Microsoft Xbox is preparing its largest wave of studio closures to date. According to corroborating reporting from Tom Warren at The Verge, Jason Schreier at Bloomberg, and GamesBeat, Xbox plans to close or sell at least five studios — Ninja Theory, Compulsion Games, Double Fine, Undead Labs, and Arkane Studios — as part of sweeping layoffs set to begin on July 6, 2026.
IO Interactive has simultaneously announced layoffs of its own after Xbox ended its publishing partnership on the studio's online fantasy RPG, Project Fantasy. The scale of the cuts — across studios responsible for some of Xbox's most distinctive creative output over the past decade — has sent a shockwave through the industry.
Timeline
| Date | Event |
|---|---|
| Jan 2024 | Xbox, Activision, Blizzard, ZeniMax: 1,900 jobs cut |
| 2024 | Arkane Austin (Prey, Redfall) closed; Alpha Dog Games closed; Tango Gameworks sold; 650 more jobs cut |
| Summer 2025 | Microsoft-wide: 9,000 employees laid off |
| Early June 2026 | First reports of Compulsion Games closure |
| Jun 16, 2026 | Bloomberg: Double Fine and Ninja Theory added to the list |
| Jun 27, 2026 | Insider Gaming: Scared messages from Arkane employees |
| Jun 30, 2026 | IO Interactive announces Xbox ended Project Fantasy partnership; layoffs begin |
| Jul 1, 2026 | The Verge confirms Undead Labs and Arkane added; five-studio list finalized |
| Jul 6, 2026 | Xbox mass layoffs and studio restructuring set to begin |
"Inside Games Daily's report on the Xbox studio closure plans, published June 16, 2026.
The Five Studios at Risk
Ninja Theory
Creators of Hellblade: Senua's Sacrifice and Senua's Saga: Hellblade II. Employees were notified earlier in June of plans to shutter or spin off the studio. Tom Warren explicitly stated that Xbox is moving to close Ninja Theory directly.
Compulsion Games
Developer of South of Midnight, one of 2025's most acclaimed action-adventure games. Employees have already been told to start looking for other jobs.
Double Fine
Tim Schafer's studio behind Psychonauts 2. First named by Jason Schreier at Bloomberg as among the studios on the chopping block.
Undead Labs
Creators of the State of Decay series. Added to the confirmed list by Tom Warren's July 1 report.
Arkane Studios / Arkane Lyon
The French studio behind the Dishonored series and Deathloop — two of the most praised first-person games of the last decade. Sister studio Arkane Austin was already closed in 2024. Xbox is reportedly seeking buyers first; if none are found, closure follows. Arkane Lyon's current project — a Marvel's Blade action game — is also in jeopardy.
Marvel's Blade: Cancellation on the Table
Arkane Lyon has been developing a Marvel's Blade game since late 2023. Per Tom Warren's reporting:
- ▶The game has slipped to late 2027
- ▶Development is running significantly over budget
- ▶Xbox is actively weighing whether to release it at all
No update on the game has appeared publicly in over two years. This reporting represents the first window into its troubled development.
IO Interactive: Caught in the Crossfire
"News coverage of Compulsion Games and Arkane Lyon closure plans, published June 27, 2026.
The studio behind the Hitman trilogy and 007 First Light announced on June 30 that the unnamed "external partner" on its online fantasy RPG Project Fantasy had ended the relationship. Bloomberg confirmed the partner was Xbox. The partnership had been rumored based on leaked FTC documents from the Microsoft/Activision merger case; Xbox confirmed it directly to Jason Schreier.
IO Interactive's public statement said:
""Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future. This wonderful universe will see the light of day." — IO Interactive
The studio acknowledged "short-term consequences, including staffing decisions" were already underway but did not disclose how many employees were affected.
Xbox framed its exit to Bloomberg as a strategic pivot rather than a retreat:
""We're not reducing our overall investment in games. We expect to invest about the same in content as we did last year. What's changing is where we're investing and the kinds of projects we're backing." — Xbox spokesperson
IO Interactive is not the first studio to lose Xbox backing mid-development. Avalanche's Contraband was effectively cancelled after a prior round of Microsoft layoffs. Romero Games' unannounced shooter survived but was "completely redesigned." Panache Digital Games' 1666: Amsterdam also lost Xbox publishing before it found another path forward.
The "Reset" Behind the Cuts
The restructuring flows from a company-wide memo issued by new Xbox CEO Asha Sharma and Chief Content Officer Matt Booty, obtained by Engadget:
""We have found ourselves over-extended. Going forward, this cannot continue." — Asha Sharma & Matt Booty internal memo
Xbox has stated it will seek buyers for the studios before proceeding with closures. Industry observers, however, are skeptical that buyers will materialize for all five. CWA-represented game workers at Xbox have separately called for transparent communication and good-faith bargaining ahead of the July 6 cuts.
One notable carve-out: Kojima Productions' OD, also published by Xbox, is reportedly not affected by the current layoff plans, per IGN.
Both Sides
| Party | Position |
|---|---|
| Xbox / Microsoft | "Total game investment unchanged; direction and project types are shifting." — Bloomberg |
| IO Interactive | "100% committed to Project Fantasy. This world will see the light of day." — Official statement |
| CWA Game Workers | "Disappointment and frustration with Microsoft leadership. Calling for transparency and good-faith negotiation." — Engadget |
| Compulsion Games | Employees internally told to begin looking for other jobs (multiple sources) |
| Ninja Theory | Staff notified of closure/spin-off plans earlier in June (multiple sources) |
Community Reaction
Reaction across gaming communities has been swift and predominantly furious.
- ▶"Arkane Austin wasn't enough? Now Lyon too? The Dishonored studio gone is unthinkable" — dominant response from Arkane fans
- ▶"Compulsion made one of 2025's best games and gets shut down within a year. Incredible" — widely echoed across Reddit and X
- ▶"Phil Spencer was the shield. Without him, everything he protected is being dismantled" — repeated structural analysis in gaming discussions
- ▶"Double Fine, Tim Schafer — this is Xbox erasing its entire creative legacy" — criticism of Microsoft's acquisition-then-closure pattern
- ▶"If Blade is cancelled, that's a huge blow to the Marvel gaming universe too" — concern about IP pipeline
- ▶"IO Interactive just had a massive hit with 007 First Light and they're still losing people. That's the state of this industry" — broader industry frustration
GamePeak Summary
| Angle | Key Point |
|---|---|
| Scale | Five studios at risk simultaneously: Ninja Theory, Compulsion, Double Fine, Undead Labs, Arkane |
| Additional hit | IO Interactive layoffs after Xbox ends Project Fantasy partnership |
| Marvel's Blade | Late 2027 delay, over budget, cancellation being considered |
| Root cause | New CEO Asha Sharma diagnosing Xbox as "over-extended" and executing a reset |
| Layoffs start | July 6, 2026 |
| Watch next | Whether buyers emerge for any studios; final decision on Blade; union negotiation outcomes |
This is not routine restructuring. The studios being shuttered — Ninja Theory, Arkane, Double Fine, Compulsion, Undead Labs — represent some of the most singular creative voices Xbox accumulated across a decade of acquisitions. The July 6 cutoff will clarify which of them survive, which find new publishers or independence, and which are simply gone. GamePeak is watching.
Sources: The Verge (Tom Warren), Bloomberg (Jason Schreier), Engadget, Insider Gaming, GamingBolt, IO Interactive official statement. All quotes drawn directly from published reports.