On Monday, July 6, 2026, Xbox announced a sweeping restructuring that saw 1,600 leave and another 1,600 expected to leave before the end of the company’s fiscal year ending June 30, 2027.
Xbox boss Asha Sharma
The restructuring included a mix of layoffs and studio divestments. Xbox CEO Asha Sharma called it the “most significant restructure in Xbox history”. According to Sharma, although the reforms were painful, it was necessary to address Xbox’s unhealthy business.
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Since June, news has been circulating across different media outlets that several Xbox studios were facing closure risks. Following the Monday announcement, most of the studios rumored to be facing closure have now cleared the air about their future.
The future of Compulsion Games beyond Xbox
South of Midnight developer, Compulsion Games, was one of the first to release a statement highlighting what their future looks like post-Xbox era. In a message that went down memory lane to how the studio began in 2009, it was revealed that they will be returning to independent management.
“As part of this transition, we will retain the rights to Contrast, We Happy Few, and our award-winning South of Midnight,” the studio said. “We’re grateful for the years we spent with Xbox, for the support they provided our team, and for the opportunity to bring these games to players around the world.”
Compulsion Games has always been famous for making unique games that bring unpopular themes to life. The studio promised to continue in that DNA “with the goal of touching the hearts and minds of our players”.
Double Fine Productions will be an independent studio
San Francisco-based Double Fine Production founded by Tim Schafer after departing LucasArts in 2000. The studio’s first two games, Psychonauts and Brutal Legend, did not meet the publisher’s expectations, despite being overwhelmingly praised.
The official statement released by the studio revealed that they will be returning to an independent studio. The studio promised to share more news about what comes next in the coming weeks.
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“We’re thankful to everyone at 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”.
Undead Labs’ official statement post-Xbox era
Seattle-based Undead Labs, best known for the State of Decay franchise, also shared a message confirming they are leaving Xbox. However, unlike Compulsion Games and Double Fine, the message from Undead Labs was scantier, with a promise of more details in the future.
“Today, Undead Labs begins a new chapter,” the studio said. “We’re transitioning out of Xbox and while we can’t share all the details just yet, we can tell you this: State of Decay 3 is still coming.”
It was also reported that Ninja Theory is going to be taken over by a new owner, while Arkane Studios is looking to exit Xbox. Other Xbox studios, including id Software, Bethesda Game Studios, and Zenimax Online Studios, all suffered layoffs.
While we are gutted by the news, particularly because of the large number of people affected, there is an important positive to take away: whatever deal the studios struck with Xbox to let them retain ownership and their IPs is truly commendable.
Which of the studios returning to independent management are you most excited about? Share your thoughts in the comment box below.
