Xbox Studio 'Bloodbath' Feared as Report Says Devs 'Punished Today for Following Orders'

A new report warns that Xbox layoffs could lead to a 'bloodbath' of job losses and studio closures, with developers being 'punished' for simply following Microsoft's directives. Rumors of staff cuts and studio shutdowns are rampant after recently appointed Xbox CEO Asha Sharma warned that the console maker's slim profit margins are unsustainable. While reports suggest studios like Compulsion Games (South of Midnight), Double Fine (Kiln and Keeper), and Ninja Theory (Hellblade) could be among those affected, details remain unconfirmed. Microsoft is reportedly timing the layoffs to coincide with the end of its fiscal year on June 30, with studio heads discussing which companies might be sold, spun off, or kept open independently—though job losses are still expected. IGN has reached out to Microsoft for comment but has yet to receive a response.

In a new YouTube report, Bloomberg's Jason Schreier stated that 'the word bloodbath has been thrown around among people I talk to who know about what's going to happen. It's going to be bad.' Schreier's report delves into why these layoffs are happening now, suggesting Xbox teams have struggled to adapt as Microsoft's gaming strategy and demands have shifted over the years. He argues that Xbox never fully recovered from the Xbox One era, with the Xbox Series X/S failing to regain ground against PlayStation and Game Pass growth plateauing. Over the past decade, Microsoft went on a spending spree to acquire studios for Game Pass content, but now seeks to shut down or divest many of them.

The most notable acquisition was the $68.7 billion purchase of Activision Blizzard, conceived by former Xbox boss Phil Spencer during the COVID-era gaming boom but already looking less attractive by the time the lengthy buyout closed due to high costs and a changed economic landscape. The past two years have seen the end of COVID-era growth, Roblox becoming a major competitor for player attention and spending, and AI emerging as a key focus for tech companies like Microsoft. These factors likely contributed to tougher financial targets, forcing Xbox to cut costs.

'That's when we see things start to get really bad,' Schreier said. 'We see four mass layoffs in two years, the closure of studios like Arkane Austin and Tango Gameworks (which was saved by Krafton), and the cancellation of projects like Everwild, Perfect Dark, and Project Blackbird.' This period was marked by internal political infighting at Xbox, making it harder to greenlight new projects and leading to a multiplatform push to boost profits, with more games launching on PS5 and Nintendo Switch.

'The last couple of years at Xbox have been quite messy, people start openly questioning Game Pass and saying it's cannibalizing sales,' Schreier continued, referencing the hundreds of millions of dollars reportedly lost by putting Call of Duty in the subscription. 'What might be good for the Game Pass folks may not be so good for the studios and revenue brought in for individual games.' This brings us to 2026, when Spencer departed and Sharma was brought in to 'reset' the business.

While studios like Double Fine and Compulsion may not have been big money-spinners, they were simply following orders from five years ago when they were acquired and their projects were greenlit—to make games for Game Pass and grow its subscriber base. 'A lot of these studios made plenty of their own mistakes, but in a lot of ways they're being punished today for following orders,' Schreier added. 'For listening to what they were told a few years ago. And that is just a shame, and what is going to happen is pretty brutal... It's going to be bad.' He concluded that one reason Xbox studios have struggled to make great games is this uncertainty: 'It's really hard to make great art when working under the fear of layoffs and turbulence and cancellations and shutdowns.'

This week, it was alleged that Microsoft announced Ninja Theory's new game, Senua, knowing it planned to shut the studio down, believing the promise of a new game would attract investor interest. There is now concern that Senua may never be released.