At E3 2018, Xbox Game Studios head Phil Spencer announced the formation of The Initiative, a new internal video game development company led by Darrell Gallagher, who had previously served as studio head of Crystal Dynamics. It was Microsoft's first game development studio in Santa Monica. At its formation, it aimed to create and produce big-budget titles. In addition to Gallagher, the studio recruited several industry veterans, including Christian Cantamessa (writer of Red Dead Redemption) and Brian Westergaard (senior producer of 2018's God of War), as well as talents from BioWare, Naughty Dog, Respawn Entertainment, Santa Monica Studio, Blizzard Entertainment, Insomniac Games and Rockstar Games.

At The Game Awards 2020, it was revealed that the studio was working on a Perfect Dark reboot. However, on July 2, 2025, Microsoft announced that the Perfect Dark reboot would cease production and The Initiative studio would be closed as part of widespread layoffs at Microsoft.