Ninja Theory and Double Face Reportedly at Risk of Closure as Xbox Studios Fight to Stay Alive

Hellblade developer Ninja Theory and Psychonauts creator Double Fine are reportedly among the studios negotiating to avoid closure as Microsoft makes deep cuts to its Xbox division. According to Bloomberg, Compulsion Games, Ninja Theory, and Double Fine are all in talks with Microsoft about possibly going independent, though such a move would still likely result in significant layoffs.

Earlier today, The Game Business reported that Xbox Game Studios head Craig Duncan had stepped down, followed by Kotaku reporting that South of Midnight developer Compulsion was under threat of closure. Now, Bloomberg says nearly all Microsoft-owned studios are worried about their future, with Ninja Theory and Double Fine specifically named as being in discussions with their parent company.

Just last week, 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 was then said to be accelerating development on new Elder Scrolls, Fallout, and Halo titles as it considered restructuring or even spinning off its gaming division.

UK-based Ninja Theory is known for the technically impressive Hellblade series, but the games have struggled commercially. The studio announced the Hellblade sequel Senua just over a week ago at the Xbox Games Showcase, and its fate is now uncertain. Double Fine, creator of the Psychonauts franchise, released the online multiplayer pottery party brawler Kiln earlier this year, which failed to make an impact, and the adventure game Keeper last year.

Sharma's bombshell memo revealed that Microsoft's gaming business currently has a 3% accountability margin (presumably profit margin), down year-over-year. "Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our 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 stated that "there's more monetization of Xbox games happening on YouTube" than at Xbox, adding that the team must figure out how to "innovate both in hardware, as well as in the games, going forward in an economically viable way." He also noted, "No one can accuse Microsoft of not having invested for the last 25 years. Now, we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment, still."

Today's news marks a sharp reversal in Xbox brand sentiment after Sharma had begun winning over core fans with popular changes, such as making The Coalition's Gears of War: E-Day and inXile's Clockwork Revolution console exclusives. The expected Xbox layoffs are set to take effect at the end of Microsoft's fiscal year on June 30.