Xbox May Shut Studio Amid Cuts, Sources Say

Xbox appears poised to shutter one of its internal development studios as part of a sweeping cost‑cutting initiative slated for next month.

On Wednesday, Xbox chief executive Asha Sharma addressed employees in a memorandum that outlined the company’s pressing challenges. She highlighted a near half‑billion‑dollar drop in annual revenue over five years, a fourfold increase in hardware expenses since the previous year, and an overextended studio network.

Bloomberg reports that the memo was issued ahead of announced large‑scale layoffs across the Xbox division, alongside a planned trimming of marketing and other operating budgets.

According to a new Verge investigation, the restructuring could even lead to the closure of an unnamed Xbox studio, or prompt a reshuffling of the company’s studio roster altogether.

If the announced layoffs proceed, they will represent the fourth straight year of workforce reductions at Xbox, underscoring the company’s struggle to navigate a tough gaming market that has already seen tens of thousands of jobs lost across the broader industry.

Last year, Xbox shuttered the Perfect Dark studio The Initiative, and in 2024 it also closed Arkane Austin (the creators of Redfall and Prey), Alpha Dog Games (known for Mighty Doom), and Tango Gameworks, the developer behind Hi-Fi Rush—though the latter studio was subsequently rescued by Krafton.

Xbox Game Studios is home to a diverse roster of talent, including The Coalition (Gears of War), Compulsion Games (South of Midnight), Double Fine (Kiln), Halo Studios, InXile (Clockwork Revolution), Mojang (Minecraft), Ninja Theory (Senua), Obsidian (Outer Worlds), Playground (Forza Horizon), Rare (Sea of Thieves), Turn 10 (Forza), Undead Labs (State of Decay), and World’s Edge (Age of Empires).

In a statement released Wednesday, Xbox CEO Sharma criticized the platform holder for “not adequately funding” its flagship titles and for having an “over‑extended” studio system.

During this past weekend’s Showcase, it became crystal clear that a steady stream of both first‑party and third‑party exclusives, alongside fresh intellectual property, remains the cornerstone of our long‑term success. To stay ahead, we must recalibrate how we balance these offerings against our broader investment strategy over the next five years.