Rare Reportedly Under Pressure as Xbox Reset Puts Another Historic Studio in the Spotlight

Rare may be facing new uncertainty as Microsoft begins one of the largest restructurings in Xbox history. The British studio has not been officially announced for closure, sale, or spin off, but journalist Patrick Garratt, cofounder of VG247 and current editor in chief of the Knowledge newsletter, claimed that Rare is now "on the block" during the wider Xbox reset. His Bluesky post said he was told the information on July 3, 2026, though Microsoft has not confirmed any action involving Rare.

That distinction is important. Rare being "on the block" could mean several different things, including layoffs, restructuring, a sale, a partial spin off, a shift in leadership, or a commercial review of the studio’s long term role inside Xbox. It does not currently mean Rare is confirmed to be closing.

The rumor arrives as Microsoft has now confirmed a major Xbox restructuring. According to The Verge, Microsoft is cutting 4,800 jobs across the company, with around 1,600 Xbox employees affected immediately and additional cuts planned through fiscal year 2027. Double Fine and Compulsion Games are returning to independence, while Ninja Theory and Undead Labs are being sold to new ownership with agreements to continue projects such as Senua and State of Decay 3.

Xbox CEO Asha Sharma described the process as the most significant restructure in Xbox history, explaining that the division has been operating with margins far below comparable platform and publishing businesses. In the same memo, Microsoft said the company had learned it was not the best home for every type of studio and that Xbox would help some independent creators continue outside Microsoft ownership.

"I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox."
— Asha Sharma

The wider context makes the Rare rumor more credible as a concern, even if it remains unconfirmed. Microsoft has already confirmed that layoffs will affect Activision, Bethesda, ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios in different ways. Arkane Studios is also under strategic review, with The Verge reporting that Microsoft is weighing future options for the studio and Marvel’s Blade.

The situation follows the earlier Xbox Reset memo, where Sharma and Matt Booty warned employees that Xbox’s business needed to change. The memo said Xbox had spent more than $20 billion over the previous 5 years on content, platform, and hardware subsidy excluding Activision Blizzard King, while annual revenue declined by nearly $500 million. It also said the studio system had become over extended while Microsoft pursued subscription, streaming, console, and device strategies at the same time.

Rare is one of the most historically important studios in the Xbox portfolio. Founded in 1985, the Twycross based developer became famous through Battletoads, Donkey Kong Country, GoldenEye 007, Banjo Kazooie, Perfect Dark, Conker, and Viva Piñata. Microsoft acquired Rare in 2002 for $375 million, making it one of the company’s earliest major gaming acquisitions after entering the console market.

The studio’s Microsoft era has been uneven, but not without major successes. Rare released games such as Grabbed by the Ghoulies, Kameo: Elements of Power, Perfect Dark Zero, Viva Piñata, Banjo Kazooie: Nuts and Bolts, Kinect Sports, Rare Replay, and Sea of Thieves. While several of those projects struggled to match the cultural impact of Rare’s Nintendo era, Sea of Thieves became a major long term success and remains one of Xbox’s most recognizable live service properties.

Sea of Thieves continues to receive updates, with Season 20 introducing Custom Seas, a private sandbox style mode that gives players tools to create custom game rules and experiences. Rare says the update is about putting power in players’ hands, allowing crews to build unique modes and community driven challenges.

Some fans have interpreted Custom Seas as a possible sign that Sea of Thieves may be shifting toward more player driven content rather than major developer led updates. That remains speculation, but it fits the wider anxiety around Rare’s future because the studio no longer has another announced flagship game after Everwild was cancelled.

Everwild became one of the clearest warning signs for Rare’s position inside Xbox. In July 2025, Microsoft confirmed that development had stopped on Everwild alongside the cancellation of Perfect Dark and the closure of The Initiative. VGC reported that Everwild had been in development in some form for more than a decade, and that Rare veterans Gregg Mayles and Louise O’Connor were also leaving after the cancellation.

"We have made the decision to stop development of Perfect Dark and Everwild as well as wind down several unannounced projects across our portfolio."
— Matt Booty

Rare’s 40 year milestone only makes the current uncertainty feel sharper. The studio marked its 40th anniversary in August 2025 through Sea of Thieves events and commemorative content, celebrating a legacy that runs from Sabre Wulf to Sea of Thieves. Less than a year later, the studio now finds itself mentioned in the same restructuring conversation as other Xbox teams facing layoffs, sales, independence transitions, or strategic reviews.

Xbox layoff reports intensified around Compulsion Games, warning that the company’s reset could make smaller and more experimental studios vulnerable even when their work helped diversify Xbox’s lineup. The now confirmed restructuring shows that concern was well placed, although Compulsion is currently being returned to independence rather than simply closed. Sea of Thieves being adapted into a live action movie, with Destin Daniel Cretton attached as producer. That project suggests the Sea of Thieves brand still carries entertainment value for Xbox, even as the company restructures the development side of its business.

Rare is not just another studio on an internal spreadsheet. It is one of the most culturally significant names in British game development, with a legacy that helped define multiple console generations. Losing Rare outright would be a symbolic blow for Xbox, especially after Microsoft spent years building a studio portfolio around the idea that creative diversity was a platform advantage.

At the same time, Xbox’s current business logic is clear. The company is reducing complexity, selling or spinning off smaller studios, consolidating around major franchises, and trying to repair margins after years of aggressive expansion. In that environment, a historic name alone may not be enough protection if Microsoft believes the studio no longer fits its investment priorities.

Rare’s best protection is Sea of Thieves. The game remains active, recognizable, community driven, and strong enough to support a film adaptation. However, Everwild’s cancellation left the studio without a publicly known next major internal project, and that creates a dangerous perception problem during a portfolio review.

The most balanced outcome would be restructuring rather than closure. Rare could remain inside Xbox as the steward of Sea of Thieves, move toward a smaller creative model, receive new leadership, or even become independent with support for its existing catalog and live service commitments. A complete shutdown would damage Xbox’s reputation at a moment when trust is already fragile.

For Xbox, the question is not only whether Rare is profitable enough. It is whether Microsoft still wants studios that carry identity, history, and creative risk. If the answer is no, Xbox may become more financially focused while also becoming less interesting.

Should Microsoft protect Rare because of its history and Sea of Thieves success, or should every Xbox studio face the same financial review during the reset?