Speculation is mounting regarding the future of several prominent Xbox-owned studios. Following an earlier report by Kotaku suggesting that South of Midnight developer Compulsion Games may be facing closure, new details have surfaced indicating that the potential consolidation goes much further. This comes on the heels of recent warnings from leadership regarding a massive “Xbox Reset” aimed at curbing operational bloat.
According to a report from Bloomberg, Microsoft is currently evaluating the viability of several key studios, with Ninja Theory (creators of Hellblade) and Double Fine (the team behind Psychonauts) reportedly at risk alongside Compulsion Games. Sources close to the matter claim that these studios are exploring the possibility of management buyouts to regain their independence—a move that would inevitably involve significant staff reductions. Reportedly, internal teams have already been notified of the precarious situation and encouraged to seek alternative employment.
While Microsoft has maintained silence regarding these specific closures, the writing may be on the wall. Several developers, including senior writers Zaire Lanier and Bijan Stephen, have publicly signaled that they are currently on the job market.
The internal atmosphere at Xbox has become increasingly strained. A recent memo from CEO Asha Sharma and Chief Content Officer Matt Booty candidly admitted that the division had “overextended” itself through aggressive acquisitions. The leadership cited a combination of declining hardware sales, supply chain hurdles, and an overly convoluted corporate infrastructure as primary drivers for the necessary “Xbox Reset.”
“We won’t succeed by hiding hard truths,” the memo noted, signaling a pivot toward more drastic measures to stabilize the brand’s output. The timing is particularly jarring given that Compulsion Games—which released the well-received South of Midnight just last year—was actively hiring for a new intellectual property only two months ago. Similarly, Ninja Theory recently unveiled Senua, a new action-centric project slated for 2027, while Double Fine recently launched the multiplayer title Kiln.
As this remains a developing story, no official confirmation has been issued by Microsoft or the affected studios. We will continue to monitor the situation as more information becomes available.
