Xbox Studio Shakeup
Xbox Plans Major Studio Closures, Sparking Uncertainty Among Developers Despite Recent Awards
Anonymous
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Ninja Theory employees were reportedly told the studio would close, but the studio had also been in the spotlight for an announced new Hellblade entry—featured at Xbox’s Summer Game Fest showcase with a target release year of 2027.
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For Compulsion Games, Rolling Out reports the studio’s talent team was still advertising roles “as recently as two months ago,” including listings tied to “a new and intriguing intellectual property” under development—contrasting with the shutdown talks.
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Rolling Out says Xbox executives publicly celebrated Compulsion’s recent wins: in an April interview, Xbox CEO Asha Sharma highlighted the Peabody Award as evidence of creative momentum, and chief content officer Matt Booty framed Compulsion’s success as central to Xbox’s strategy of original storytelling alongside major franchises.
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GamingBolt, citing Kotaku, reports Compulsion leadership is in “negotiations” with Microsoft with terms undisclosed, and notes an “apparent hiring spree in April” was followed by developers turning to social media to seek work; it also claims Obsidian and Rare are currently the only studios perceived as safe.
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Separate reporting in WNHub adds context about Xbox leadership and finances: Asha Sharma’s “100 days” blog post claims Microsoft invested “over $20 billion in Xbox over five years” (excluding the Activision Blizzard acquisition) and notes the gaming division saw revenue decline of about “$500 million annually”; WNHub also reports Craig Duncan, head of Xbox Game Studios, resigned after about 1.5 years and that Louise O’Connor (chief of staff) planned to leave shortly afterward.
Microsoft is preparing to shut down or sell at least three of its first-party game studios — Ninja Theory, Double Fine, and Compulsion Games — as part of a sweeping financial reset of its Xbox division, according to Bloomberg, The Verge, and Kotaku. The news broke June 15, just eight days after Ninja Theory showcased a new Hellblade game at Xbox's Summer Game Fest with a 2027 release target.
The closures come as Xbox CEO Asha Sharma declared the division's finances unsustainable. In a June 10 memo, she wrote that Microsoft had spent "over $20 billion" on Xbox over five years, yet annual revenue had "declined nearly half a billion." The reset, she said, "cannot continue" on its current path.
Award-Winning Studios Face Closure Weeks After Their Biggest Wins
The timing is jarring for Compulsion Games. The Montreal studio released *South of Midnight* in April 2025 to wide acclaim. By spring 2026, it had won a BAFTA for Best New IP and a Peabody Award for Interactive Storytelling. Xbox CEO Asha Sharma had praised the Peabody win in an April interview as proof of creative momentum, Rolling Out reports.
Just two months ago, Compulsion was still hiring. Rolling Out reports the studio posted listings tied to "a new and intriguing intellectual property." Now, Compulsion's founder Guillaume Provost is in "undisclosed negotiations" with Microsoft over the studio's fate. The team employs roughly 90 to 100 people, according to Kotaku.
Double Fine's Tim Schafer Tries to Buy His Studio Back
Double Fine, the San Francisco studio behind *Psychonauts*, is also on the chopping block. But its founder, Tim Schafer, is fighting to keep it alive. Bloomberg reports Schafer is in active talks to buy Double Fine back from Microsoft rather than see it fold entirely. No terms have been disclosed.
Ninja Theory is in a different spot. Employees were reportedly told the studio would close, Kotaku reports. But Microsoft is also searching for a buyer to keep it running under new ownership. The studio had just revealed *Senua* — a third Hellblade entry — at the June 7 Xbox showcase, targeting a 2027 release, according to PC Gamer.
Xbox Leadership Crumbles as Financial Reset Takes Shape
The studio crisis hit the same day two senior Xbox leaders walked out. Craig Duncan, head of Xbox Game Studios, resigned June 15 after just 20 months in the role. Louise O'Connor, chief of staff, also announced plans to leave shortly after, Mashable and The Game Business report. Duncan wrote in an internal email that he was proud of "flawless launches" — but left as the restructuring was finalized.
Sharma's memo pointed to several financial pressures. Hardware revenue is down 33% year-over-year, according to The Verge. Storage and memory costs have surged — reportedly five times higher than 2024 estimates — driven by demand from the global AI boom. The division's profit margin has fallen to around 3%, according to WNHub.
Xbox Retreats to Blockbuster Franchises, Leaves Developers in Limbo
GamingBolt, citing Kotaku, reports that Obsidian and Rare are currently the only Xbox studios seen as safe. Microsoft appears to be concentrating resources on massive franchises like Halo, Gears of War, Fallout, and The Elder Scrolls. The upcoming *Gears of War: E-Day* alone reportedly carries a budget over $400 million, according to Tech4Gamers.
Displaced developers at the affected studios have already begun posting on social media to signal they are looking for work, GamingBolt notes. Bloomberg's Jason Schreier warned that "the Xbox of July will look drastically different than the Xbox of June" — and that the three studios named may only be the start of a larger wave of closures. Microsoft has not publicly confirmed the fate of any individual studio.
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