Microsoft Reportedly Shutting Down Hellblade Developer Ninja Theory, Several Other Xbox Studios

After a brief period of newfound optimism under new CEO Asha Sharma, Xbox is now reckoning with the grim reality of its business operations. Days after Sharma underlined an urgent need for a “reset” at the company, which reportedly includes a new round of layoffs, new reports claim multiple Xbox-owned studios are facing closure, including Hellblade 2 developer Ninja Theory and South of Midnight maker Compulsion Games.

The reports come a little over a week after Microsoft hosted the Xbox Games Showcase, where Ninja Theory announced a new Senua title. At the showcase, Sharma announced the return of exclusive games, confirming that Gears of War: E-Day and Clockwork Revolution would be Xbox console exclusives.

Since then, the Xbox boss has said its studios are overextended and underfunded and emphasised the need for a business reset. Initial reports claimed Xbox was preparing a major round of layoffs in July. But the cuts could reportedly also see multiple studio closures.

Several Xbox Studios Facing Closure

Bloomberg reported Tuesday that Compulsion Games and Double Fine Productions, studios Microsoft acquired in 2018 and 2019, respectively, are facing closure and are actively negotiating a deal with Xbox to spin off.

Hellblade 2 developer Ninja Theory, too, is in discussions with Microsoft over its survival, the report said. As per The Verge, the Xbox parent told Ninja Theory's staff about closure on Monday, just a week after the studio announced Senua, the third game in the Hellblade series. The developer, too, is hoping it can spin off from Xbox and find a buyer, according to the report.

The Bloomberg report said that several other studios at Xbox could be shut down as the company shifts its focus to its core franchises like Halo. At risk studios, however, could potentially buy themselves out and operate independently or seek new buyers. Several employees at the studios currently negotiating with Microsoft could be laid off, the report said, citing people familiar with the proceedings.

In addition to studio shutdowns, there's also been a leadership shake-up at Xbox. As per The Game Business, Craig Duncan, the head of Xbox Game Studios, is leaving his role, as is Xbox Game Studios chief of staff Louise O'Connor.

Microsoft has not yet officially announced its plans for its studios or commented on the discussions with the developers. The company is expected to confirm a new round of layoffs at the Xbox division next month after the end of the current fiscal year.

A History of Cuts at Xbox Since Activision Acquisition

Reports of cuts and studio closures at Xbox come almost exactly a year after Microsoft announced widespread layoffs at its gaming division in July 2025. As part of those cuts, the company cancelled the Perfect Dark remake and shut down The Initiative studio. Layoffs at the time also impacted Candy Crush developer King, Call of Duty makers Raven Software and Sledgehammer Games, Halo Studios, and Forza Motorsport developer Turn10 Studios. In addition to Perfect Dark, Xbox also cancelled Rare's Everwild and an unannounced MMO from The Elder Scrolls Online developer ZeniMax Online Studios.

Project cancellations, layoffs, and studio closures have become a recurring occurrence at Xbox since its parent Microsoft completed the acquisition of gaming behemoth Activision Blizzard in October 2023 for over $69 billion. In 2024, the company shut down three of its Bethesda-owned game studios, including Hi-Fi Rush developer Tango Gameworks and Redfall maker Arkane Austin, to shift focus to its “priority games.”

A similar sentiment was echoed by the new Xbox chief in a memo to staff last week. Sharma said the company needed to “reset” its business across hardware, content, and services over the next 100 days.

The Xbox boss, who replaced Phil Spencer as chief executive in February, added that the company's game studios were “over extended” and admitted that its biggest franchises had not been “adequately funded” to compete with rival titles. Xbox would reassess its content portfolio and prioritise investment over the next five years, Sharma said.

A report this week from The Information claimed that Xbox was planning to invest more into its most successful franchises like Halo, The Elder Scrolls, and Fallout to accelerate development of projects. Additionally, the report claimed that Microsoft was considering all its options with its faltering gaming division, including spinning off Xbox entirely or resetting it as a joint venture with an outside partner.