Xbox in Crisis: Layoffs, Studio Closures & Leadership Exodus!

by L.W. and Ann Marie Barker

Multiple reports confirm that Compulsion Games (South of Midnight), Ninja Theory (Senua's Saga), and Double Fine (Psychonauts) are all in active negotiations to spin off from Xbox to avoid being shut down. Bloomberg reports that these studios — and others not yet named — were told they may be allowed to buy themselves back and go independent, but significant job losses are still expected. The Verge and Engadget report that Ninja Theory employees were directly informed their studio would be closing, though the team is trying to find a buyer to survive. Kotaku initially reported Compulsion was being shut down, then updated to say the studio is in “negotiations” with Xbox leadership, and Bloomberg’s Jason Schreier adds that these three are not the only studios at risk, and layoffs are expected after Microsoft’s fiscal year ends on June 30th.

Asha Sharma — Xbox’s new CEO — issued a memo titled “Next 100 Days: Xbox Reset”, warning that: Xbox’s current business model “cannot continue in its existing form.” The studio system is “overextended.” Costs are rising due to the global component crisis. This memo is widely seen as the precursor to the layoffs and closures now unfolding.

Two major Xbox Game Studios leaders have stepped down: Craig Duncan, head of Xbox Game Studios, and Louise O’Connor, Xbox, Chief of Staff. Bloomberg reports Duncan made his decision last week, just ahead of the planned layoffs. This follows the earlier departure of longtime Xbox chief Phil Spencer, replaced by Asha Sharma — marking the most dramatic leadership turnover in Xbox’s modern history.

Bloomberg and Dot Esports reporting indicates Microsoft leadership has considered spinning off Xbox entirely as part of a broader restructuring to force profitability. Microsoft leadership — including Satya Nadella — has been firm that the gaming division must become profitable “no matter the immediate losses.” This aligns with the aggressive cost-cutting and consolidation now underway.

Also, as we reported in an earlier article, Xbox leadership has publicly acknowledged that consumers will not pay $1,000+ for future consoles, even as hardware costs rise. As a result, Xbox has begun testing a Buy Now, Pay Later financing program on its official storefront. This signals a major shift in how Microsoft expects players to afford next gen hardware.

Our take? This is not a routine reorganization — it’s a survival pivot. All reports point to the same conclusion: Xbox is undergoing the most severe restructuring in its history. Studios are being shuttered or forced into buyouts, leadership is exiting Xbox, and Microsoft is openly questioning the long term structure of the Xbox brand itself.