Studios in Microsoft’s Xbox division brace for closures

SAN FRANCISCO: Several studios in Microsoft’s Xbox gaming division, including Montreal-based Compulsion Games and San Francisco-based Double Fine, are in active negotiations to spin off as they try to thwart closure, according to people familiar with the company’s plans.

Cambridge, England-based Ninja Theory, the maker of Hellblade, is also in conversations with Xbox, as are several other studios across the portfolio that are at risk of being shuttered.

The studios may still have the opportunity to buy themselves back from Xbox and go independent, although many employees will likely lose their jobs as a result, said the people, who asked not to be named because they were not authorised to speak to the press.

Employees at several studios have been informed of the situation and given permission to seek new work but were told that the status of the studios is still in flux.

An Xbox spokesperson declined to comment.

The potential closures are part of a broader reorganisation being overseen by Asha Sharma, who took over as Xbox’s new chief executive officer in February. Last week, Bloomberg News reported that the gaming division is planning significant layoffs.

Sharma sent out a memo to staff lamenting the bleak state of the business, which has seen revenue and margins plummet in recent years. “Going forward, this cannot continue,” she wrote.

Compulsion Games, Double Fine and Ninja Theory all made award-winning games that were not commercial hits. But even some of Xbox’s more commercially successful studios are not yet sure how they will fit into Sharma’s new mandate, which will prioritise the biggest franchises as the company looks to return to growth.

Compulsion Games is the developer behind South of Midnight, which was released last year. Double Fine, best known for the Psychonauts series, released the smaller games Keeper and Kiln over the last year.

Xbox is facing the current challenges despite having made major purchases in recent years, including its acquisition of Activision Blizzard for US$69 billion in a deal that closed in 2023.

Xbox Game Studios head Craig Duncan stepped down last week ahead of the layoffs, said the people familiar with Microsoft’s plans. Gaming newsletter the Game Business previously reported his departure.