UPDATE [2026/06/30]
GamesBeat is reporting that the developer of State of Decay 3, Undead Labs, has been added to the list of studios currently in severe jeopardy.
This follows earlier reporting from Bloomberg that Microsoft is preparing to close multiple game studios if no external buyers are found. Sources indicate that Microsoft is preparing to take action in early July, immediately after the close of the financial quarter on June 30.
The new report surfaced during an online call with the press, where Microsoft employees who are members of unions represented by the Communications Workers of America (CWA) spoke out publicly against management and the pending layoffs at the Xbox division.
According to the details highlighted, it is possible some studio jobs could be saved if a buyer is found for any of the four impacted studios:
- Undead Labs (State of Decay)
- Double Fine Productions (Kiln, Keeper)
- Compulsion Games (South of Midnight)
- Ninja Theory (Hellblade / Senua)
The inclusion of Undead Labs has sent shockwaves through the Xbox community. Just weeks ago, State of Decay 3 was a premier highlight of the June 2026 Xbox Games Showcase, boasting a highly praised multi-platform announcement and active alpha testing. Now, the threat of potential studio closures has put the future of the project into immediate question if a buyer or independent spin-off deal cannot be secured.
[ORIGINAL NEWS STORY FOLLOWS]
Highlights
- Ninja Theory at Risk: Reports state that The Verge has learned staffers were informed on Monday about an impending shutdown of the Hellblade developer.
- Wider Studio Crisis: Parallel reports from Bloomberg reveal that legendary studios Double Fine (Psychonauts) and Compulsion Games (South of Midnight) are also entering negotiations with Microsoft.
- The 'Xbox Reset' In Action: These drastic cuts are part of internal strategic interventions led by new Xbox CEO Asha Sharma under the "Xbox Reset" mandate to aggressively curb declining hardware and operating margins.
In a development that has sent shockwaves through the video game industry, Ninja Theory - the critically acclaimed developer behind the Hellblade series - is reportedly at risk of being shut down. Alarmingly, current indications suggest this may only be the first domino to fall in a much larger wave of studio closures.
The highly respected media outlet The Verge first broke the news, reporting that Microsoft is moving to close Cambridge-based Ninja Theory. According to their sources, studio staffers were informed of the impending closure on Monday. However, there is still a glimmer of hope, as internal teams are actively looking for an outside buyer to step in and save the studio.
A parallel report from Bloomberg painted an even bleaker picture for the wider Xbox first-party framework. According to the report, multiple studios within Microsoft's gaming division are currently in active negotiations to either spin off into independence or secure external buyouts to save their teams from total termination.
Among the studios explicitly named are Compulsion Games (We Happy Few , South of Midnight) and Double Fine Productions (Tim Schafer’s legendary studio behind Psychonauts and Brütal Legend).
Ninja Theory is widely praised for its pedigree in action and narrative design. Beyond their success with the self-published Hellblade: Senua's Sacrifice, they built their reputation on standout titles like Heavenly Sword on PlayStation 3, Enslaved: Odyssey to the West, and DmC: Devil May Cry.
Following Microsoft’s acquisition of the studio in 2018, they launched Senua's Saga: Hellblade II in 2024 and announced their next major project, Senua, slated for a 2027 release window.
While these sudden reports come as a severe shock to the community, they align with a massive, ongoing shift in Microsoft’s strategy for the Xbox brand. The company recently distributed an uncompromising internal memo titled "Next 100 Days: Xbox Reset". Brand-new Xbox CEO Asha Sharma is aggressively enacting severe strategic interventions to curb declining margins, resulting in increasingly painful structural cuts across their overextended studio system.
It remains unclear how these potential closures and spin-offs will alter Microsoft's long-term hardware roadmap, but the coming months promise to fundamentally redefine the brand.
It also raises massive questions about how this restructuring will affect the corporate resources allocated to Microsoft’s next-generation console initiatives. Learn more in our comprehensive breakdown in the Project Helix Living Dossier.
This article was written by a human and fact-checked and edited by Gemini 1.5 Flash.
Editorial Standard: Drafted with AI assistance, thoroughly reviewed and published under GoodGamePass editorial supervision.
