Xbox first-party studio closures target Compulsion Games, Double Fine and more, studios negotiating for independence

Compulsion Games will reportedly shut down as Microsoft adjusts the Xbox business, and othet studios may be affected including Double Fine and even Ninja Theory.

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Microsoft has decided to close down key studios who are now trying to negotiate their independence, sources tell Bloomberg's Jason Schreier. These groups include more orbital boutique studios like Compulsion Games, Ninja Theory, and Double Fine. Other studios may be affected.

The group's publishing parent, Xbox Game Studios, has also lost its leader: XGS chief Craig Duncan has also left Microsoft after 15 years and his second-in-command, chief of staff Louise O'Connor is also out.

Following a revitalization strategy, pundits now believe that new Xbox CEO Asha Sharma was partly brought in to chop up the organization up and make it more appealing for a potential deal with outside parties. Reports indicate Microsoft has discussed the idea of spinning off Xbox into a subsidiary similar to LinkedIn or GitHub. Other possibilities include a joint venture similar to billion-dollar deal that Ubisoft signed with Tencent.

Sharma hasn't been coy about her plans for Xbox, saying that the group "cannot continue" under-delivering on investments. Sharma revealed publicly that Xbox's profit margin will be just 3% this year, indicating substantial issues behind the scenes.

Shutting down divisions will reduce costs but also the amount of games and content that Microsoft can produce. Compulsion's, Double Fine's, and Ninja Theory's titles, like all of those from Xbox Game Studios, launch directly into Xbox Game Pass. The dynamics of this business remain mysterious and it's unclear how developers properly recoup development costs from Game Pass, especially as it pertains to the more direct first-party studios under XGS.

It's likely that these titles simply aren't make enough of an impact on the Xbox business to offset the costs. Microsoft is preparing mass layoffs at Xbox in a bid to get its budgets and spending under control, and the group has already laid of thousands of workers across its divisions.