Microsoft is preparing to shut down or sell at least three of its game studios — Compulsion Games, Double Fine, and Ninja Theory — as part of a wider round of cuts inside the Xbox division. Leadership at each studio is reportedly in active talks to buy back independence rather than be closed outright, though staff are still expected to lose their jobs.
Quick answer: Compulsion Games (South of Midnight), Double Fine (Psychonauts), and Ninja Theory (Hellblade) are being closed or spun off. Their leaders are negotiating to go independent, but Microsoft has not confirmed the closures, and several other Xbox studios are reportedly at risk too.
Which Xbox studios are affected
Three first-party studios sit at the center of the situation, each known for original, award-winning games that did not necessarily turn into commercial blockbusters. Ninja Theory employees were told on Monday that the studio would close, and the team is now looking for a buyer that could keep it running.
| Studio | Location | Known for |
|---|---|---|
| Compulsion Games | Montreal | Contrast, We Happy Few, South of Midnight (April 2025) |
| Double Fine | San Francisco | Psychonauts, Brütal Legend, Broken Age, Keeper, Kiln |
| Ninja Theory | Cambridge, England | Hellblade series, with Senua announced for 2027 |
Compulsion is reportedly facing full closure, with more than 90 staff set to be let go. Its most recent game, South of Midnight, launched in April 2025 to strong reviews and even won a Peabody Award for its writing. Ninja Theory, meanwhile, only revealed Senua, the third Hellblade game, days earlier at the Xbox Games Showcase.
The risk is not limited to those three. Several other studios under the Xbox Game Studios umbrella are said to be negotiating their futures, and Arkane Lyon — maker of Dishonored, Deathloop, and the upcoming Marvel’s Blade — has reportedly been named among teams worried about being shut down.
What a spin-off or buyout means for staff
The studios are not simply being closed without options. Leadership at Compulsion, Double Fine, and Ninja Theory has the chance to buy the studio back from Microsoft and operate independently, a path similar to how Tango Gameworks survived after being shuttered, later picked up by Krafton.
Independence does not guarantee job security, though. Employees are likely to be laid off as part of any separation, and Microsoft has reportedly told staff at several studios that they can begin looking for new work while the situation remains unsettled.
Employees at several studios have been informed of the situation and given permission to seek new work but were told that the status of the studios is still in flux.
Why Xbox is making cuts now
The moves tie into a broader reset under Xbox CEO Asha Sharma, who recently said the business was “not in a healthy spot” and needed to become more profitable. In a candid note to staff, she described Xbox’s annual revenue as having dropped by nearly half a billion dollars over five years, with hardware costs up fourfold and the studio system “overextended.”
Microsoft CEO Satya Nadella has pushed the gaming division to become a sustainable business after roughly 25 years of investment, and he pointed out that the company monetizes Xbox less effectively than platforms like YouTube. The widely expected layoffs are reportedly timed to land shortly after Microsoft’s fiscal year ends on June 30.
Leadership changes at Xbox Game Studios
The reported closures arrived alongside executive departures. Craig Duncan, the head of Xbox Game Studios, confirmed he is leaving the company just 18 months after taking the role, and chief of staff Louise O’Connor is also departing. Both began their careers at Rare. Until a replacement is named, studios will report directly to Xbox Chief Content Officer Matt Booty.
These shifts follow the earlier departure of longtime Xbox head Phil Spencer, who was replaced by Sharma alongside other senior changes across the division.
How this fits Microsoft’s recent gaming cuts
Microsoft built up its studio roster through a rapid acquisition spree, then repeatedly trimmed it. The 2018 wave brought in Undead Labs, Playground Games, Ninja Theory, and Compulsion Games, along with the formation of The Initiative. The ZeniMax deal in 2020 and 2021 added Arkane, Bethesda, and id Software, and the $69 billion Activision Blizzard purchase closed at the end of 2023.
| Period | Action |
|---|---|
| 2024 | 1,900 jobs cut across Activision Blizzard, Bethesda, and Xbox |
| 2024 | Four studios closed, including Arkane Austin and Tango Gameworks |
| Last summer | About 9,000 jobs cut; Perfect Dark reboot and Rare’s Everwild canceled; The Initiative closed |
The latest reports land roughly a year after that summer round of 9,000 layoffs, and only a week after the Xbox Games Showcase and a lavish Fan Fest event in Los Angeles, where the company committed to new console exclusives.
What is confirmed versus reported
Microsoft has not publicly confirmed the closures or the buyout talks, and the exact fate of each studio remains in flux. What is firmly established is that Sharma has signaled a reset, that broad layoffs are expected after June 30, and that Craig Duncan and Louise O’Connor are leaving Xbox Game Studios.
The specifics around Arkane Lyon are the least certain, resting largely on internal worry and overheard conversations rather than direct confirmation. For Compulsion, Double Fine, and Ninja Theory, the picture is clearer and more consistent, though final decisions and terms have not been shared. Until Microsoft issues an official statement, treat the individual studio outcomes as still developing.
