Xbox is imploding

Microsoft is closing or spinning off at least three of its Xbox game studios, including Hellblade developer Ninja Theory, nine days after one of those studios unveiled a new game on the company’s own showcase stage.

Ninja Theory staff were told on a call on Monday (17 June) that the Cambridge studio is closing, The Verge reported, with the team now hoping to find a buyer to keep it running.

Bloomberg reported that South of Midnight maker Compulsion Games and Psychonauts studio Double Fine are in active negotiations with Xbox and may be allowed to go independent, while “several” other studios across the portfolio are at risk of being shuttered.

Kotaku reported earlier on Monday that Microsoft planned to shut down Compulsion, later noting that studio leadership had entered negotiations.

The studios may still get the chance to buy themselves back from Xbox, though many employees are expected to lose their jobs regardless. Craig Duncan, the Head of Xbox Game Studios, resigned on Monday, having taken the role in October 2024.

A reset at Xbox

The closures follow a public memo on June 10 in which Xbox Chief Executive Asha Sharma and Chief Content Officer Matt Booty told staff the division must “reset” its business.

They said Xbox had “overextended” with its studio system and pointed to a hardware component crisis that is sharply driving up costs.

The memo disclosed that the division expects to close the financial year on a 3% accountability margin, after Microsoft invested more than $20 billion in the Xbox ecosystem over five years while annual revenue fell by close to $500 million.

Console storage costs have doubled twice since February 2026 and are projected to reach five times their original price by 2027.

The contraction lands just over a week after the Xbox Games Showcase on 7 June, where Microsoft locked Gears of War: E-Day and Clockwork Revolution as Xbox console exclusives and revealed Senua, a third Hellblade game from Ninja Theory that had been targeting a 2027 release.

A source familiar with Microsoft’s plans told Game File that the new announcement was intended to help draw investor interest in a studio Microsoft had already planned to offload. The future of Senua is now unclear.

AI spending and thinner margins

Microsoft has been reallocating significant capital towards AI, committing to vast AI infrastructure spending across 2025 and 2026 while trimming headcount in more mature divisions.

In April 2026, it ran its first voluntary buyout programme, cutting thousands of roles as part of an AI-focused pivot, and a roughly 9,000-job, company-wide reduction in July 2025 hit Xbox studios including King, ZeniMax and Turn 10.

Sharma, who joined from Electronic Arts, is steering the division towards higher-margin services such as Game Pass and cloud gaming.

Further Xbox layoffs are expected after Microsoft’s financial year closes on 30 June, with marketing departments among those braced for cuts.

A brutal year across the industry

The Xbox cuts come during a punishing stretch for game development. Ubisoft said last week it is closing studios in Belgrade and Winnipeg and restructuring its Barcelona operation, moves that could eliminate 380 jobs, alongside further cuts in North Carolina and California.

Award-winning French studio Don’t Nod, behind Life is Strange, has warned it could run out of money by November without new funding. Amazon has streamlined its gaming initiatives with layoffs and retailer GameStop has cut jobs amid its own restructuring.

For now, the fate of Ninja Theory, Compulsion Games and Double Fine, and of the games still in their pipelines, remains unresolved, with studio leaders negotiating to salvage what they can ahead of the expected post-June 30 layoffs.

Xbox did not respond to requests for comment at the time of writing.

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