Xbox Studio Closures: Double Fine and Ninja Theory Fight to Go Independent

by Zaira Varghese 16. June 2026 Microsoft 0

The next wave of Xbox studio closures may be days away. According to a Bloomberg report from Jason Schreier, Microsoft is preparing deep cuts to its gaming division, and three beloved first-party studios — Compulsion Games, Double Fine and Ninja Theory — are now in active talks to spin off as independents rather than be shut down.

The timing is pointed: Microsoft’s fiscal year ends on June 30, and insiders expect the gaming reorganization to be announced shortly after. For fans of Psychonauts, Hellblade and South of Midnight, it is an anxious stretch.

Which studios face the Xbox studio closures

The three named teams each carry serious creative pedigree:

Double Fine — Tim Schafer’s studio, maker of the acclaimed Psychonauts 2, acquired by Microsoft in 2019.
Ninja Theory — the Hellblade studio, which only weeks ago revealed Senua, a third entry slated for 2027.
Compulsion Games — the Montreal team behind We Happy Few and 2025’s stylish South of Midnight.

Reports say staff at the affected studios have already been told they can begin seeking new roles, even as the final status of each team remains unresolved. Microsoft has not officially confirmed which studios will be shut, spun off, or spared.

Why Microsoft is cutting

The looming Xbox studio closures cap a brutal two-year stretch for Microsoft gaming. Since closing the $69 billion Activision Blizzard acquisition, the company has absorbed waves of layoffs and folded or shuttered several studios as it leaned harder into margins, Game Pass economics and a multiplatform strategy that now ships former exclusives to PlayStation and Switch.

Spinning studios out, rather than closing them, is a newer tactic. It lets Microsoft shed payroll and overhead while potentially keeping a publishing or IP relationship intact — a softer landing than the outright shutdowns that drew fierce criticism when Tango Gameworks and Arkane Austin were closed. You can read the original reporting in Engadget’s coverage of the Xbox studio closures.

What it means for players and the industry

For gamers, the immediate worry is what happens to in-progress projects. Ninja Theory’s newly announced Senua is the obvious flashpoint; a spin-off or closure could delay or imperil it. For the wider industry, the situation underscores how even prestige, award-winning studios are not safe when a platform holder reorganizes around profitability.

The broader signal is the same one rippling across tech in 2026: consolidation, cost discipline, and a relentless focus on the bottom line, even at the expense of creative teams that built a platform’s reputation. If these studios do escape as independents, it could become a template — a way for talent to survive a giant’s belt-tightening with their identity intact.

What to watch next

Expect the official word soon after Microsoft’s fiscal year closes on June 30. The key questions: which studios walk away independent, whether their announced games survive the transition, and how many jobs are lost in the process. Until then, three of gaming’s most distinctive studios are waiting to learn their fate.