Today, Microsoft announced another massive wave of layoffs. This follows previous reporting that layoffs were coming. As part of this, Xbox CEO Asha Sharma shared a memo with team members and staff discussing the future of many of its various studios.
As explained in a memo shared with Kotaku on July 6, Double Fine Productions, the studio behind Psychonauts 2, as well as Compulsion Games, the team behind South of Midnight, will “transition” back to being independent studios as they were before being acquired by Microsoft. Both studios will retain rights to all of their IP, including anything created after Xbox bought them up. Microsoft is also providing runway funding to both studios to help them start new games and find future investors and publishers.
Meanwhile, Ninja Theory and Undead Labs have signed contracts to “join new ownership,” according to Sharma’s memo. Both studios will receive funding to complete and “grow” their respective in-development games, Senua and State of Decay 3. Microsoft isn’t revealing what companies have purchased the studios yet. Over in France, Arkane Lyon, the studio behind the upcoming Blade game, has entered “required consultation with its Works Council” to begin looking at “potential strategic options.” Due to local laws in the country, Arkane Lyon’s future has yet to be figured out.
Xbox is preparing to lay off approximately 3,200 of its employees in what Sharma calls “the most significant restructure in Xbox history.” According to the internal email seen by Kotaku, 1,600 of these cuts will happen today. The rest will come later. Xbox later posted the full memo online.
According to a source who spoke to Game File, selling and spinning off these studios will account for more than 300 jobs leaving the Microsoft Gaming division. It has been reported that Hideo Kojima’s Xbox horror game, OD, won’t be affected by the massive shift in plans.
“We’re grateful for the years we spent with Xbox,” posted the official Compulsion Games account on Bluesky following the news. “As an independent studio, we’re excited to continue building the distinctive games that define Compulsion while taking the next steps in our journey. Our immediate priority is to support our team throughout this transition period.”
“We are confident in the future of Compulsion Games and look forward to this next chapter where one thing will remain constant: we will create unique games that tell important stories, all with the goal of touching the hearts and minds of our players.”
Shortly after the memo was shared online, Double Fine and its founder, Tim Schafer, also posted a message about transitioning back to being an indie studio on social media.
“Once again, Double Fine Productions will be an independent studio. We’re thankful to Xbox for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us,” said the studio online. “To everyone who reached out to us these past few weeks: Thank you for all your kind words, we’ve been deeply touched by your messages. We will share more soon on what comes next. Your continued support is greatly appreciated.”
