Microsoft is reportedly considering the cancellation of Marvel's Blade and the potential closure of its development studio, Arkane.
The Verge reports that Arkane is among five studios Microsoft is contemplating shutting down. This consideration follows a significant delay for Blade, which has reportedly been pushed from a late 2026 release window to late 2027, alongside exceeding its budget. The game, developed by the team responsible for Deathloop, was first revealed in December 2023 with a trailer, but no further gameplay has been shown since.
Alternatively, Arkane could be sold rather than closed, aligning with similar situations involving Compulsion Games, Double Fine, Ninja Theory, and Undead Labs. This process is expected to be lengthy, and even if studios are spun off, layoffs may still occur.
Concerns about the future of Xbox studios were amplified following an internal memo from Xbox CEO Asha Sharma. In the memo, Sharma noted that Microsoft's gaming division has seen its annual revenue decline nearly half a billion dollars over the past five years, despite investing over $20 billion in content, platform, and hardware subsidies, excluding Activision Blizzard King. Sharma stated that "this cannot continue."
This situation comes shortly after Bethesda Game Studios head Todd Howard expressed admiration for the work being done by the Arkane Lyon team on a new project, though he was unable to share further details. Fans initially began to worry about Blade's status after it was notably absent from the recent Xbox Games Showcase.
Marvel's Blade is not the only Xbox title facing potential cancellation. State of Decay 3 and its developer Undead Labs are also reportedly under threat. Reports suggest that Microsoft is in discussions with developers like Compulsion, Double Fine, and Ninja Theory about potentially buying themselves out. These potential closures and spin-offs could put hundreds of jobs at risk across Microsoft's gaming division, including Bethesda and Activision Blizzard studios.
Game File reported that Microsoft allegedly planned to close or spin off Ninja Theory around the time of the Xbox Games Showcase, possibly to leverage a newly announced game to attract investor interest. It has been suggested that Ninja Theory management may not have been aware of these plans.
Further indications of widespread changes emerged with the stepping down of Xbox Game Studios boss Craig Duncan. Bloomberg's Jason Schreier has characterized the situation as a potential "bloodbath" at Xbox.
Unionized Xbox workers have called for immediate bargaining following the layoff reports, stating "we're done paying for executives' failures." A Microsoft spokesperson acknowledged the workers' right to voice concerns and affirmed the company's continued commitment to negotiating in good faith with the CWA to reach agreements across Xbox.
This follows a significant round of layoffs in July 2025, which saw 9,000 staff cut across Microsoft, impacting the gaming division. Titles such as Rare's Everwild were canceled, and studios like Perfect Dark developer The Initiative were shut down. Staff remaining at Xbox are now anticipating a similar situation.
In May 2024, Microsoft closed several Bethesda studios, including Arkane Austin, the developer of Redfall, and Tango Gameworks, known for Hi-Fi Rush and The Evil Within. Arkane Lyon, the developer of Marvel's Blade, is the remaining Arkane studio in France.
Recent reports also suggest that Microsoft is accelerating development on key franchises like The Elder Scrolls, Fallout, and Halo. The Information indicated that Microsoft has not ruled out transforming the Xbox brand into a wholly-owned subsidiary, potentially operating it as a joint venture or even selling it.