Xbox is allegedly shuttering We Happy Few and South of Midnight developer, Compulsion Games, with Tim Schafer's Double Fine and Hellblade developer Ninja Theory also reportedly at risk of closure.
It's unclear how many positions are at risk or how many people could be impacted.
Further reporting from Bloomberg suggests "several Xbox studios" are in similar crisis talks, including Double Fine and Hellblade developer Ninja Theory, as management fight to spin off the studios to avoid closure.
Microsoft's games arm is also reportedly planning for further layoffs, with Microsoft allegedly considering spinning off Xbox as a separate entity or restructuring the games division as a wholly owned subsidiary.
Earlier today, we also reported that Craig Duncan, the leader of Xbox Games Studios, has departed the business after eighteen months in the role.
South of Midnight recently secured Game of the Year Award at last week's Gayming Awards and Best New Intellectual Property at the BAFTA Awards 2026.
Double Fine - best known for its Psychonauts series - and Ninja Theory have also developed award-winning games. »