Xbox Layoffs Force Fallout Pivot, Sony Ends Physical PS5 Discs
Jul 2, 2026 — Jul 9, 2026 · 12d ago
The video game industry is undergoing a turbulent transformation as corporate restructuring and digital-only strategies collide with intense player backlash. This week, Microsoft executed a historic downsizing of its Xbox division, forcing major studios to pivot their development pipelines, while Sony Interactive Entertainment faced massive protests over its plans to abandon physical media. Amidst this corporate upheaval, highly anticipated remakes and surprise releases are redefining what players can expect on modern platforms.
Xbox Layoffs Force Obsidian Entertainment to Pivot to New Fallout
Microsoft has announced a massive restructuring of its gaming division, cutting 3,200 jobs—roughly 20% of its Xbox workforce—and divesting five prominent development studios . Double Fine Productions and Compulsion Games are returning to independent status, while Ninja Theory and Undead Labs are being sold off, and Microsoft is in talks to sell or close Arkane Lyon . Following its departure, Undead Labs' upcoming survival game State of Decay 3 is no longer guaranteed to launch on Xbox Game Pass .
The sweeping cuts have devastated internal Bethesda and ZeniMax Media studios, forcing Obsidian Entertainment to cancel multiple projects, including a planned sequel to last year's fantasy RPG Avowed, to pivot to a new Fallout game under director Josh Sawyer . Meanwhile, staff at Bethesda Game Studios warn that The Elder Scrolls VI will face substantial delays and potential crunch after losing over 50 key employees . Legendary developer id Software has reportedly been reduced to a support studio after losing half of its team, effectively killing early pitches for a new Perfect Dark game and a John Wick-style shooter .
Xbox CEO Asha Sharma defended the decisions, stating the business was "not healthy" and pointing to the previous regime under Phil Spencer for spreading the company "too thin" . The massive layoffs have drawn sharp criticism from union representatives and U.S. Senator Bernie Sanders, who expressed anger over both the job losses and recent Xbox Game Pass price hikes .
Sony Faces Massive Backlash Over Ending Physical PlayStation 5 Discs
Sony Interactive Entertainment has sparked widespread controversy following its decision to cease manufacturing physical PlayStation 5 games by January 2028 . The company has already begun repurposing its primary disc manufacturing facility in Thalgau, Austria, to produce optical microlenses instead, signaling a full commitment to its digital-only roadmap . Former PlayStation Studios boss Shawn Layden called it a "spreadsheet decision," while legendary game director Hideo Kojima warned of a "frightening" future where players do not truly own their digital libraries .
A massive wave of community backlash has hit the publisher, with a "Don't Kill the Disc" online petition rapidly surpassing 200,000 signatures . In response to the outcry, Sony temporarily halted updates on its official social media accounts, which were flooded with tens of thousands of hostile replies from fans . Meanwhile, consumers are feeling the immediate effects of this transition as Sony has limited purchases of the optional PlayStation 5 disc drive accessory to one per person due to high demand .
To ease developer concerns, Sony clarified that studios can still place re-orders for existing physical games beyond the 2028 deadline, provided their games launch before the official cut-off date . Competitors are already capitalizing on the controversy, with Microsoft actively marketing the upcoming physical release of Halo: Campaign Evolved on PlayStation 5 by highlighting its included game disc .
Assassin's Creed Black Flag Resynced Breaks Steam Records at Launch
Ubisoft's comprehensive remake Assassin's Creed Black Flag Resynced has enjoyed a massive launch on PC, PlayStation 5, and Xbox Series X/S, earning highly positive reviews from critics and players alike . Built from the ground up on the modern Anvil engine, the remake modernizes the classic 2013 pirate adventure with significant updates to combat, parkour, and stealth . The title reached a franchise-record peak of 100,000 concurrent players on Steam, outperforming last year's Assassin's Creed Shadows on pre-release charts .
While the majority of reviews praise the stunning current-gen visual overhaul and seafaring gameplay, the release has also drawn criticism from players . Many users expressed frustration over Ubisoft's decision to add a cash shop and weekly challenges to the single-player pirate adventure .
Marvel Tōkon Fighting Souls Blocked on Steam in Over 130 Countries
Sony is drawing heavy criticism from the PC gaming community after restricting the upcoming release of Marvel Tōkon: Fighting Souls on Steam . The publisher has blocked the fighting game from being purchased in over 130 countries, preventing players in regions without official PlayStation Network (PSN) support from purchasing or playing the upcoming multiplayer title .
The widespread restriction stems from Sony's mandatory PSN account linking policy, echoing the controversial region-locking issues that plagued Helldivers 2 on PC . Despite the purchase block, the game's Steam store page remains visible to users in the affected countries, fueling further frustration among the community .
Nintendo Switch 2 Gets Replaceable Battery Model as Original Switch Discontinues
Nintendo has confirmed plans to officially discontinue all models of the original Nintendo Switch, including the Switch Lite and Switch OLED Model, in Europe starting mid-February 2027 . This phase-out comes as Nintendo shifts its full focus to the Nintendo Switch 2, which launched last year. To comply with upcoming European Union Right to Repair directives and battery regulations, Nintendo is launching a hardware revision for the Nintendo Switch 2 in Europe this autumn featuring user-replaceable batteries for both the main console and the revised Joy-Con 2 controllers .
Developers are actively supporting the currently available Nintendo Switch 2 with major game announcements and technical updates. Square Enix shared that Dragon Quest XI S: Echoes of an Elusive Age - Definitive Edition will launch this September on the platform, featuring dedicated "Performance" and "Quality" modes . Additionally, Ubisoft announced that The Crew Motorfest will launch on the Nintendo Switch 2 on October 8, featuring a physical release via a Game-Key Card .
Mario Kart Tour and Final Fantasy VII Ever Crisis Shutting Down
The industry-wide retreat from major mobile adaptations continues as both Nintendo and Square Enix announced upcoming service closures for their prominent smartphone titles . Nintendo will shut down Mario Kart Tour on September 30, 2026, after seven years of service, while Square Enix is ending service for the gacha RPG Final Fantasy VII: Ever Crisis on October 7, 2026 . These closures follow a broader trend of publishers downsizing ambitious mobile operations as the market for big-IP mobile adaptations declines .
In other major news, Activision surprised players by shadow-dropping ports of Call of Duty: Black Ops and Call of Duty: Black Ops II on PlayStation 5 and PlayStation 4, generating massive player interest on the PlayStation Store . Meanwhile, ahead of its highly anticipated 1.0 launch, Pocketpair announced that Palworld has officially surpassed 40 million players, warning returning players that they must completely delete old mods to avoid severe issues with the launch build .
