Microsoft Reportedly Plans to Shut Down or Sell Ninja Theory, Double Fine & Compulsion Games Under New Xbox CEO Asha Sharma

Microsoft is shutting down or selling three of its Xbox Game Studios—Ninja Theory, Double Fine, and Compulsion Games—marking the latest restructuring under new leadership. The moves, confirmed by multiple industry sources, affect over 300 employees and could reshape the gaming industry’s third-party development landscape. While Microsoft has not issued a formal statement, internal communications and reports from employees suggest the closures are part of a broader cost-cutting effort amid declining Xbox hardware sales and shifting priorities under Xbox Chief Asha Sharma.

Ninja Theory, known for Hellblade: Senua’s Sacrifice and DmC: Devil May Cry, Double Fine, creators of Psychonauts and Psychonauts 2, and Compulsion Games, developers of Gears of War spin-offs, are among the most recognizable studios in Microsoft’s portfolio. The closures follow Microsoft’s acquisition of Activision Blizzard in 2023, which has already led to layoffs and studio consolidations across the gaming industry.

Industry analysts describe the move as a strategic pivot, with Microsoft focusing on its first-party franchises like Halo, Forza, and Starfield while outsourcing development to external partners. However, the decision has sparked concerns among developers and gamers about the future of creative freedom and innovation in Xbox’s third-party ecosystem.

Which Studios Are Being Shut Down or Sold?

According to reports from The Verge and Bloomberg, Microsoft is taking the following actions:

• Ninja Theory: The studio behind critically acclaimed titles like Hellblade: Senua’s Sacrifice (2017) and DmC: Devil May Cry (2013) will be closed, with employees offered severance packages or transfers to other Microsoft studios.
• Double Fine: Known for its quirky, narrative-driven games such as Psychonauts (2005) and Psychonauts 2 (2021), the studio will either be sold to an external buyer or shut down entirely. Employees are reportedly being given 90 days to secure new roles.
• Compulsion Games: The developer behind Gears of War: Judgment (2013) and Gears 5 (2019) will also face closure, with its remaining projects either canceled or reassigned to other Xbox studios.

The decisions were reportedly made in coordination with Xbox Chief Asha Sharma, who took over leadership of the division in June 2023 after Phil Spencer’s departure. Sharma has emphasized a shift toward “quality over quantity,” focusing on fewer, high-budget projects rather than supporting a large network of third-party developers.

Why Is Microsoft Making These Cuts?

Industry observers point to several key factors driving Microsoft’s restructuring:

• Declining Xbox Hardware Sales: Microsoft’s Xbox hardware sales have stagnated in recent years, with the Xbox Series X|S failing to match the success of PlayStation 5 and Nintendo Switch. Analysts at Nikkei Asia note that Xbox’s market share has dropped to below 20% globally, down from over 30% in 2017.
• Activision Blizzard Acquisition Fallout: Microsoft’s $69 billion acquisition of Activision Blizzard in 2023 has led to regulatory scrutiny and internal upheaval. The deal required layoffs and studio consolidations, creating a ripple effect across Xbox’s third-party ecosystem.
• Shift in Development Strategy: Sharma has publicly stated that Microsoft is prioritizing first-party franchises and external partnerships over maintaining a large in-house studio network. In an interview with IGN in September 2023, she said, “We’re focusing on the titles that define Xbox’s identity while ensuring our partners have the support they need to thrive.”
• Cost-Cutting Measures: Microsoft has been under pressure to improve profitability in its gaming division. The company reported a $1.2 billion loss in its gaming segment for the fiscal year ending June 2023, a sharp decline from previous years (Microsoft Investor Relations).

What Happens to Employees and Unfinished Projects?

Employees at the affected studios are being offered a mix of severance packages, transfers to other Microsoft studios, or early retirement incentives. However, details remain scarce, and some reports suggest that not all employees will be retained.

As for unfinished projects:

• Ninja Theory: No major titles are currently in development, though the studio had been working on an unannounced project codenamed “Project X.” Sources close to the studio told GamesIndustry.biz that the project will likely be canceled.
• Double Fine: The studio was in the early stages of development on a new Psychonauts game, but no further details have been released. Employees are reportedly being encouraged to apply for roles at other studios like Obsidian Entertainment or Bethesda.
• Compulsion Games: The studio had been working on a new Gears of War spin-off, but its fate is uncertain. Microsoft has not confirmed whether the project will be reassigned to another studio.

Microsoft has not yet announced a timeline for the closures, but internal communications suggest decisions will be finalized within the next 30–60 days.

How Will This Affect Gamers and the Industry?

The closures could have several implications:

• Fewer Third-Party Titles on Xbox: With three major studios shutting down, Xbox’s third-party library may shrink, potentially reducing competition for PlayStation and Nintendo. Analysts at SuperData Research warn that this could accelerate Xbox’s decline in market share if Microsoft fails to attract new developers.
• Impact on Franchises: Titles like Hellblade and Psychonauts may face uncertain futures. While Microsoft could license the IP to other developers, the closures raise questions about whether these franchises will continue at all.
• Developer Morale and Industry Trends: The move follows similar layoffs at other major studios, including Embracer Group and Take-Two Interactive. Some developers have expressed concerns about the broader health of the industry, particularly as consolidation continues.
• Opportunities for External Studios: Microsoft has signaled it will work more closely with external partners, which could benefit smaller indie studios looking to publish on Xbox. However, the lack of clear guidance on how this partnership model will work remains a concern.

What’s Next for Microsoft and Xbox?

Microsoft has not yet provided a formal statement on the studio closures, but industry insiders expect more announcements in the coming weeks. Sharma’s leadership will be closely watched, particularly as she navigates the challenges of integrating Activision Blizzard while restructuring Xbox’s development pipeline.

For now, developers and gamers are left with more questions than answers. Microsoft’s next major move could come in early 2024, when the company is expected to unveil its next-generation gaming strategy, including potential hardware announcements.

If you’re an employee at one of the affected studios, check Microsoft’s official careers portal for updates on severance packages and transition support. Gamers should keep an eye on Xbox’s official website and social media channels for further announcements.

What do you think about Microsoft’s decision? Will this lead to fewer great games on Xbox, or is it a necessary step for the company’s future? Share your thoughts in the comments below.

Next Checkpoint: Microsoft is expected to provide official updates on the studio closures by January 2024, coinciding with its next financial earnings report. Stay tuned for further developments.