Recent reports have indicated that Xbox might be looking at closing some of its studios to make up for its accountability margins being lower for this fiscal year. A new report by The Verge indicates that one of these is Hellblade franchise developer Ninja Theory. The development team has already been notified about the impending closure, and the studio is reportedly hoping that it will find a new buyer.
According to Bloomberg’s Jason Schreier, Keeper and Kiln developer Double Fine, and South of Midnight developer Compulsion Games have already started negotiations with Microsoft to spin the companies off in an attempt to avoid being closed down. As Schreier notes, however, the studios will still likely see some layoffs even if the negotiations are successful and the studios are able to become independent.
Reports of Compulsion Games being targeted for closure came about thanks to a report by Kotaku. However, the precise number of employees to be affected at the studio remains unknown.
The major layoffs and potential studio closures are expected to hit Xbox shortly after Microsoft wraps up its current fiscal year on June 30th, and are noted as being part of division CEO Asha Sharma’s plans to curtail failing revenue. Along with letting many of its employees go, Xbox is also expected to undergo budget cuts across its marketing teams and “some other areas of business.”
“We will end this fiscal year at about a 3 percent accountability margin, down year-over-year,” explained Sharma and CCO Matt Booty recently. “Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue.”
Xbox has also been facing major issues with its hardware division, with rising hardware component costs leading to margins getting slimmer. Sharma noted that, by the time she took over as CEO in February, the company was already paying twice as much as it did in October 2025 for the same console storage components. Looking to the future, Sharma doesn’t believe things are going to get better.
“As we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier,” she wrote. “Memory costs have followed a broadly similar trajectory. While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.”
In the meantime, a new report has indicated that many development teams owned by publishers are going to face some trouble in the coming days, with French journalist Sylvain Trinel calling Microsoft’s layoffs “just the beginning of a massive bloodbath” and “a catastrophe” for studios like BioWare, Quantic Dream, and DON’T NOD.
