Xbox to shut down at least three game developers and no one is safe

At least three Xbox studios are reportedly facing closure as part of planned layoffs at Microsoft, with Ninja Theory already seeking a new buyer.

In the wake of the Xbox summer showcase, Xbox bosses Asha Sharma and Matt Booty talked about how they had plans for a ‘reset’ to strengthen the Xbox business.

‘Reset’ very much implied layoffs and it quickly became clear that that’s exactly what’s planned, based on insider reports and the abrupt departure of two senior Xbox executives on Monday.

Now, it’s reported that multiple Xbox studios are facing closure and are trying to break away from Microsoft to avoid their fate.

The report by Bloomberg only names Compulsion Games, Double Fine, and Ninja Theory specifically, but adds that several other studios are also at risk.

According to The Verge, Xbox has already settled on shutting down Ninja Theory, which is especially shocking as the studio announced a new Senua game for 2027 during the big Xbox showcase earlier in the month.

It’s not clear if this means the game is being cancelled, but Ninja Theory is reportedly hoping to find a new buyer – so it could be that the new game announcement was meant to attract additional interest.

As for Compulsion and Double Fine, they are reportedly in negotiations with Microsoft and could potentially buy themselves out to become independent again, similar to what Spyro developer Toys For Bob did when it split away from Activision in 2024.

Compulsion was acquired by Xbox in 2018 and since then it has only released two games: We Happy Few, which launched the same year but was already in the works pre-buyout and South Of Midnight in 2025.

Microsoft never shared sales figures for South Of Midnight, but while it doesn’t seem to have done well it has won multiple awards since launch. It won the Games for Impact category at The Game Awards 2025, recently swept the Canadian Game Awards, and won a prestigious Peabody Award last year.

In an April interview with Game File, Xbox chief content officer Matt Booty was more than happy to praise Compulsion for these achievements, saying the Peabody win is ‘such a validation of the storytelling capability of games these days,’ adding ‘we’re also dedicated to places where new [intellectual property] can come to life and where these stories can be told, you know, in our studios like Compulsion…’

Double Fine, meanwhile, was acquired in 2019 and has released three games under Xbox: Psychonauts 2, Keeper, and Kiln. Of the three, Psychonauts 2, which was almost complete when Microsoft bought them, was the biggest hit and is the studio’s best-selling game at 1.7 million copies, as of 2022.

Keeper and Kiln’s sales are unknown, but they are among a whole list of Microsoft published games that the company says didn’t meet expectations, both in terms of sales and Game Pass engagement.

Double Fine has always made very esoteric and niche games, though, which Microsoft would have known when it bought the studio, so it shouldn’t have been shocked to see Double Fine’s subsequent releases not become massive sellers.

Sadly, none of this should be surprising as in 2024, Xbox shut down Tango Gameworks (alongside two other studios) following the launch of Hi-Fi Rush, another game that was critically acclaimed but clearly not a huge seller.

What was especially confusing was that Booty allegedly said during a town hall meeting that Xbox needed more small, prestigious games like Hi-Fi Rush just one day after Tango’s closure.

All this also comes one year after a swathe of layoffs throughout Microsoft that saw multiple Xbox projects cancelled and the closure of The Initiative, which never got to release a single game, after starting work on a Perfect Dark reboot.

Again, there are reportedly more Xbox studios that fear they’ll be shuttered. Bloomberg’s report even says the more successful studios are unsure about where they’ll fit in the big Xbox reset, which suggests that nobody – not even studios under Bethesda and Activision – are safe.

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