Fears for Xbox as it puts its developers on the chopping block once again

Xbox is reportedly planning to shutter three studios — Ninja Theory, Double Fine, and Compulsion Games — as part of a cost-cutting drive, according to a staff memo from CEO Asha Sharma and chief content officer Matt Booty obtained by Bloomberg and Kotaku [1]. The memo, sent days after a summer showcase, warned employees to brace for “hard truths.” Sharma wrote that excluding Activision Blizzard King, Xbox had spent “over $20bn on ongoing investments in our content, platform and hardware subsidy” over five years while annual revenue declined “nearly half a billion” [1]. “Going forward, this cannot continue,” the memo stated [1]. The three affected studios are said to be negotiating to buy their independence and avoid closure [1]. Microsoft has not confirmed the closures, but staff at the studios have publicly posted that they are available for work [1]. The memo said Xbox had become “overextended” after expanding its studio system to feed subscription, streaming, and device strategies [1]. Craig Duncan, head of Xbox Games Studios, and chief of staff Louise O’Connor have both resigned [1]. The cuts follow a pattern of contraction. In 2024, Xbox shut Arkane Austin and Tango Gameworks [1]. In 2025, Microsoft made 9,000 staff redundant and cancelled projects including a Perfect Dark reboot and Rare’s Everwild [1]. The restructuring arrives despite Microsoft’s overall financial strength; the company posted profits of $217.4bn in its most recent financial year [1]. The broader context includes Microsoft’s $75.4bn acquisition of Activision Blizzard, completed in October 2023, which brought franchises such as Call of Duty, Warcraft, Diablo, Overwatch, and Candy Crush under the Microsoft Gaming division alongside Xbox Game Studios and ZeniMax Media [4][5]. The deal was the largest video game acquisition by transaction value in history and faced antitrust challenges from the U.S. Federal Trade Commission and the U.K.’s Competition and Markets Authority before closing [4]. Xbox is reportedly planning to redirect spending to accelerate development on new Halo, Fallout, and Elder Scrolls titles [1]. The division’s founding vision, articulated by Bill Gates at the 2000 Game Developers Conference, was for Xbox to be “the platform of choice for the best and most creative game developers in the world” [1]. Twenty-five years later, the studio closures mark a sharp turn away from the diverse portfolio that included award-winning titles such as Ninja Theory’s Hellblade and Double Fine’s Psychonauts [1].