Microsoft reportedly negotiating closures of multiple Xbox studios, including Psychonauts’ Double Fine, South of Midnight’s Compulsion and Hellblade’s Ninja Theory
Microsoft is reportedly in negotiations with multiple of its owned Xbox game studios regarding their futures, with three major developers facing potential closure or separation: Double Fine (Psychonauts), Ninja Theory (Hellblade), and Compulsion Games (South of Midnight). According to Bloomberg, these studios are in active negotiations with Microsoft to buy back their independence as an alternative to full closure, with several other unnamed Xbox studios also reportedly at risk.
The timing adds an unusual layer to the situation. Ninja Theory announced a new Senua title at the Xbox Games Showcase 2026 on June 7, but Microsoft had already planned to sunset or split with the studio by that announcement date. According to sources familiar with Microsoft’s plans, the new game reveal was strategically timed to draw investor interest in acquiring the studio.
The reported closures represent part of a broader restructuring of Microsoft’s gaming division, which has already seen significant layoffs, game cancellations, and studio closures over the past couple of years. Other potentially affected studios include State of Decay’s Undead Labs, Obsidian Entertainment, and Rare. Double Fine responded to closure reports with a single emoji on social media, leaving the situation ambiguous.
All affected studios are being given the option to buy back their independence or find new homes. The negotiations are occurring as Microsoft approaches the end of its financial year, marking another significant upheaval in the company’s troubled gaming strategy.
Sources
- Microsoft reportedly negotiating closures of multiple Xbox studios, including Psychonauts’ Double Fine, South of Midnight’s Compulsion and Hellblade’s Ninja Theory
- Psychonauts Developer Double Fine Responds to Closure Reports With a Single Emoji
- Multiple Xbox Studios Reportedly In Active Negotiations With Microsoft To Avoid Closure
- Xbox shouldn’t close Ninja Theory, Compulsion, and Double Fine and should never have bought them
- Double Fine Reacts To Xbox Closure Rumours With Single Emoji
- New Senua Game Reveal Used as a Way to Sell Ninja Theory to Suitors
- Another Xbocalypse begins: Microsoft are reportedly closing or spinning off Double Fine, Ninja Theory and Compulsion