Double Fine Productions, Ninja Theory, and Compulsion Games are reportedly in active negotiations with Microsoft to avoid closure, as reported by Bloomberg journalist Jason Schreier – with all decisions expected to be finalised by the end of June, making this one of the most immediate threats yet to Xbox‘s remaining first-party creative pipeline.
Here’s the context: Microsoft acquired Ninja Theory and Compulsion Games in 2018 and Double Fine in 2019, positioning all three as pillars of its Game Pass content strategy under Phil Spencer. That narrative has since collapsed under the weight of the company’s ongoing restructuring – Tango Gameworks and Arkane Austin were both abruptly closed in an earlier wave of cuts, and the arrival of new Xbox president and CEO Asha Sharma has only accelerated what outlets are calling the Xbox “reset.” As we covered in our piece on Microsoft’s reported Xbox spin-off discussions, the instability now runs deep enough that the division’s long-term structure is itself an open question.
The options reportedly on the table for all three studios include outright closure, management buyouts to go independent, or acquisition by a rival publisher – and Schreier‘s reporting makes clear that even a successful spin-off outcome would likely involve significant layoffs. Staff at some of these studios have already been told they can look for other work, which is not the language of an orderly transition. Bloomberg also notes that “pretty much all Microsoft-owned studios are concerned about what happens next,” meaning the anxiety extends well beyond these three named teams.
Honestly, what makes this particularly grim is the timing relative to these studios’ recent output. Compulsion shipped South of Midnight in March 2025 – it landed on Switch 2 as well – and is now reportedly fighting for survival weeks after launch. Ninja Theory released Senua’s Saga: Hellblade II in 2024, a critically acclaimed title that by most accounts performed exactly the kind of prestige role Xbox said it wanted these studios to play. Double Fine put out Psychonauts 2 in 2021 and had recently surfaced a new project called Kiln. These are not studios that went dark or missed deliveries – they are studios that made games, made them well, and are still being walked to the edge. The Game Pass subscriber losses that followed Microsoft’s price hike illustrate the financial pressure driving these decisions, but that context does not make the logic any less corrosive to the studios caught in it.
The broader pattern is what should concern anyone tracking Xbox‘s first-party ambitions. Microsoft spent years and significant acquisition capital building a creative portfolio it said would differentiate the platform – and it is now negotiating the survival of studios it bought less than seven years ago. The question of what happens to Psychonauts, Hellblade, and any follow-up to South of Midnight as franchises is genuinely unanswered: IP could theoretically be retained even if studios close or go independent, but there is no precedent here that inspires confidence. Fable‘s continued delay into 2027 is a reminder of how thin the first-party release slate already looks without adding three more studios to the uncertainty column.
What remains unclear is which of the three studios faces the highest likelihood of outright closure versus a buyout or sale, and whether any third-party publishers are actively in acquisition conversations. The specific terms of any potential independence deal – including who retains the IP, what a management buyout would be valued at, and how many roles would survive – are all unconfirmed. What to watch: any official statements from Microsoft or Asha Sharma before the end of June deadline, and whether a known publisher surfaces as a buyer for any of the three teams. A silence that runs past June without announcement would itself be a signal.
Are the franchises at stake here – Psychonauts, Hellblade, South of Midnight – ones you think deserve to survive under new ownership if Microsoft walks away? And does this restructuring change your read on whether Xbox can rebuild a credible first-party slate at all? Sound off in the comments below, and keep your eyes on GameLuster for more Xbox and first-party studio coverage.
