanwhile, Ninja Theory and Undead Labs “have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3,” according to Sharma, though Xbox did not reveal the prospective buyers of those studios.
Arkane Lyon is the outlier. “In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options,” Xbox CEO Asha Sharma wrote in her missive on the mass layoffs. That distinction exists because of local employment law: due to local laws in the country, Arkane Lyon’s future has yet to be figured out. Games-industry newsletter Game File, cited by PC Gamer, noted Arkane is effectively bound for the same fate as the other four studios once the process concludes, since Arkane is “also slated for an exit” similar to Double Fine, Undead Labs, Compulsion Games, and Ninja Theory, with Totilo writing “given local laws, though, Microsoft has been unable to explore its future—ranging from sale, to management buyout to shutdown—until today.”
Marvel’s Blade Still Alive, But Delayed and Over Budget
The studio’s flagship project, Marvel’s Blade, has not been cancelled, but its position is shaky. It’s been reported that Arkane’s Blade game was delayed internally and is currently targeting a late 2027 release. Sharma’s memo stated more broadly that none of the company’s first party publicly announced games or projects are being cancelled as part of these reductions, which should, for now, keep Blade officially on the release slate.
The vampire-hunter title was first revealed at The Game Awards in December 2023, with Deathloop director Dinga Bakaba attached to lead development, and had drawn little public update since. Bethesda’s Todd Howard offered a rare vote of confidence about the project shortly before the cuts were confirmed, saying the “folks at Arkane [Studios, the developers] are doing a really, really great job,” according to a report from Windows Central relayed by Gfinity Esports.
Arkane Austin’s 2024 Closure Looms Over Lyon’s Review
The uncertainty is amplified by recent history. Arkane Lyon’s dearly-departed, Texas-based twin, Arkane Austin, was shut down by Microsoft in 2024, one of the first casualties of Xbox’s ongoing disintegration. That closure followed the commercial struggles of Redfall, leaving Lyon as the only Arkane studio still standing under the Xbox banner. Arkane’s own founder, Raphael Colantonio, who left the company years ago to start WolfEye Studios, reacted to Sharma’s announcement on social media with a pointed one-liner reproduced by PC Gamer: “Regarding Arkane… how much?”
Arkane’s design pedigree stretches back decades, tracing its immersive-sim lineage through Origin Systems and Looking Glass Studios before delivering Dishonored, Dishonored 2 and Deathloop under the Arkane name. Whatever the Works Council concludes — sale, independence, or an outcome closer to Arkane Austin’s shutdown — the review is expected to take months given the formal nature of French labour consultations.
What the Reset Means Beyond Arkane
Elsewhere in the memo, Sharma also confirmed internal management changes, promoting Helen Chiang to chief operating officer with what Variety described as “end-to-end P&L responsibility” across the division, while chief operations officer Dave McCarthy is leaving the company. Sharma additionally said Minecraft maker Mojang and Candy Crush developer King will now report directly to her, reflecting their growing weight as platforms in Microsoft’s gaming business.
For Australian and New Zealand players, the immediate impact is indirect but real: both Dishonored and Deathloop remain popular back-catalogue picks on Game Pass in the region, and any change of ownership at Arkane Lyon could eventually affect how — or whether — Marvel’s Blade reaches local Xbox and PC storefronts on schedule. For now, fans on this side of the world are left watching the same French labour process as everyone else.
Read also: id Software: Studio Still Has “Crew We Need” Despite Xbox Layoffs
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