Hellblade developer Ninja Theory and Psychonauts developer Double Fine are reportedly among the studios fighting to avoid closure as Microsoft makes significant cuts to the Xbox business.

Bloomberg reported that Compulsion, Ninja Theory, and Double Fine are all negotiating with Microsoft to potentially go independent, although doing so would still likely result in significant layoffs.

Earlier today, The Game Business reported that Xbox Game Studios boss Craig Duncan had stepped down, then Kotaku reported that South of Midnight developer Compulsion was under threat of closure. Now, Bloomberg is reporting that pretty much all Microsoft-owned studios are concerned about what happens next, with Ninja Theory and Double Fine named as being in talks with their parent company.

IGN has asked Microsoft for comment.

Just last week, new Xbox boss Asha Sharma warned of a company "reset" that most took as a signal that Microsoft planned big layoffs and studio closures. One analyst told IGN "the studios most exposed are brilliant for prestige and rotten for the spreadsheet." Microsoft was then said to be speeding up development on new The Elder Scrolls, Fallout, and Halo games as it considered restructuring or even spinning off its gaming branch.

UK studio Ninja Theory is behind the technically impressive Hellblade games, but they have struggled for commercial success. The developer announced Hellblade sequel Senua just over a week ago at the Xbox Games Showcase reveal event. It is unclear what will happen to the game now. Earlier this year Double Fine, which is behind the Psychonauts franchise, released online multiplayer pottery party brawler Kiln, but it failed to make an impression. Last year it released adventure game Keeper.

Sharma's ground-shaking memo revealed that Microsoft's gaming business currently has a 3% accountability margin (assumed to mean profit margin), which is down year-on-year. "Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform, and hardware subsidy, but our annual revenue has declined nearly half a billion during that time. Going forward, this cannot continue," Sharma said.

Following the release of the memo, Microsoft CEO Satya Nadella said "there's more monetization of Xbox games happening on YouTube" than at Xbox, adding that the Xbox team needed to figure out how to "innovate both in hardware, as well as in the games, going forward in an economically viable way."

"No one can accuse Microsoft of not having invested for the last 25 years," Nadella added. "Now, we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment, still."

Today's news marks a significant U-turn on Xbox brand sentiment, after Sharma had started to turn core fans around with a number of crowd-pleasing changes such as the decision to make The Coalition's Gears of War: E-Day and inXile's Clockworld Revolution console exclusives. The Xbox layoffs are expected to come into effect at the end of Microsoft's financial year on June 30.

Wesley is Director, News at IGN. Find him on Twitter at @wyp100. You can reach Wesley at wesley_yinpoole@ign.com or confidentially at wyp100@proton.me.