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Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring

Reports indicate significant turmoil at Xbox, with potential studio closures, executive departures, and deep strategic re-evaluations underway.

News Published 19 June 2026 5 min read Ethan Brooks

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TITLE: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
SLUG: xbox-upheaval-studio-closures-executive-departures
EXCERPT: Reports indicate significant turmoil at Xbox, with potential studio closures, executive departures, and deep strategic re-evaluations underway.
CATEGORY: news
TAGS: Xbox, Microsoft, Gaming Industry, Studio Closures, Executive Departures, Gaming Business
SEO_TITLE: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
SEO_DESCRIPTION: Reports indicate significant turmoil at Xbox, with potential studio closures, executive departures, and deep strategic re-evaluations underway following financial pressures and internal memos.
MEDIA_QUERY: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
IMAGE_ALT: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
CONTENT:
TITLE: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
SLUG: xbox-upheaval-studio-closures-executive-departures
EXCERPT: Reports indicate significant turmoil at Xbox, with potential studio closures, executive departures, and deep strategic re-evaluations underway.
CATEGORY: news
TAGS: Xbox, Microsoft, Gaming Industry, Studio Closures, Executive Departures, Gaming Business
SEO_TITLE: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
SEO_DESCRIPTION: Reports indicate significant turmoil at Xbox, with potential studio closures, executive departures, and deep strategic re-evaluations underway following financial pressures and internal memos.
MEDIA_QUERY: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring
IMAGE_ALT: Xbox Faces Internal Upheaval: Studio Closures and Executive Departures Signal Major Restructuring

The Xbox division of Microsoft is reportedly undergoing a period of intense upheaval, marked by rumors of studio closures, the departure of key executives, and a significant strategic reassessment of its business model. These developments follow an internal memo that painted a stark picture of the company’s financial performance and operational challenges.

Key Developments

Detail	Information
Potential Closures	Ninja Theory, Compulsion Games, and Double Fine are reportedly in negotiations for closure or buyouts.
Executive Departures	Craig Duncan (Head of Xbox Game Studios) and Louise O’Connor (Head of Staff) have left the company.
Financial Context	An internal memo cited a 3% profit margin for the fiscal year ending June 30, with declining annual revenues.
Strategic Shift	New CEO Asha Sharma is expected to prioritize “bigger franchises” like Halo, Gears of War, Fable, and Elder Scrolls.
Media Reports	Information largely stems from reports by Bloomberg and VGC, citing anonymous sources.

The unfolding situation at Xbox suggests a period of significant restructuring, with potential implications for game development pipelines and the future of several studios under the Xbox Game Studios umbrella.

Rumors of Studio Closures

Recent reports indicate that at least three studios under the Xbox Game Studios banner are in precarious positions. Ninja Theory, fresh off the announcement of “Senua” (the third installment in the ‘Hellblade’ saga), is reportedly negotiating its closure with Microsoft, according to Bloomberg. Compulsion Games, which released “South of Midnight” in April 2025, and Double Fine, known for titles like “Psychonauts” and “Brütal Legend,” are also said to be in discussions.

VGC reports that Compulsion Games and Double Fine are in negotiations to buy themselves out and become independent, a path previously taken by Toys for Bob in 2023. Ninja Theory’s situation appears more complex, with Microsoft reportedly considering direct closure, leaving the studio to seek an external buyer. Even for studios aiming for independence, the process is expected to involve significant staff losses.

Executive Departures Signal Internal Turmoil

Adding to the sense of instability, two high-ranking executives have recently departed Xbox. Craig Duncan, who took over as Head of Xbox Game Studios in October 2024 after a long tenure at Rare, and Louise O’Connor, Head of Staff, have left the company. Duncan’s responsibilities will be temporarily handled by Matt Booty. O’Connor’s departure marks her second exit from Xbox, having previously left Rare. These simultaneous departures from key leadership roles, situated between the CEO and the studios, suggest significant internal turbulence.

Financial Pressures and Strategic Reassessment

The reported studio closures and executive exits are contextualized by a stark internal memo from Xbox CEO Asha Sharma and Matt Booty. The memo, which was made public, highlighted considerable financial challenges. The fiscal year closing on June 30 is expected to see Xbox operating with a profit margin of around 3%. Over the last five years, the division invested $20 billion in studios, excluding the $69 billion acquisition of Activision Blizzard, while annual revenues declined by nearly $500 million.

The memo attributed these difficulties not solely to mismanagement but also to broader industry challenges, including a quadrupling of hardware component costs since last fall, with further increases anticipated by late 2027. The internal document described the studio system as “overextended” and admitted that Xbox had attempted to “balance too many different strategies” without adequately funding its studios to remain competitive. The memo concluded with a somber “This cannot continue.”

Future Direction Under New Leadership

Looking ahead, Xbox is expected to announce significant changes following the close of the fiscal year on June 30. Bloomberg has also reported that mass layoffs are anticipated. New CEO Asha Sharma has indicated a strategic shift towards prioritizing “bigger franchises,” including ‘Halo,’ ‘Gears of War,’ ‘Fable,’ and ‘The Elder Scrolls.’ This suggests that studios with smaller intellectual properties or those operating outside the mainstream may be excluded from future plans.

The timing of these revelations, occurring shortly after the Xbox Games Showcase on June 7, where the company presented detailed plans including the continued development of ‘Senua,’ the return of ‘Fable,’ and a new ‘Gears of War’ title, amplifies the perception of chaos. The fact that studios featured prominently in that showcase are now reportedly negotiating their survival highlights the abrupt nature of the current shifts within the company.

What remains unclear is the exact number of studios affected, the specific terms of any potential buyouts or closures, and the full scale of the anticipated layoffs. The long-term impact on the gaming landscape and the viability of smaller, specialized studios within Microsoft’s ecosystem remains to be seen.

Source:
https://www.xataka.com/videojuegos/estamos-viendo-como-xbox-se-desmorona-nuestros-ojos-rumores-cierre-ninja-theory-cambios-profundos-su-cupula
https://www.xataka.com/videojuegos/xbox-rebaja-game-pass-recula-call-duty-apuesta-todo-suscripciones-no-ha-salido-como-microsoft-esperaba
https://www.bloomberg.com/news/articles/2024-06-17/microsoft-s-xbox-to-shut-down-studios-and-lay-off-staff
https://www.videogameschronicle.com/news/xbox-studios-compulsion-and-double-fine-in-talks-to-become-independent/