The gaming industry is bracing for one of the most significant upheavals in recent years. According to industry publication The Verge, the new Xbox leadership, headed by Microsoft Gaming CEO Aphsha Sharma, is considering a scenario of radical restructuring. The corporation's plans include the closure or forced sale of at least five subsidiary game studios. At the epicenter of the potential liquidation is the French studio Arkane Studios (Lyon), and along with it, the high-budget project Marvel's Blade is under threat of cancellation.

Financial Crisis: $20 Billion Without Profit

The reasons for such drastic measures lie in the division's financial performance. According to an internal memorandum from Aphsha Sharma sent to employees in June 2026, the strategy of aggressive expansion proved economically inefficient. Over the past five years, Microsoft has invested more than $20 billion in gaming content, platforms, and console subsidies (excluding the Activision Blizzard deal). However, instead of profit growth, the company recorded a decrease in Xbox's annual operating revenue of nearly $500 million.

Management has concluded that the current development model is unprofitable. To achieve financial self-sufficiency, the division urgently needs to optimize assets and reduce development costs.

Marvel's Blade and the Arkane Studios Problem

The immediate trigger for the potential closure of the Lyon branch of Arkane Studios was the issues surrounding the Marvel's Blade project. Internal sources report that the development of the action-adventure game has gotten out of control. The game's release date, originally planned for late 2026, has been pushed to the fourth quarter of 2027. Furthermore, current development costs have significantly exceeded the approved budget limits.

If Microsoft cannot find a buyer for the studio or fail to restructure the project, the game set in the Marvel universe will be officially cancelled, and the studio will be closed.

List at Risk: Who Else Might Leave

In addition to Arkane Studios, four other divisions have been added to the list of potential restructuring targets. The corporation is considering both complete closure and spinning off these studios into independent companies:

  • Compulsion Games (developer of South of Midnight) — staff have already been partially informed of the risks of ceasing operations due to the high commercial risks of the current release.
  • Double Fine Productions (creators of Psychonauts 2) — the corporation is consulting on a management buyout of their own shares.
  • Ninja Theory (Hellblade series) — a management buyout scenario is also being considered.
  • Undead Labs (developers of State of Decay 3) — an external buyer is being sought through investment banks due to the low margin of the long development cycle.

Consequences for Employees and Union Reaction

The official announcement of the massive wave of layoffs is scheduled for July 6, 2026. The cuts could affect more than 1,000 employees across various Xbox structures. This will be the fifth major round of staff optimization following the merger with Activision Blizzard.

The trade union Communications Workers of America (CWA), representing the interests of more than 3,500 employees, has already issued a statement. The organization is preparing collective negotiations to minimize personnel losses and secure solid guarantees for severance pay. The union emphasizes that mass layoffs should be considered by management as a last resort only.

Legal Aspect

From a legal standpoint, large multinational holdings have the right to conduct internal restructuring and liquidate unprofitable assets to optimize their balance sheet in accordance with US and EU regulations. However, Microsoft is obligated to comply with procedures for prior notification of personnel and regulations regarding work with trade union organizations. Thus, the scenario in which Microsoft abandons part of its ambitious projects to preserve financial stability appears inevitable.