Microsoft’s latest Xbox layoffs could reportedly lead to the closure of more than five gaming studios. Although the publisher has yet to confirm any shutdowns, multiple reports have revealed several teams that may be at risk. Here are the Xbox studios that could be affected.
Xbox Studios Reportedly at Risk of Closure
In early June, multiple reports raised alarm bells over upcoming Xbox layoffs. Some insiders even described it as a “bloodbath.” While Microsoft has yet to officially announce anything, the details of the mass firings continue to get worse every week. According to recent reports, five Xbox game studios could be closed when the layoffs begin in July 2026.
Here are the five Xbox studios that reportedly could be closed by Microsoft:
- Arkane Studios
- Compulsion Games
- Double Fine
- Ninja Theory
- Undead Labs
One of the more surprising closures that was just leaked is Undead Labs. While not confirmed, it’s rumored that Microsoft is considering cancelling State of Decay 3. However, what makes this tricky is that a lot of reports also claim Microsoft is actively looking at selling the above studios or allowing them to go independent. That said, below we will break down the following Xbox studios reportedly up for closure, and the latest updates we have on them.
Arkane Studios
Rumors of Arkane Studios’ closure were first reported on June 16 by French journalist Sylvain Trinel. At the time, no one was able to verify the writer’s claims. However, since then, The Verge has released a report confirming that sources had told them Arkane is one of the studios at risk of being closed down.
Veteran games journalist Tom Warren also reported that Microsoft is considering cancelling Marvel’s Blade as a form of cost-cutting for the company. “Sources tell me Microsoft wants to cancel Blade as part of a wave of cost cuts and job losses that are planned for the company’s Xbox gaming division.”
Compulsion Games
Compulsion Games was the first Xbox studio rumored to be shutting down. It was originally reported by Kotaku on June 16. The South of Midnight and We Happy Few developers were reportedly brought into a call by Microsoft management and informed about their potential closure.
However, Kotaku has since been contacted by an inside source who told them that Compulsion Games was in “active negotiations” with Microsoft to avoid being shut down. “According to one source at the studio, Compulsion leadership is in ‘negotiations’ with Microsoft over the studio’s fate, but the details of these negotiations have not been disclosed.” Although what those negotiations entail is unclear.
Double Fine
Bloomberg was the first to report that Double Fine Studios was in trouble. Like Compulsion Games, the outlet reported that the Psychonauts developer was in active negotiations with Xbox leadership. Reports specifically claimed that Double Fine was called into meetings with Microsoft to discuss the closure.
Again, it’s not entirely clear what these “active negotiations” mean. Although many speculate that Xbox is looking to find buyers for studios such as Double Fine. Or perhaps they are even giving the teams an option to buy out their contract and go independent. Regardless, at this point, it’s just speculation.
Ninja Theory
When reports first broke that Ninja Theory was up for closure, many players were shocked. It was particularly surprising, as the studio had just announced its new game Senua at the Xbox Games Showcase during Summer Games Fest 2026.
However, according to The Verge, Microsoft is actively looking at finding a buyer to purchase the Hellblade team. “Xbox is closing down Ninja Theory, the studio behind the Hellblade series. Staffers were told on a call on Monday about the closure, but they are hoping the studio will find a buyer.”
As for why Microsoft showed off the new Senua game in July, insiders report that it was to help make the studio look more appealing when looking for a buyer. While this was never confirmed by Microsoft, it’s a pretty bleak look at the current state of the industry.
Undead Labs
Perhaps one of the more surprising potential closures is Undead Labs. For years, people have been anticipating the release of State of Decay 3. While Microsoft has largely been quiet about the multiplayer game, what we have seen of the title looked extremely promising. That said, a report from GamesBeat recently claimed Undead Labs is one of the studios Microsoft is looking to sell off.
Windows Central‘s Jez Corden then backed up the report, stating: “It coincides with information I received over the weekend. Indeed, Undead Labs could be among the studios Microsoft is looking to offload as part of its fiscal year end.”
The post 5 Xbox Studios At Risk of Being Closed in Microsoft’s Layoffs appeared first on VICE.
