Xbox Parts Ways With 4 Studios, Arkane Faces “Required Consultation”
Xbox is cutting roughly 3,200 jobs and severing ties with four wholly owned studios, while Dishonored and Deathloop developer Arkane has been pushed into a legally mandated review of its future in France. Xbox CEO Asha Sharma confirmed no previously announced first-party games or projects are being canceled as a result of the staffing reductions, while writing that France-based Arkane is “beginning required consultation with its Works Council to review potential strategic options.”
Throughout Xbox’s next fiscal year, which runs from July 1, 2026, to June 30, 2027, the company expects to spend roughly the same on content as it did the prior year, with titles including Minecraft and the Elder Scrolls franchise prioritized as major growth areas. The cuts, revealed on Monday, mark the latest and largest shake-up at Microsoft’s gaming division since it closed its Activision Blizzard acquisition in 2023.
Compulsion, Double Fine Go Independent; Ninja Theory and Undead Labs Sold
Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. That means South of Midnight developer Compulsion and Psychonauts studio Double Fine keep full control of their franchises going forward, free of Microsoft’s balance sheet but also without its backing.
Ninja Theory and Undead Labs, meanwhile, have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. Neither Sharma’s memo nor the outlets tracking the story have named the buyers taking on the Hellblade and State of Decay studios.
Arkane Lyon’s Fate Tied to French Labour Law, Marvel’s Blade in Limbo
Arkane sits apart from the other four because its remaining studio, Arkane Lyon, is based in France. Similar to the UK, which mandates a month-long redundancy process in the event of layoffs, muscular French labor laws prevent the sort of abrupt, day-and-date layoffs common in the United States. That legal framework is why Arkane wasn’t folded into Monday’s list of four confirmed exits, even as reporting treats it as a functional fifth.
The studio is currently developing Marvel’s Blade, and its future is directly tied to the consultation’s outcome. Bloomberg has reported that Microsoft intends to sell or spin off the studio, a detail PC Gamer folded into its coverage of the Works Council process, and “the fate of the Blade game is contingent on the studio’s future,” according to reporting cited in that same coverage. Arkane’s Austin studio was already closed by Microsoft in 2024 following the commercial underperformance of Redfall, leaving Lyon as the last Arkane outpost still operating under Xbox.
The uncertainty prompted a pointed reaction from Arkane’s own lineage. Founder Raphael Colantonio, who left the studio to start Weird West developer WolfEye Studios, responded to Sharma’s announcement with, “Regarding Arkane… how much? I’m asking for a friend.” Colantonio led Arkane for close to two decades before departing in 2017 and has previously criticised Microsoft’s handling of the studio, including the Arkane Austin closure.
3,200 Roles Cut Across Activision, Bethesda, Blizzard and Xbox Game Studios
The layoffs will affect almost every division at Xbox, with the scale varying across developers including Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, a source told Variety. Sharma also confirmed that Mojang and King will now report directly to her, noting the two studios “have increasingly become platforms and are our largest by monthly active players.”
GamesRadar+ reported that Sharma described the cuts in her staff memo as “the most significant restructure in XBOX history.” The outlet also noted the sharper edge of Arkane’s situation: “Things are less reassuring when it comes to Dishonored and Deathloop studio Arkane,” with the site adding that clearer news on its fate was still to come, since “potential strategic options” doesn’t immediately inspire confidence.
Hardware Crisis Cited Alongside Game Pass Struggles
Game Developer reported that Sharma’s memo tied the restructure partly to external market pressure. Sharma said the company must reset to navigate a “severe hardware crisis” that has dramatically inflated memory prices and, by extension, console hardware. That component squeeze, which the outlet linked to surging AI data-centre investment, sits alongside Microsoft’s admission that its Game Pass and multiplatform bets have not delivered the growth the company expected.
For players in Australia and New Zealand, where console and component pricing already carries a premium over North American and European markets, a prolonged memory shortage of this kind is the sort of pressure that tends to show up first in regional retail prices rather than in press releases. Xbox has not detailed any specific ANZ pricing changes, but the underlying cost dynamics Sharma cited apply globally.
What happens to Arkane Lyon next depends on how the Works Council consultation plays out, a process that, per French labour rules, can extend over months rather than being settled with a single announcement. Until that concludes, Marvel’s Blade remains officially in development but without a confirmed release path, leaving one of the last studios from Xbox’s late-2010s acquisition spree as the clearest unresolved question to come out of Monday’s restructure.
Read also: Id Software Says Xbox Layoffs Shrank Studio to DOOM 2016-Era Size
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