Xbox Reportedly Considering Studio Spin-Offs as Layoff Concerns Grow
Microsoft’s Xbox division is once again at the center of industry speculation, with new reports claiming the company is in active discussions about spinning off several of its internal game studios rather than closing them completely.
According to people familiar with Xbox’s internal planning, Microsoft is reportedly exploring options for studios such as Ninja Theory, Double Fine Productions, and Compulsion Games. The move would potentially allow these teams to continue operating outside of Microsoft ownership, avoiding outright shutdowns as the company looks for ways to reduce costs across its gaming business.
The reports arrive amid growing concerns that another wave of Xbox layoffs may be on the way. Over the past year, Microsoft’s gaming division has faced intense scrutiny following major restructuring, studio closures, and job cuts. Now, speculation is building that more teams once considered safe could be affected.
Veteran game developer Chris Avellone recently suggested that studios previously believed to be protected from layoffs are now being warned that they may be at risk. That has added fuel to the belief that Microsoft is reviewing its entire Xbox Game Studios portfolio with a sharper focus on profitability and long-term sustainability.
One of the most notable names reportedly involved in the discussions is Ninja Theory, the studio best known for Hellblade and its visually ambitious narrative-driven games. The team recently revealed a new project, making the timing of the reports especially surprising. According to the latest claims, Ninja Theory may have been informed that Microsoft was considering closing the studio, though a buyout or spin-off could remain a possible alternative.
Double Fine Productions, known for Psychonauts and its creative approach to game development, is also said to be among the studios being discussed. Compulsion Games, the developer behind We Happy Few and the upcoming South of Midnight, has also been named in the same reports.
If Microsoft does choose to spin off these studios, it would mark a major shift in strategy. Rather than simply shutting down teams that no longer fit its internal business goals, Xbox could allow them to seek independent funding, new ownership, or publishing partnerships. For developers, that could mean survival. For Microsoft, it could mean cutting expenses while avoiding some of the backlash that often follows studio closures.
The rumored changes come shortly after a widely discussed internal memo called for an “Xbox reset,” leading many fans and industry watchers to expect broader changes within the division. The language reportedly used in that memo suggested that Xbox leadership may be preparing for a more aggressive restructuring plan as it tries to reposition the brand for the future.
Microsoft’s top leadership has also been emphasizing the need for the Xbox business to become more profitable and sustainable. Recent comments from Microsoft’s CEO highlighted the pressure on the gaming division to deliver stronger financial results. The message was clear: Xbox can no longer rely only on growth, subscriptions, and major acquisitions. It must prove that its studios, services, and content strategy can generate consistent returns.
This shift has raised concerns among players who worry that creative, story-driven studios may be especially vulnerable in a business environment increasingly focused on margins, live-service success, and predictable revenue. Studios like Ninja Theory, Double Fine, and Compulsion Games are known for distinctive games that often prioritize artistic vision over mass-market formulas. That makes the possibility of their spin-off or closure particularly significant for fans of unique first-party Xbox titles.
Adding to the uncertainty, Xbox Game Studios boss Craig Duncan has also announced his resignation. Reports suggest that his decision was made before the latest layoff discussions began internally, but the timing has still drawn attention as Microsoft’s gaming division appears to be entering another period of major transition.
For now, Microsoft has not publicly confirmed plans to close or spin off Ninja Theory, Double Fine Productions, or Compulsion Games. Until official details emerge, the situation remains based on reports and industry chatter. Still, the possibility alone has sparked fresh debate about the future of Xbox Game Studios and whether Microsoft’s gaming strategy is moving away from studio expansion toward consolidation and cost control.
If these spin-offs do happen, they could reshape the Xbox first-party lineup and change the future of several beloved development teams. For Xbox fans, the coming weeks may be crucial in determining whether these studios remain part of Microsoft, continue independently, or face a more uncertain future.
