Double Fine Responds to Closure Rumors with a Single Emoji

Double Fine, the developer behind Psychonauts, has responded to rumors of its potential closure with a single emoji: a smiling face with open mouth and cold sweat.

The San Francisco studio is among several Microsoft-owned developers reportedly fighting for their future amid a major shakeup at Xbox, which is expected to result in layoffs later this month. Other studios reportedly negotiating with Microsoft to avoid closure include Hellblade developer Ninja Theory (which announced its new game Senua at Xbox Games Showcase last week) and South of Midnight maker Compulsion.

Double Fine, led by Tim Schafer, is best known for the Psychonauts series. Microsoft acquired the studio in June 2019 and signed on as publisher for Psychonauts 2. Since then, Double Fine released Keeper in 2025 and Kiln earlier this year, neither of which were commercial successes.

Yesterday, The Game Business reported that Xbox Game Studios boss Craig Duncan had stepped down, followed by news of potential studio closures. IGN has reached out to Microsoft for comment but has yet to receive a response.

According to Bloomberg, Compulsion, Ninja Theory, and Double Fine are not the only Microsoft studios negotiating to avoid closure. Some or all may buy their way to independence, though that would likely come with layoffs.

Earlier this month, new Xbox boss Asha Sharma warned of a company "reset," widely interpreted as a signal of major layoffs and studio closures. One analyst told IGN that "the studios most exposed are brilliant for prestige and rotten for the spreadsheet." Microsoft is reportedly accelerating development on new The Elder Scrolls, Fallout, and Halo games as it considers restructuring or spinning off its gaming division.

Sharma's memo revealed that Microsoft's gaming business currently has a 3% accountability margin (presumably profit margin), down year-on-year. "Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue," Sharma said.

Following the memo, Microsoft CEO Satya Nadella noted that "there's more monetization of Xbox games happening on YouTube" than at Xbox, adding that the team needs to "innovate in both hardware and games in an economically viable way."

"No one can accuse Microsoft of not having invested for the last 25 years," Nadella added. "Now, we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment."

This week's news marks a significant shift in Xbox brand sentiment, especially after Sharma had started winning over core fans with crowd-pleasing moves like making Gears of War: E-Day and Clockworld Revolution console exclusives. The expected layoffs are set to take effect at the end of Microsoft's fiscal year on June 30.