Xbox Studio Crisis: Compulsion, Double Fine, Ninja Theory Face Closure — Seeking Independence

Three Beloved Studios Facing an Uncertain Future

As of June 15–16, 2026, Bloomberg reporter Jason Schreier has published a report confirming that multiple Microsoft-owned Xbox Game Studios are at risk of closure and actively negotiating independence:

• ▶Compulsion Games (Montreal) — South of Midnight developer
• ▶Double Fine Productions (San Francisco) — Psychonauts developer
• ▶Ninja Theory (Cambridge, UK) — Hellblade series developer

According to Bloomberg's sources, each studio is attempting to buy itself back from Microsoft, though such arrangements would still result in significant job cuts. Employees at these studios have been informed of the situation and given permission to seek work elsewhere.

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The trailer above is Ninja Theory's new game Senua, revealed at the Xbox Games Showcase 2026 — just days before reports emerged of the studio facing potential closure.

Timeline of Events

The "Xbox Reset" Memo

The immediate trigger for this crisis is an internal email sent to all Xbox staff by CEO Asha Sharma and Chief Content Officer Matt Booty, referred to internally as the "Xbox Reset".

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"For some of you, these realities will be surprising and even frustrating to discover. We won't succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results." — Sharma & Booty (via Game Informer)

The memo acknowledged that Xbox "overextended" itself through its aggressive studio acquisition strategy, citing declining revenue, hardware component shortages, and systems described as "overly complex" and not ready for the years ahead.

The Studios at Risk

Compulsion Games — *South of Midnight*

• ▶South of Midnight (April 2025): Steam Very Positive — 94% of 3,171 reviews
• ▶The studio posted new IP job listings only two months before closure reports emerged
• ▶Studio writer Bijan Stephen and senior writer Zaire Lanier posted publicly that they are seeking new work
• ▶Kotaku reports leadership is in active negotiations with Microsoft over the studio's future

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About the game: A third-person action-adventure set in the American Deep South. Players control Hazel, a Weaver who confronts creatures of Southern folklore to rescue her mother and protect her hometown. One of Xbox's most critically acclaimed 2025 releases.

Ninja Theory — Hellblade series

• ▶Just announced new game Senua at the Xbox Games Showcase 2026, set for 2027
• ▶Senua's Saga: Hellblade II launched May 2024 under Xbox
• ▶Development on Senua appears ongoing despite closure discussions

Double Fine Productions — Psychonauts

• ▶Psychonauts 2 shipped under Xbox in 2021; Keeper in 2024; multiplayer party game Kiln in early 2026
• ▶San Francisco-based studio founded by Tim Schafer
• ▶Bloomberg confirms buyout negotiations are underway

Broader Industry Context

This crisis is not isolated to Xbox:

The broader pattern reflects a contraction in AAA game funding as publisher confidence wanes following several high-profile underperformers.

Each Side's Position

Microsoft

• ▶Has not officially commented on Bloomberg's report
• ▶No studio closures have been officially announced or confirmed
• ▶No official statements from any affected studio

Studio Employees

• ▶Multiple employees across studios have posted publicly that they are available for hire
• ▶Sources described as having "real concern" per Insider Gaming
• ▶Obsidian co-founder Chris Avellone noted that even management at studios considered "safe" are warning employees that the impact of Microsoft's reorganization is unclear

Industry Observers

• ▶The situation mirrors Microsoft's 2024 wave of closures, which shut down Tango Gameworks (Hi-Fi Rush), Arkane Austin (Redfall), and Alpha Dog Games
• ▶Analysts note the irony: Microsoft acquired these studios with high-profile E3 announcements, only to face potential divestitures years later

Community Reaction

The news has drawn widespread reaction across gaming communities:

• ▶Many fans point to the absurdity of Ninja Theory announcing a new game at Xbox's own showcase, only for closure reports to emerge days later
• ▶Others note Compulsion's South of Midnight was warmly received and the studio had just been hiring — suggesting the situation changed rapidly
• ▶Industry observers draw comparisons to the 2024 closures and question the long-term viability of Microsoft's gaming strategy
• ▶Some advocates argue these studios should be allowed to go independent rather than face closure, citing the cultural value of their creative output

What Happens Next

This is a developing story. Key unknowns:

1. 1Will Microsoft confirm or deny the closure/buyout discussions?
2. 2Can any studio successfully negotiate independence without catastrophic job losses?
3. 3What happens to projects in development — including Ninja Theory's Senua (2027)?
4. 4Are other Xbox studios beyond the three named by Bloomberg also at risk?

GamePeak will continue tracking this story as it develops. Microsoft has not responded to media inquiries as of publication.

GamePeak Verdict

Microsoft's aggressive studio acquisition strategy between 2018 and 2023 brought dozens of beloved developers under the Xbox umbrella. The Xbox Reset memo's admission of "overextension" is a frank acknowledgment that this strategy has reached its limits. For fans of South of Midnight, Psychonauts, and Hellblade, the uncertainty is deeply unsettling — especially given how recently these studios were releasing games and hiring.

This article will be updated as the situation develops.

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Microsoft has not responded to requests for comment. No closures have been officially confirmed.