Xbox Could Shut Down 2 Studios Amid Major Restructuring, and One Closure Would Shock Fans, Insider Claims

Microsoft’s gaming division could be heading toward another difficult chapter. According to a new report from Insider Gaming, Xbox may shut down at least two development studios as part of a broader restructuring effort that could include layoffs, project cancellations, and organizational changes.

The report comes shortly after internal communications revealed that Xbox leadership is preparing employees for significant challenges ahead. Sources claim the upcoming changes could reshape Xbox Game Studios as Microsoft seeks to improve the profitability of its gaming business.

One Xbox Studio Closure Could Leave Fans “In Shock”

Journalist Mike Straw of Insider Gaming recently revealed that, according to internal sources, two Xbox-owned studios are currently feared to be at risk of closure.

More notably, one of the potential shutdowns would reportedly come as a major shock to fans, suggesting that a well-known Xbox Game Studios team could be affected.

Straw later removed his original social media post out of respect for employees who may be impacted by future announcements. However, he maintained that uncertainty is spreading across Microsoft’s gaming division as staff await official decisions.

Arkane and Compulsion Games Reportedly Among Studios Facing Uncertainty

According to the report, two studios currently concerned about their future are Arkane and Compulsion Games.

Arkane has struggled since the disappointing launch of Redfall in 2023 and the subsequent closure of Arkane Austin in 2024. While the studio remains one of Microsoft’s most respected developers thanks to franchises such as Dishonored and Deathloop, recent setbacks have raised questions about its long-term position within Xbox.

Meanwhile, Compulsion Games recently released South of Midnight. Although the game received generally positive reviews from critics, reports indicate that its commercial performance failed to meet expectations.

The report also states that studios such as Rare and Obsidian Entertainment are not currently believed to be among the teams facing possible closure.

Why Is Xbox Under Pressure?

The reported restructuring comes at a challenging time for Microsoft’s gaming business.

Following years of major acquisitions worth tens of billions of dollars, including the purchases of Bethesda and Activision Blizzard, Microsoft is reportedly seeking stronger financial returns from its gaming investments.

Recent comments from Microsoft CEO Satya Nadella highlighted profitability as a key priority for Xbox. According to reports, company leadership is pushing for the gaming division to become sustainably profitable after decades of heavy investment.

At the same time, Xbox has experienced a series of leadership departures, including former Xbox Game Studios head Craig Duncan and Chief of Staff Louise O’Connor, adding to concerns about the future direction of the organization.

Could Xbox Become a Separate Company?

Industry reports have also fueled speculation about Microsoft’s long-term plans for Xbox.

Some insiders suggest Microsoft could eventually restructure Xbox into a separate subsidiary or pursue strategic partnerships to improve the division’s financial performance. More extreme rumors have even raised the possibility of Xbox operating as a more independent business entity in the future.

At this stage, Microsoft has not confirmed any studio closures, layoffs, or structural changes beyond publicly announced workforce reductions.

What Happens Next?

For now, Xbox employees and fans are waiting for official confirmation regarding the reported layoffs and potential studio closures.

If the reports prove accurate, the coming months could represent one of the most significant periods of change in Xbox’s history, with major implications for Microsoft’s first-party development teams and future gaming strategy.

Until Microsoft makes a formal announcement, the status of Arkane, Compulsion Games, and other Xbox Game Studios remains uncertain.