Three Xbox-owned studios are in active negotiations to regain their independence from Microsoft rather than face closure, according to Bloomberg . Montreal-based Compulsion Games , San Francisco-based Double Fine Productions , and Cambridge, England-based Ninja Theory are all considering deals that would make them independent again. Even if the negotiations are successful, it's expected that many employees at all three studios will lose their jobs.
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The negotiations are part of a broader restructuring led by Asha Sharma, who took over as Xbox CEO in February. Bloomberg reported earlier this month that Xbox is planning significant layoffs for July as Sharma tries to reverse years of financial decline. Xbox is considering spinning off its gaming unit entirely or reorganizing it as a subsidiary, though no final decision has been made on that larger issue.
The three studios represent different stages of Microsoft’s acquisition strategy and different levels of commercial risk. Compulsion Games, which Microsoft acquired in 2018, released South of Midnight in May. The game reached one million players and won the Games for Impact award at The Game Awards 2025, but none of those milestones necessarily translate into revenue that would justify the expenses of a first-party studio.
Ninja Theory, acquired in the same wave of 2018, released Senua's Saga: Hellblade II in 2024 to positive reviews but modest sales. The studio is known for its critically acclaimed work aimed at a dedicated audience rather than the mass market. Double Fine, acquired in 2019, released Psychonauts 2 in 2021 to widespread acclaim and has since produced smaller titles such as Keeper and Kiln.
The common thread is that all three studios are making award-winning games but aren't generating the revenue that Xbox needs to justify its spending. Microsoft has invested more than $20 billion in game content, platform development, and hardware over the past five years. Annual revenue has fallen by about $500 million over the same period.
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Xbox operating margins have collapsed to about 3 percent this fiscal year. That figure explains the urgency behind Sharma's restructuring and willingness to let studios negotiate their own exits rather than simply shutting them down.
Craig Duncan, who led Xbox Game Studios, stepped down from his position this month. His departure removes the executive who had the closest operational relationship with the studios now facing spinoffs or closures. No replacement has been announced.
Sharma’s approach differs from the strategy of her predecessor, Phil Spencer, who acquired studios to build a dedicated library of content. Spencer’s tenure culminated in the $69 billion acquisition of Activision Blizzard, which closed in 2023 and remains the largest deal in gaming history. The logic was that owning studios would drive Game Pass and console sales. The financials suggest that didn’t work out as planned.
In an internal memo reported by Bloomberg, Sharma told staff that the current spending path “cannot continue.” The restructuring is expected to preserve Xbox’s highest-grossing franchises. Gears of War: E-Day and Clockwork Revolution have been announced as Xbox console exclusives, signaling that Microsoft is not abandoning first-party development entirely but is focusing resources on titles with proven commercial appeal.
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The spin-off model will allow Compulsion, Double Fine, and Ninja Theory to continue operating as independent studios, potentially signing publishing deals.
