Microsoft is shutting down or selling at least three Xbox studios—Ninja Theory, Double Fine, and Compulsion Games—as part of a restructuring under new CEO Asha Sharma. The move comes with layoffs across investment, operations, technology, and private credit roles, marking a major shift in the gaming division.
Ninja Theory, known for ‘Hellblade’, was told it would close, though efforts are underway to find a buyer. This announcement came just a week after Microsoft showcased a new ‘Hellblade’ title planned for 2027, leaving its future uncertain. Double Fine, the studio behind ‘Psychonauts’, is exploring ways to buy itself back rather than shut down. Compulsion Games, creators of ‘We Happy Few’ and ‘South of Midnight’, is also seeking options to avoid closure. Reports suggest other Xbox studios are quietly negotiating their futures.
The layoffs follow a memo from Sharma and Matt Booty, content chief, who admitted Xbox had over expanded. Microsoft invested more than $20 billion in Xbox over five years, but annual revenue dropped by nearly $500 million. Hardware supply issues have added further strain.
Senior leadership changes accompanied the cuts. Craig Duncan, head of Xbox Game Studios, and Louise O’Connor, chief of staff, are both leaving. Duncan had led the division since October 2024.
Sharma, who replaced Phil Spencer in February 2026, has moved quickly—cutting Game Pass prices and making Gears of War: E Day and Clockwork Revolution Xbox exclusives. These big franchise bets appear to be funded by closing or selling smaller studios.
The layoffs mark a sharp turn from Microsoft’s years of acquisitions, including the $69 billion Activision Blizzard deal, toward a leaner, more selective studio strategy.