It’s official here: one of the darkest days in gaming is upon us. Over the past couple of weeks, Xbox has been alluding to a massive reorganization of its gaming division, and now it’s here: mass layoffs are hitting the entire company, and five studios will also be affected by Xbox’s reorganization. These five studios in question are Ninja Theory, the studio behind the Hellblade series, which is currently set to release a new title next year. Double Fine, the studio behind Psychonauts, and Compulsion Games, the minds behind South of Midnight. Undead Labs also joins the list, as they are currently developing State of Decay 3, and the last studio affected is Arkane, the studio behind the new Blade game. These five studios will leave the Xbox branch, either going independent or under new leadership; either way, they will no longer be part of Xbox as part of its reorganization plan.
This is an important email I sent today to all employees at XBOX:
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I’ve made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
— ASHA (@asha_shar) July 6, 2026
So now that we know which studios will be affected, what exactly is happening to them? Well, in the case of both Ninja Theory and Undead Labs, they have been sold off to an undisclosed buyer, while continuing their current work with Xbox, which is Senua and State of Decay 3.
— Double Fine (@DoubleFine) July 6, 2026
An important update from Compulsion Games. pic.twitter.com/V4yRkpshuk
— Compulsion Games (@CompulsionGames) July 6, 2026
Both Double Fine and Compulsion Games will return to being independent studios and will be allowed to keep their IP libraries to support their future, which is a really good thing. And now on to the last studio, as this one is a bit messy. Due to laws in France, Arkane Studios won’t be leaving Xbox right away, as in the words of Asha:
“In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.”
All in all, this is a dark day in gaming, though many people saw the writing on the wall; the overall situation is not good. Xbox has not only conducted mass layoffs but is also letting go of four studios while working on a way to address Arkane under French law. The only bright side is that the five studios in question have not been forced to shut down as many feared, though with the loss of a juggernaut of a backer like Xbox, it’s unknown how the studios will be affected later down the line. The worst part is that the only person at fault here is Xbox, as its management has run the company off a cliff and is now trying to forge its own path. Either way, this will go down as an infamous day for gaming.