Microsoft sells four Xbox studios, including Double Fine and Compulsion Games, amid major layoffs

Microsoft announced on July 6, 2026, that it is selling four Xbox studios as part of significant gaming cuts affecting its Xbox division. The layoffs will impact approximately 1,600 Xbox employees, with a total of 4,800 job losses across the company. The affected studios include Double Fine and Compulsion Games, which will return to independent status.

Details of the Studio Sales

The studios being sold are Ninja Theory and Undead Labs, known for titles like Hellblade and State of Decay. Xbox CEO Asha Sharma stated that agreements are in place to ensure ongoing development of Senua and State of Decay 3. This move marks a significant shift in Microsoft's strategy as it aims to refocus on larger franchises.

Sharma emphasized that these changes reflect a need for a reset within the Xbox division. “I know this is painful... Today’s decisions do not reflect their talent or dedication,” she noted in an internal memo.

Impact on Xbox Employees and Future Plans

In the memo, Sharma outlined that the restructuring will continue throughout the financial year, with plans to cut around 20% of Xbox jobs by July 2027. The layoffs are part of a broader strategy to address the company's declining margins and operational health. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” she stated.

As part of these changes, Mojang and King will now report directly to Sharma, while other studios, including Bethesda, may also face significant cuts. “We have also learned that we are not the best home for every type of studio,” Sharma added, indicating a shift towards supporting independent creators.

Future of Remaining Xbox Studios

The future of Arkane Studios, which is currently working on Blade, remains uncertain as it undergoes management consultations regarding potential strategic options. The discussions are expected to take months, leaving the fate of the project in limbo.

Despite the restructuring, Sharma assured that no first-party games or projects have been canceled as part of these reductions. “We now find ourselves competing not only with the largest publishers, but also with smaller independent studios,” she concluded.