Ninja Theory, Double Fine, and Compulsion Games tipped for closure or spin-off

Compulsion Games, Double Fine, and Ninja Theory are in active negotiations to spin off from Microsoft to avoid closure, Bloomberg's Jason Schreier reported on Monday. The three studios — known for South of Midnight, Psychonauts 2, and Hellblade respectively — face potential shutdown as part of sweeping cuts expected at Microsoft's gaming division. Microsoft has not officially commented on the reports.

What the leak says

According to Bloomberg and corroborating sources at VGC, the three studios have been given the opportunity to buy themselves back from Microsoft and operate as independent developers. Employees would likely lose their jobs as part of any such transition, Schreier reported.

"Employees at several studios have been informed of the situation and given permission to seek new work but were told that the status of the studios is still in flux," Schreier wrote.

• Ninja Theory (Cambridge, UK) — makers of Hellblade and Senua's Saga: Hellblade II, announced a new game called Senua at last week's Xbox Games Showcase
• Double Fine (San Francisco) — makers of Psychonauts 2, released Kiln earlier this year
• Compulsion Games (Montréal) — makers of South of Midnight, released earlier in 2025

All three are critically regarded studios known for original, creative games — but not necessarily large commercial returns, which appears central to the problem.

Why is Microsoft considering closing these Xbox studios?

Xbox boss Asha Sharma warned staff and investors this week that the gaming business needed a fundamental rethink. Speaking at a Bloomberg Tech conference, she said she was "resetting the business because it was not in a healthy spot." In a follow-up internal note, Sharma revealed that Xbox's annual revenue had declined by nearly half a billion dollars over five years, hardware costs had risen 4x, and the studio system had become "overextended."

CEO Satya Nadella echoed those concerns publicly, signalling that Xbox needed to improve profitability. Bloomberg reported that significant cuts to the gaming division are expected to land shortly after Microsoft's fiscal year ends on 30 June 2026.

The situation mirrors broader industry trends. Since early 2023, major publishers including Microsoft, Sony, and Electronic Arts have collectively shed more than 20,000 jobs, according to tracking by Game Industry Layoffs. Microsoft itself cut 9,000 jobs in summer 2025, which saw the cancellation of a Perfect Dark reboot and Rare's Everwild. Further cuts followed in 2024 and 2023, including 1,900 roles across Activision Blizzard, Bethesda, and Xbox.

What makes this round of cuts different?

The timing is striking. Ninja Theory announced Senua — a brand-new game — at the Xbox Games Showcase just last week. Double Fine and Compulsion Games both shipped titles within the past year. These aren't dormant studios in limbo; they're active developers with games either recently released or in production.

That's the core tension: Xbox has built a library of prestige, award-winning games through studios like these, but that reputation hasn't translated into the commercial performance Microsoft now demands. The Xbox Game Pass model, which absorbs first-party titles at launch, makes it harder for individual games to generate the standalone revenue that would justify a studio's ongoing costs.

Adding to the uncertainty, Xbox Game Studios boss Craig Duncan announced his departure on Monday — just 18 months into the role. Studios will report directly to Xbox Chief Content Officer Matt Booty while Microsoft searches for a replacement. Duncan's exit removes a layer of leadership stability at exactly the wrong moment.

The broader picture raises questions about what "prestige" publishing looks like under Microsoft going forward — and whether the Xbox umbrella can sustain smaller, creatively ambitious studios that don't produce blockbuster numbers. It's also worth noting how the wider industry is grappling with similar questions around studio value and independence.

What we don't know yet

Several critical details remain unconfirmed. Microsoft has not publicly addressed the spin-off negotiations. The specific terms of any buyback arrangement haven't been disclosed. It's also unclear how many employees would be affected, or whether in-development projects — including Ninja Theory's newly announced Senua — would survive under independent ownership.

VGC's sources corroborate Bloomberg's reporting, but the situation is described as still evolving. Whether the studios ultimately spin off, close, or find another path remains to be seen.

Frequently Asked Questions

Which Xbox studios are reportedly facing closure?

Ninja Theory, Double Fine, and Compulsion Games are the three studios named in Bloomberg's report, corroborated by VGC's own sources. All three are in active negotiations to potentially buy themselves back from Microsoft and operate independently, though the outcomes remain unconfirmed.

Why is Microsoft considering closing these studios?

Xbox boss Asha Sharma said this week the business needed a 'reset', citing a revenue decline of nearly half a billion dollars over five years and hardware costs up 4x. Microsoft is expected to announce significant cuts to its gaming division after its fiscal year ends on 30 June 2026.

Has Microsoft officially confirmed the studio closures?

No. Microsoft has not officially commented on the specific reports about Ninja Theory, Double Fine, or Compulsion Games. Bloomberg's Jason Schreier and VGC report the studios are in negotiations, but described the situation as still in flux.

What happens to games already announced by these studios?

That remains unclear. Ninja Theory announced a new game called Senua at the Xbox Games Showcase just last week. Whether in-development projects survive under independent ownership — or are cancelled — has not been addressed by Microsoft.

What does this mean for Xbox Game Pass?

If these studios go independent, their future games would likely no longer be included in Xbox Game Pass at launch. All three have released titles through Game Pass in recent years, including South of Midnight and Senua's Saga: Hellblade II.

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