Microsoft is offloading two of its Xbox development studios, Undead Labs and Ninja Theory, as part of a sweeping restructuring of its gaming division that also includes thousands of job cuts. Xbox CEO Asha Sharma confirmed the sales, saying both studios have already lined up new owners who will provide funding to finish their current projects. The moves mark one of the most significant shake-ups of Microsoft's first-party game development lineup since it absorbed both studios years ago, and they arrive alongside a broader admission from Xbox leadership that the platform's business model is struggling.
Undead Labs and Ninja Theory Find New Owners
According to Sharma, Undead Labs and Ninja Theory have each reached agreements to move to new ownership groups that will supply financial backing to complete their in-development titles. Microsoft has not disclosed who is acquiring either studio. Ninja Theory's project is Senua, a new Hellblade combat game the studio unveiled only weeks ago at the Xbox Games Showcase in June. Undead Labs, meanwhile, is working on State of Decay 3, a sequel that has reportedly been in development for years. The divestitures suggest Microsoft is willing to let go of full ownership over these games rather than fund them to completion internally, even though both projects were treated as active priorities as recently as this summer.
Compulsion Games and Double Fine Set Free
Two other Xbox-owned studios are being spun back out on different terms. Compulsion Games and Double Fine are becoming independent companies again, keeping full control of their intellectual property and existing game catalogs. Sharma said Microsoft is providing both studios with transitional "runway" funding intended to support whatever projects they pursue next as standalone developers.
Arkane's French Studio Faces Review
Microsoft's Arkane studio in France is entering a different kind of uncertainty. Sharma said the studio is beginning a formal consultation process required under French labor law, a step that will determine what she called potential strategic paths forward for the team. No outcome has been decided yet, but the process signals the studio's status within Xbox is now an open question.
Layoffs Add Up Across the Company
The studio changes accompany a fresh round of layoffs. Xbox is cutting 1,600 positions immediately, with another 1,600 planned over the coming year. Counting reductions elsewhere at Microsoft, the company-wide total reaches 4,800 job losses, roughly 2.1% of Microsoft's global workforce. Microsoft executive Amy Coleman attributed the cuts to shifts in the business environment and pushed back on the idea that artificial intelligence is behind the reductions, stating the eliminated roles are not being replaced by AI systems.
Sharma Says Xbox Must Be "Reset"
Sharma was blunt about the state of the Xbox business, describing it as unhealthy and noting its profit margins trail those of competitors. She pointed to Microsoft's strategic bet on Xbox Game Pass, multiplatform game releases, and an expanded content portfolio, saying that approach has not delivered the growth Microsoft anticipated. She also cited what she called the worst hardware downturn the industry has seen, concluding that a reset of Xbox is now necessary. The restructuring comes despite continued financial strength at the parent company. Microsoft ranks as the fourth-largest company in the world by market value, with a market capitalization exceeding $2.8 trillion. In its most recent quarter, ended April 29, Microsoft reported $82.9 billion in revenue, a 15% increase, and $31.8 billion in profit, up 23%, while returning $10.2 billion to shareholders through dividends and buybacks. The combination of studio sales, spinoffs, a labor review, and thousands of layoffs marks a turning point for Microsoft's gaming division even as its parent company posts strong quarterly results. How the newly independent and sold-off studios fare under different ownership, and what becomes of Arkane's French team, will shape Xbox's next chapter.
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