Microsoft announces Xbox Game Studios cuts, affecting 4 studios

After weeks of rumor and speculation about the extent of Xbox’s planned cutbacks, CEO Asha Sharma announced the extent of Microsoft’s reorganization: 3,200 employees will be laid off, and at least four studios are being affected, including Double Fine Productions and Ninja Theory.

Of the 3,200 employees that are being laid off throughout Microsoft’s 2027 fiscal year, 1,600 are being affected today, Sharma said in a memo published to Xbox Wire. Sharma calls the cuts “most significant restructure in XBOX history.”

The four studios “[leaving] XBOX to new management” were all part of Microsoft’s studio spending spree in 2018-2019, when the company purchased seven independent studios. Four of those are leaving the Xbox Game Studios umbrella, and a fifth is under review.

Here’s what we know.

Compulsion Games and Double Fine Productions are going indie

“Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games,” Sharma said.

Microsoft acquired Contrast developer Compulsion Games in 2018, while the studio was working on We Happy Few for publisher Gearbox Publishing. As part of Xbox Game Studios, Compulsion released one game, South of Midnight, in 2025.

Double Fine was acquired by Microsoft in 2019. The studio, founded by game designer Tim Schafer, is known for its work on quirky and stylish games like Psychonauts, Brütal Legend, and Headlander, and most recently released the games Kiln and Keeper.

Ninja Theory and Undead Labs are being sold

Image: Ninja Theory

“Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3,” Sharma said. Microsoft did not announce who might be buying Ninja Theory and Undead Labs, but continued funding for the studios’ recently revealed projects is good news for anyone looking forward to the new Hellblade and State of Decay sequels.

Microsoft acquired Ninja Theory in 2018, when the studio was best known for its work on Hellblade: Senua’s Sacrifice, DmC: Devil May Cry, Enslaved: Odyssey, and Heavenly Sword. Under Xbox Game Studios ownership, Ninja Theory released Bleeding Edge and Senua’s Saga: Hellblade 2.

Undead Labs was also acquired by Microsoft in 2018, and is known for its open-world zombie survival game series State of Decay.

Arkane Studios’ fate is unclear

Bethesda Softworks

Lyon, France-based Arkane Studios, part of Microsoft-owned ZeniMax Media, is “beginning required consultation with its Works Council to review potential strategic options,” according to Sharma. Effectively, Arkane’s employee representation is addressing whatever unannounced strategic moves Microsoft plans to do with the studio, which could mean selling it off, closing it, or laying off employees.

Arkane Studios was acquired by ZeniMax in 2010. The studio is known for its work on the Dishonored series, Deathloop, and the upcoming Blade game based on Marvel’s vampiric superhero.

Other Microsoft-owned studios are seeing cuts and cancellations

Image: Mojang Studios/Xbox Game Studios

Sharma said that reductions across Microsoft-owned companies, including Activision, Bethesda/ZeniMax, Blizzard, King, and Mojang, are also planned. That includes “shifting investment to focus on higher priority projects,” which likely means game cancellations. That said, “None of our first-party publicly announced games or projects are being cancelled as part of these reductions,” Sharma explained.

Also as part of the Xbox “reset,” Mojang and King will now report directly to Sharma. “These two studios have increasingly become platforms and are our largest by monthly active players,” she said. “They bring critical geographic, demographic, and differentiation to XBOX.”

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