Microsoft is moving forward with a significant restructuring of its gaming division, with reports emerging that several high-profile studios are facing potential closure. Following a company-wide memo from Xbox CEO Asha Sharma regarding a 100-day "Xbox Reset," the company is currently evaluating the future of its internal development teams.
According to reports, the list of studios facing potential shuttering includes Compulsion Games, the developer behind South of Midnight, as well as Ninja Theory and Double Fine. While the full extent of the layoffs remains undecided, sources suggest these studios are currently in active negotiations to transition into independent entities, a move intended to prevent total closure.
The "Xbox Reset" and Financial Pressures
The restructuring comes after a blunt assessment of the division's financial health. In a memo issued last week, CEO Asha Sharma noted that the company is set to end the current fiscal year with a three percent accountability margin, representing a year-over-year decline.
"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," Sharma wrote. "Going forward, this cannot continue."
Since stepping into the CEO role this past February, Sharma has initiated a rebranding strategy for the Xbox division. This includes a recent reduction in Game Pass pricing and a renewed focus on platform exclusives, such as the upcoming Gears of War: E-Day scheduled for 2026 and Clockwork Revolution in 2027.
Community Reaction
The timing of these potential closures has drawn sharp criticism from the gaming community. Coming only days after a successful Summer Games Fest showcase—where Microsoft presented a variety of new titles—the announcement has led some to compare the situation to the "Red Wedding" from Game of Thrones, suggesting that the company effectively lured fans and developers into a period of optimism before pivoting to layoffs and studio shutdowns.
This sentiment is compounded by the fact that South of Midnight, developed by the potentially affected Compulsion Games, saw critical success, winning the Games for Impact award at The Game Awards and the Outstanding Achievement in Animation at the 29th Annual D.I.C.E. Awards. Reports indicate, however, that the game’s sales performance did not meet internal expectations, contributing to the decision to evaluate the studio's future.
As the 100-day "reset" window continues, more updates regarding the status of these studios and the broader impact on the Xbox portfolio are expected to follow.