TL;DR
Compulsion Games, Double Fine, and Ninja Theory are negotiating spinoffs from Xbox as Asha Sharma’s restructuring accelerates.
Three Xbox-owned studios are in active negotiations to buy themselves back from Microsoft rather than face closure, according to Bloomberg. Compulsion Games in Montreal, Double Fine Productions in San Francisco, and Ninja Theory in Cambridge, England, are each exploring deals that would make them independent again. Even if the talks succeed, many employees at all three studios are expected to lose their jobs.
The negotiations are part of a broader restructuring led by Asha Sharma, who took over as Xbox’s chief executive in February. Bloomberg reported earlier this month that Xbox was planning significant layoffs for July as Sharma attempts to reverse years of financial decline. Xbox has been considering spinning off its gaming division entirely or restructuring it as a subsidiary, though no final decision on that larger question has been made.
The three studios represent different stages of Microsoft’s acquisition strategy and different levels of commercial risk. Compulsion Games, which Microsoft acquired in 2018, released South of Midnight in May. The game reached one million players and won the Games for Impact award at The Game Awards 2025, but neither milestone necessarily translates into the kind of revenue that justifies a first-party studio’s overhead.
Ninja Theory, acquired in the same 2018 wave, shipped Senua’s Saga: Hellblade II in 2024 to strong reviews but modest sales. The studio is known for critically acclaimed work that appeals to a dedicated audience rather than the mass market. Double Fine, bought in 2019, released Psychonauts 2 in 2021 to widespread praise and has since produced smaller titles including Keeper and Kiln.
The common thread is that all three studios make games that win awards but do not generate the revenue Xbox needs to justify its spending. Microsoft has poured more than $20 billion into gaming content, platform development, and hardware over the past five years. Annual revenue has declined by roughly $500 million over the same period.
Xbox’s operating margins have collapsed to approximately 3 per cent this fiscal year. That figure explains the urgency behind Sharma’s restructuring and the willingness to let studios negotiate their own exit rather than simply closing them.
Craig Duncan, who led Xbox Game Studios, stepped down from his role this month. His departure removes the executive who had the closest operational relationship with the studios now facing spinoff or closure. No replacement has been announced.
Sharma’s approach differs from her predecessor Phil Spencer’s strategy of acquiring studios to build an exclusive content library. Spencer’s tenure culminated in the $69 billion acquisition of Activision Blizzard, which closed in 2023 and remains the largest deal in gaming history. The logic was that owning studios would drive Game Pass subscriptions and console sales. The financials suggest it has not worked as planned.
In an internal memo reported by Bloomberg, Sharma told staff that the current spending trajectory “cannot continue.” The restructuring is expected to preserve Xbox’s highest-revenue franchises. Gears of War: E-Day and Clockwork Revolution have both been announced as Xbox console exclusives, signalling that Microsoft is not abandoning first-party development entirely but is concentrating resources on titles with proven commercial appeal.
The spinoff model would let Compulsion, Double Fine, and Ninja Theory continue operating as independent studios, potentially signing publishing deals with other companies or self-publishing. But independence comes with constraints. Microsoft’s broader workforce strategy has already shifted toward converting payroll into AI capital expenditure, and gaming studios that cannot demonstrate strong returns face the same calculus that led to 23,000 position eliminations across Meta and Microsoft in April.
The outcome of these negotiations will signal how Microsoft values creative output that does not meet commercial thresholds. Compulsion, Double Fine, and Ninja Theory all make games that critics and players respect. The question is whether respect is enough to survive a restructuring driven by a 3 per cent margin.
Stephan is the sports journalist for the Maple Grove Report.
