Microsoft's Xbox division cut roughly 12 jobs — about 10 percent of the 120-person team — at Bethesda Game Studios' Montreal office last Monday, the first reported impact in Quebec of a 3,200-employee layoff wave the company announced the same day.

The affected group, working on Fallout 76 and the in-development The Elder Scrolls VI, received the news over video conference from a director in Maryland and will lose system access in two months, according to a worker present. Xbox and Bethesda declined to comment.

What does the layoff reveal about Microsoft's "reset"?

The cuts are part of a "reset" Microsoft has described as a response to intensified competition, and they arrived in a province whose 300-plus game studios employ 45 percent of Canada's roughly 34,000 game developers, according to industry group Quebec's video game industry association and consulting firm Nordicity. Quebec's sector generates more than $1.4 billion in annual economic output.

Epic Games and Ubisoft, both anchored in Montreal, have already taken the year's biggest hits. Epic trimmed more than 1,000 positions — 20 percent of staff — earlier in 2025, with Montreal among the affected offices. Ubisoft shed nearly 140 employees after closing its Halifax and Winnipeg studios. Eidos, Electronic Arts and Behaviour Interactive have all announced Montreal layoffs in the past four months.

Why is Quebec's pipeline so exposed?

Jean-Jacques Hermans, head of Quebec's video game industry association, frames the current moment as prolonged, not temporary: "We're still in a bit of a restructuring period. We see game projects being abandoned or put on pause ... We're seeing employees being laid off in between projects, which wasn't the case earlier."

Two structural shifts compound the studio-level cuts:

• Tax credit pullback. Two years ago, the Legault government reduced Quebec's salary tax credit — historically up to 37.5 percent — by a third and excluded a slice of each wage from the formula. "The impact was radical," Hermans said, noting that QA testers and localizers were the first to go because they could be relocated to Ontario, Asia or Mexico.
• Hardware pressure. The AI data center boom has raised RAM and component costs for consoles, pinching margins across the cycle. Paul Fogolin, CEO of the Entertainment Software Association of Canada, said: "Typically in a console release cycle, the console comes out and then, a couple years after, the prices decrease. We're seeing the opposite."

Where is the demand going?

The proportion of people who play video games worldwide has been shrinking since 2021, Fogolin said, as TikTok (a platform with user counts in the billions), sports betting, prediction markets, crypto investing and consumer AI apps absorb a larger share of the attention economy. "Competition isn't just coming from other games," he said. "People only have so much time in their days."

Generative AI adds a second layer of uncertainty. Fogolin characterized it as a productivity tool for designers — "AI can help render realistic backgrounds and even the way that things like hair are rendered" in titles like EA Sports FC — rather than a direct substitute for headcount. Behaviour Interactive, Eidos and others have all leaned on these tools while still trimming staff.

What are Quebec's studios doing about it?

Indie veteran Philippe Morin, co-founder of Red Barrels and creator of the Outlast horror series, called the convergence a "perfect storm." His studio grew to 90 employees over nine years by hiring in small batches — "we would never add 20 to 30 people in just a few weeks" — and keeping risk exposure limited. That discipline is paying off: Outlast Trials, the 2024 PC release, neared $40 million in sales in its most recent fiscal year, which Morin called the studio's best revenue year on record.

Red Barrels' experience illustrates what agility looks like at the smaller end of Quebec's market, which makes up the bulk of the province's studios. Morin said: "You can feel where the wind is blowing and then adjust."

Carmel Smyth, president of CWA Canada, which represents some of those developers, sees the other side of that flexibility: "There's a lot of anxiety in the industry."

Analysts watching the province expect further consolidation if console launches and major franchise releases slip into 2026 without a hit-driven rebound. Watch for Xbox's Q2 organizational update and Ubisoft's next earnings call, both due before year-end, as the next data points on how deep Quebec's restructuring runs.