Microsoft's Xbox division is preparing to close at least three internal studios, with additional teams also at risk, according to reporting from Bloomberg's Jason Schreier.

Which studios are on the closure list?

The studios facing potential closure are Compulsion Games, Double Fine Productions, and Ninja Theory. All three currently negotiate with Microsoft in an attempt to buy themselves out and operate independently. Insider Gaming's Mike Straw added Arkane Lyon — currently developing Marvel's Blade — to the candidate list.

• Compulsion Games — developer of Contrast, We Happy Few, and South of Midnight.
• Double Fine Productions — creator of Psychonauts and its in-development project Kiln.
• Ninja Theory — studio behind the Hellblade series; Ninja Theory announced Hellblade III one week before Schreier's report.
• Arkane Lyon — confirmed by Mike Straw of Insider Gaming; currently developing Marvel's Blade.

Schreier reports that even if the three studios succeed in a management buyout, each would still face substantial layoffs. Microsoft's leverage in those discussions rests on the threat of outright closure.

What is driving the cuts?

According to Schreier, Xbox head Asha Sharma is pushing to raise the division's profitability by concentrating investment on Microsoft's largest franchises. The strategic shift places pressure on mid-tier studios whose recent releases have underperformed commercially or whose current projects do not align with the franchise-first mandate.

Schreier added that even commercially successful teams are uncertain about their future inside the division. The risk for studios is structural: any team whose pipeline is not tied to a flagship Microsoft franchise faces an uncertain funding path under the new strategy. Arkane Lyon's Marvel's Blade, a single-player action title based on the comic property, sits in that uncertain category.

How severe is the wider restructuring?

The Information previously reported that Microsoft is weighing a large-scale restructuring of Xbox. Options under consideration include spinning the gaming division out as a separate subsidiary, either wholly or jointly owned with an outside partner, or selling Xbox outright. Schreier's reporting indicates that layoffs and closures are the precursor moves that would reshape Xbox's cost base ahead of any structural transaction.

What changes for studios and teams?

For the affected studios, the immediate questions are which teams retain funding through the end of their current production cycles and how headcount obligations are handled in any buyout. South of Midnight shipped recently, Kiln is in development, Marvel's Blade has not yet shipped, and Hellblade III came one week before the closure report.

Each project represents sunk cost and ongoing payroll that complicate any closure timeline. A studio buyout would transfer those obligations to new ownership; an outright closure would leave Microsoft responsible for severance and contract terminations. Either outcome narrows Xbox's first-party pipeline and reduces the internal roster of developers working on non-flagship IP.

What to watch next?

No decision is public. Industry observers will look for an official Xbox statement, any changes to disclosure language in Microsoft's filings, and the outcome of the ongoing buyout negotiations. A subsidiary structure or outright sale would require board approval and likely regulatory review, processes that typically take quarters rather than weeks.