Xbox Layoffs: Ninja Theory, Undead Labs Land New Owners, Arkane Enters Consultation
Xbox is cutting roughly 3,200 jobs across its next fiscal year and shedding four studios, with Hellblade developer Ninja Theory and State of Decay maker Undead Labs both sold to new, as-yet-undisclosed owners. New Xbox CEO Asha Sharma confirmed the changes in a staff memo published to Xbox Wire on Monday, calling it “the most significant restructure in Xbox history,” while a fifth studio, Arkane Lyon, has entered a legally required consultation with its French Works Council over its own future.
The company will lay off 3,200 employees by the end of the fiscal year 2027, with 1,600 cuts happening today. The reductions sit inside a much larger wave at parent company Microsoft, which announced approximately 4,800 total job cuts across the wider company Monday, which includes the 1,600 from Xbox. A further tranche is still to come: up to another 1,250 employees at Xbox could be laid off over the next year, Sharma noted, bringing the total to 3,200 projected eliminations at Xbox over the next 12 months.
Ninja Theory and Undead Labs sold, Compulsion and Double Fine go independent
Four studios are leaving the Xbox Game Studios stable outright. South of Midnight developer Compulsion Games and Psychonauts maker Double Fine are both returning to independence with full ownership of their respective IP catalogs. Double Fine’s return puts founder Tim Schafer back in charge, while Compulsion Games will once again be led by Guillaume Provost.
Ninja Theory and Undead Labs face a different path. Rather than independence, Ninja Theory and Undead Labs have agreed to join new ownership with the financing required to bring Senua and State of Decay 3 to market. The identity of the buyer or buyers has not been made public. According to Kotaku, which obtained Sharma’s internal memo, Ninja Theory and Undead Labs will join new ownership, with funding to complete and grow Senua and State of Decay 3, though the specifics of that have not yet been disclosed.
Both studios were originally folded into Xbox Game Studios in 2018. Ninja Theory has since shipped Senua’s Saga: Hellblade II and Bleeding Edge, while also announcing and subsequently cancelling the horror project Project Mara. Undead Labs, for its part, launched State of Decay 2 and initiated development on State of Decay 3, one of the major revelations at the Xbox Games Showcase 2026.
Arkane Lyon faces French labour review, Marvel’s Blade in limbo
The most closely watched name in the memo wasn’t among the four confirmed departures. Arkane Lyon has begun a consultation process that Microsoft said will allow the studio to “review potential strategic options,” and it’s unclear whether this will result in the closure of the Blade developer or another studio exit. Because Arkane is based in France, Microsoft cannot simply announce a sale or closure; it must open a formal consultation with the studio’s Works Council under French labor law before any “strategic options” are decided.
The uncertainty has put Arkane’s Marvel’s Blade squarely in the spotlight. The studio is currently making Marvel’s Blade, though development updates have been few since its announcement in December 2023. Arkane founder Raphaël Colantonio, who left the studio in 2019 and now runs WolfEye Studios, reacted publicly to Sharma’s memo, asking pointedly, “Regarding Arkane… how much? I’m asking for a friend.”
Sharma: no announced first-party games cancelled
Sharma was explicit that the restructuring is not meant to sink existing projects. In her memo she wrote that “we are also making reductions across other units, and in some cases, shifting investment to focus on higher priority projects. These changes vary in size across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios. None of our first party publicly announced games or projects are being cancelled as part of these reductions.”
Two of Microsoft’s biggest live-service properties are being pulled closer to the centre of the business rather than cut. Mojang and King will now report directly to Sharma, with the two studios described as having increasingly become platforms and the company’s largest by monthly active players. Variety additionally reports that content spending won’t shrink overall: throughout Xbox’s next fiscal year, the company will see approximately the same content spend as it did over the prior year, though the investment will shift with titles including Minecraft and the Elder Scrolls franchise prioritised as major growth areas.
Fifth major cut since the Activision Blizzard deal
This is not an isolated event in Xbox’s recent history. Kotaku notes the cuts land almost one year to the day after a previous wave of huge cuts at Microsoft that impacted 9,100 individuals company-wide, itself less than a year after an earlier mass layoff of 650 across Xbox, which followed a layoff of nearly 2,000 across the gaming division in January 2024. Game Developer’s reporting frames this as part of a broader pattern of course-correction, noting Sharma’s memo said the cuts are required in order to course correct after bets on Xbox Game Pass and multiplatform releases failed to pay off.
For Australian and New Zealand Xbox fans, the fallout is mostly reputational rather than immediate: no regional Game Pass pricing or availability changes have been announced alongside the studio sales, and Sharma’s memo stresses that in-development, previously confirmed titles including the next Senua game and State of Decay 3 will still ship. But the uncertainty hanging over Arkane and its long-gestating Marvel’s Blade is a reminder that even “no cancellations today” comes with an asterisk while a French labour consultation plays out.
Read also: Id Software Says Xbox Layoffs Shrank Studio to DOOM 2016-Era Size
Join the Conversation