Microsoft's gaming division is heading into one of the most painful stretches in its history. As the company's fiscal year winds down toward its June 30 close, a wave of reports points to a fresh round of layoffs and studio closures across Xbox - the third major reduction in roughly two years. For the developers caught in it, the human cost is very real, and several acclaimed teams are now fighting simply to keep their doors open.
Bloomberg reported on June 15 that multiple studios inside the Xbox division are bracing for closures, with some in active negotiations to spin off from Microsoft rather than be shut down outright. The picture that has emerged since is grim: at least one celebrated studio is reportedly being closed entirely, while others are scrambling to find a path forward - whether that means a buyer, a spin-off, or survival in a leaner form.
Ninja Theory reportedly being shut down
The most jarring report concerns Ninja Theory, the Cambridge, England studio behind the acclaimed Hellblade series. According to The Verge, Xbox is closing the studio, with staff informed early in the week. Ninja Theory's Senua's Saga: Hellblade II was one of the most technically stunning games Microsoft published in recent years, and the prospect of losing the team behind it has hit the development community hard. Reports suggest staff are hoping the studio might yet find a buyer.
Compulsion and Double Fine fight to avoid closure
Two more beloved studios are reportedly in active negotiations to avoid the axe. Montreal's Compulsion Games, which released the Southern-gothic action-adventure South of Midnight in 2025 to warm reviews, and San Francisco's Double Fine - the Tim Schafer-led studio behind Psychonauts and Psychonauts 2 - are both said to be in talks with Microsoft, with the possibility of spinning off as independent companies. Bloomberg's reporting noted that several other teams across the portfolio are also at risk of being shuttered.
Leadership changes at the top
The turmoil reaches the executive ranks too. Reports indicate that Xbox Game Studios head Craig Duncan is stepping down barely 20 months into the role, alongside chief of staff Louise O'Connor, as Microsoft's gaming leadership pushes what it has described as a sweeping business reset. The reorganization follows years of upheaval that have reshaped the division since the $69 billion Activision Blizzard acquisition closed.
A pattern, not a one-off
This is not happening in isolation. Microsoft cut roughly 1,900 gaming jobs in early 2024 - the same year it closed Tango Gameworks, the studio behind Hi-Fi Rush, and Arkane Austin - before slashing about 9,000 roles company-wide in mid-2025, many of them inside Xbox. A fresh round arriving after the June 30 fiscal year-end would mark the third major contraction in two years, even as the division has poured tens of billions into acquisitions and continues to post strong revenue.
Much of the detail remains at the reporting and negotiation stage, and Microsoft has not laid out the full scope publicly. Decisions are expected to be finalized around the end of the month, and some affected employees have reportedly already been given permission to seek other work. For an industry still reeling from years of contraction, it is another sobering reminder that critical acclaim and commercial success are no guarantee of stability - and that behind every restructuring memo are hundreds of developers facing an uncertain summer.
