Microsoft has reportedly begun efforts to “reset” its multibillion-dollar gaming business yet again, with plans that could see the closure or spin-off of three prominent studios: Psychonauts developer Double Fine, Hellblade creator Ninja Theory, and South of Midnight developer Compulsion Games. The news, broken by Bloomberg and supplemented by reports from The Verge, suggests that these teams are currently fighting for their survival as the end of Microsoft's financial year approaches.
- Affected Studios: Double Fine, Ninja Theory, Compulsion Games
- Reported Context: Xbox 3% 'accountability margin' vs. company goals
- Leadership Changes: Xbox Games Studios boss Craig Duncan and chief of staff Louise O'Connor have stepped down
- Industry Impact: Employees reportedly encouraged to seek work elsewhere
The situation at Ninja Theory is particularly acute. According to The Verge, the studio was informed of its impending closure on Monday—only days after it announced a new entry in the Senua series. The studio is now reportedly scrambling to find a buyer to avoid being shuttered.
These potential closures follow a trend of layoffs and studio cancellations across the Xbox division over the past two years. The common thread among the targeted teams is their reliance on prestige projects that, while well-regarded, do not hit the massive sales figures demanded by Microsoft’s leadership. As one analyst noted, these studios are “brilliant for prestige and rotten for the spreadsheet.”
The Internal Memo and the "Accountability Margin"
The alleged "reset" aligns with a memo circulated last week by Xbox CEO Asha Sharma and Xbox Game Studios head Matt Booty. The document detailed a gloomy financial outlook, citing rising hardware costs driven by generative AI investments and a current "accountability margin" of 3%—a figure the company views as unsatisfactory compared to other Microsoft divisions.
The memo has drawn criticism for its focus on executive-led "realism" while sidestepping the impact of long-term mismanagement. Booty has held a senior position at Xbox since 2010, overseeing the Activision Blizzard merger and subsequent staff reductions. Sharma, meanwhile, is a former president of Microsoft’s CoreAI Product, a division at the heart of the AI spending that has contributed to the current hardware cost spikes.
Leadership Departures and Ongoing Uncertainty
The executive suite is already seeing the effects of this instability. Xbox Games Studios boss Craig Duncan and chief of staff Louise O'Connor announced their departures yesterday, just hours before the reports of the studio closures surfaced. The instability has even reached the Call of Duty camp; Treyarch studio head Mark Gordon announced he is leaving after 22 years to “focus on his next chapter.”
Despite a recent PR push during Summer Game Fest that emphasized a return to exclusive titles, the current reality for many teams under the Microsoft umbrella is one of extreme uncertainty. Microsoft has yet to provide an official comment on the reported closures, leaving the future of these developers and their upcoming projects in limbo.