Multiple Xbox game studios, including Hellblade developer Ninja Theory, South of Midnight developer Compulsion Games, and Psychonauts creator Double Fine, are reportedly at risk of being shut down as part of a significant restructuring within Microsoft's gaming division. These reports stem from sources close to the situation who have not been authorized to speak publicly.
According to Bloomberg, each of these studios is in negotiations with Xbox to potentially buy themselves back and operate independently. Such a transition would likely involve substantial job cuts. Employees at these studios have reportedly been informed of the situation and given permission to seek new employment. The Verge has further reported, citing its own sources, that Ninja Theory is slated for closure and is actively seeking a buyer, with employees being notified on Monday.
There has been no official confirmation from Microsoft regarding the status of these studios. Compulsion Games has not issued a statement, and Double Fine posted a cryptic emoji on its social media. However, some employees from Compulsion Games, including writer Bijan Stephen and senior writer Zaire Lanier, have publicly stated on social media that they are seeking new work.
These developments follow a recent report indicating that Xbox leadership, including CEO Asha Sharma and chief content officer Matt Booty, were planning layoffs. A message sent to staff referred to an "Xbox Reset" aimed at addressing ongoing company issues. The communication acknowledged that Xbox may have "overextended" itself through numerous studio acquisitions in recent years, while also citing challenges such as declining revenue and hardware component shortages. The message also described internal systems as overly complex and unprepared for future needs.
Microsoft acquired Compulsion Games and Ninja Theory in 2018, followed by Double Fine in 2019. Compulsion Games' most recent title, South of Midnight, was released in 2025 to positive reviews. Notably, the studio announced hiring for a new intellectual property just two months prior to these reports. Ninja Theory recently revealed a new entry in the Hellblade series, titled Senua, at the Xbox Games Showcase, slated for a 2027 release. Double Fine launched its multiplayer game Kiln earlier this year and previously released Keeper in 2024 and Psychonauts 2 in 2021 under the Xbox umbrella.