Undead Labs and Arkane Lyon Are the Latest Xbox Studios Facing Potential Closures

Multiple Xbox studios are reportedly at risk of being shut down as Microsoft’s gaming division is about to hit the “reset” button. We previously heard about Compulsion Games and Ninja Theory being threatened by possible studio closures unless they find an acquirer, but more Xbox studios could actually be on the chopping block.

This week, Gamebeat and Windows Central separately reported that State of Decay 3 developer Undead Labs is facing a possible closure if it can find a buyer. That’s despite Microsoft showing the game at its Xbox Games Showcase earlier this month and announcing a 2027 release date.

Undead Labs is one of the studios Microsoft acquired alongside Playground Games, Ninja Theory, and Compulsion Games during its 2018 shopping spree. Of these four studios, only Playground Games managed to consistently release blockbuster hits with Forza Horizon 4, 5, and 6. Undead Labs’ last game is State of Decay 2, released in 2018, and the third game in the series was announced no less than six years ago.

Earlier today, a new report from The Verge’s Tom Warren revealed that Arkane Lyon, the developer of the Dishonored series and Deathloop, is also at risk of being closed. The studio is currently working on Marvel’s Blade, which was announced at The Games Awards 2023, but doesn’t have a release date yet.

“Blade was originally supposed to debut later this year according to sources familiar with the game’s development. I’m told the internal ship date for the game slipped to late 2027, and it’s also running over budget. While Microsoft is weighing canceling Blade, it’s also exploring options to sell Arkane Studios,” Warren wrote.

Double Fine Productions, the developer of Psychonauts 2, Kiln, and Keeper, is another studio that is reportedly in Microsoft’s crosshairs. Overall, that’s a total of five studios being threatened by possible closures, but other cost-cutting measures are also expected to hit Microsoft’s Xbox division very soon.

“These layoffs are due to start on July 6th, according to sources, and will hit most parts of Xbox,” Warren wrote. “Rumors have suggested there could be at least 1,000 job losses, and if Microsoft goes ahead with five studio closures, then that’s at least 500 employees impacted before the wider cuts.”

Tomorrow, July 1, marks the beginning of Microsoft’s new fiscal year, and that’s usually the time Microsoft chooses to reallocate its resources towards its main priorities for the new year. Unfortunately, many signs point to a rude awakening for the Xbox division.