Xbox is in discussions to separate Compulsion Games, Double Fine, and Ninja Theory rather than closing them down.

      **TL;DR** Compulsion Games, Double Fine, and Ninja Theory are in negotiations to buy themselves back from Xbox as Asha Sharma's restructuring gains momentum. According to Bloomberg, the three Xbox-owned studios are actively seeking to regain their independence to avoid closure. Despite any successful negotiations, many employees across the studios are anticipated to lose their positions.

      These talks are part of a larger overhaul under Asha Sharma, who became Xbox’s chief executive in February. Earlier this month, Bloomberg reported that Xbox plans significant layoffs in July as Sharma aims to address years of financial decline. The company has considered spinning off its gaming division or restructuring it as a subsidiary, but no final decision has been reached.

      The three studios showcase different phases of Microsoft's acquisition strategy and varying levels of financial risk. Compulsion Games, acquired in 2018, released South of Midnight in May, which reached one million players and received the Games for Impact award at The Game Awards 2025, yet these achievements do not necessarily provide the revenue needed to cover a first-party studio's expenses.

      Ninja Theory, also acquired in the 2018 wave, released Senua’s Saga: Hellblade II in 2024, garnering positive reviews but only moderate sales. The studio is recognized for its acclaimed projects that attract a loyal audience rather than mainstream appeal. Double Fine, purchased in 2019, launched Psychonauts 2 in 2021 to high acclaim and has since released smaller games like Keeper and Kiln.

      All three studios are known for producing award-winning games that fail to generate the revenue Xbox requires to support its expenditures. Microsoft has invested over $20 billion in gaming content, platform development, and hardware in the past five years, while annual revenue has decreased by about $500 million in the same timeframe.

      Xbox's operating margins have plummeted to around 3 percent this fiscal year, highlighting the urgency of Sharma's restructuring and the choice to allow studios to negotiate buyouts rather than face closure.

      This month, Craig Duncan, who led Xbox Game Studios, resigned from his position, leaving without a replacement the executive most closely associated with the studios now facing potential spinoff or shutdown.

      Sharma's strategy contrasts with her predecessor Phil Spencer's focus on acquiring studios to expand an exclusive content library. Spencer's tenure included the historic $69 billion acquisition of Activision Blizzard, finalized in 2023, yet the financial results indicate that this strategy has not delivered the expected outcomes.

      In a memo to staff, reported by Bloomberg, Sharma addressed the unsustainable current spending trajectory. The restructuring aims to preserve Xbox’s most profitable franchises, with titles like Gears of War: E-Day and Clockwork Revolution confirmed as Xbox console exclusives. This indicates Microsoft is not completely abandoning first-party development but is reallocating resources to projects with established market success.

      The spinoff model would allow Compulsion, Double Fine, and Ninja Theory to operate as independent studios, potentially entering publishing agreements with external companies or self-publishing. However, this independence comes with limitations. Microsoft's broader workforce strategy has shifted toward converting payroll into AI capital expenditures, and studios that do not show strong returns may face similar challenges that led to the elimination of 23,000 positions at Meta and Microsoft in April.

      The results of these negotiations will reflect Microsoft's valuation of creative endeavors that fall short of commercial benchmarks. Compulsion, Double Fine, and Ninja Theory all produce games that are respected by critics and players. The critical question remains whether that respect can sustain them through a restructuring influenced by a slim 3 percent margin.