Microsoft has not announced any plan to spin off Xbox. But over the past two weeks, a string of statements and reports has made that once-unthinkable scenario feel a lot more plausible, and the pressure inside the division is already visible in the form of studio closures and executive departures.
What Nadella Actually Said — In His Own Words
During a taping of The New York Times’ “Hard Fork” podcast, Microsoft CEO Satya Nadella was direct about the financial reality facing Xbox after 25 years of investment. He said Microsoft has not been monetizing the entertainment value Xbox provides, and instead has effectively been subsidizing it, even joking that more money is made from Xbox games on YouTube than at Microsoft itself.
Nadella didn’t announce a spinoff, a sale, or any specific restructuring plan in that interview. He described two pressures on the business: a temporary one tied to rising component costs from the chip and memory shortage, and a longer-term one centered on figuring out a sustainable business model for delivering games going forward. He did not detail what that new model would look like, saying that responsibility falls to Xbox’s leadership.
Where the Spinoff Talk Is Actually Coming From
The “spinoff” framing didn’t come from Nadella himself — it traces back to a separate report from The Information, which cited three people with direct knowledge of internal conversations saying Microsoft has discussed turning Xbox into a standalone subsidiary, similar in structure to LinkedIn or GitHub. That reporting describes a spinoff as one option being discussed alongside a possible joint venture or partial sale, not as a decided course of action.
It’s worth being precise here: a standalone subsidiary structure, a joint venture, and a full external spinoff are different things with very different implications, and which (if any) Microsoft pursues is still unresolved.
The “Xbox Reset” and a Wave of Studio Closures
The clearest sign that something concrete is already happening is the round of studio cuts unfolding under what Xbox leadership has called an “Xbox Reset.” New Xbox CEO Asha Sharma and chief content officer Matt Booty outlined the framework in a memo to staff, and the fallout has moved quickly:
- Ninja Theory has been shut down. Employees at the Hellblade developer were told their jobs were ending, just over a week after the studio appeared at the Xbox Games Showcase to reveal Senua, the next entry in the series.
- Compulsion Games and Double Fine are in active negotiations to avoid the same fate. According to Bloomberg reporter Jason Schreier, both studios are negotiating to spin off and return to independent ownership rather than be closed outright. Compulsion, the Montreal studio behind South of Midnight and We Happy Few, could see more than 100 employees affected; Double Fine, founded by Tim Schafer, has also filed a union petition covering its staff.
- Several other unnamed studios are reportedly also at risk, according to Schreier’s sourcing, with affected employees said to have been given permission to look for other jobs while their studios’ fates remain undecided.
- Craig Duncan, former head of Xbox Game Studios, has departed, along with Xbox Game Studios chief of staff Louise O’Connor — departures that preceded the studio-closure reports.
- Treyarch’s studio head has also stepped down after 22 years with the Call of Duty developer, which became part of Microsoft’s portfolio through the Activision Blizzard acquisition.
Microsoft and the studios involved have not issued detailed official statements confirming headcounts or final outcomes, and some employees have publicly said on social media that they’re already looking for new roles.
Why This Matters, Even Without a Confirmed Spinoff
Xbox has operated inside Microsoft since the brand launched in 2001, evolving from a console competing with PlayStation and Nintendo into a services-driven business anchored by Xbox Game Pass and an unusually large first-party studio portfolio built through acquisitions like Bethesda, ZeniMax, and Activision Blizzard.
Whether or not a formal spinoff happens, the current moment already signals a real shift in how Microsoft is willing to fund that portfolio. Smaller, prestige, or non-blockbuster studios appear to be the most exposed, even when they’ve recently won major awards — Compulsion’s South of Midnight took home a Peabody Award and a BAFTA earlier this year, which didn’t insulate the studio from closure talks. That pattern raises real questions about what kind of games get greenlit under a “sustainable” Xbox, regardless of whether the division ultimately stays inside Microsoft or not.
What’s Confirmed vs. What’s Still Speculation
To separate reporting from speculation: it’s confirmed that Nadella publicly said Xbox needs to become sustainable and acknowledged the division has been subsidized rather than profitable. It’s also confirmed, via multiple outlets corroborating Bloomberg’s reporting, that Ninja Theory has been closed and that Compulsion Games and Double Fine are negotiating to avoid the same outcome. What remains unconfirmed is whether Microsoft will pursue an actual Xbox spinoff, joint venture, or sale — that detail comes from anonymously sourced reporting about internal discussions, not from any Microsoft statement or filing.
As of June 17, 2026, there is no official Microsoft announcement of an Xbox spinoff. Nadella’s sustainability comments and reports of internal discussions about restructuring options have fueled real speculation, but a formal separation remains a possibility under consideration, not a confirmed plan.