Psychonauts dev Double Fine responds to reports that Microsoft is shutting down the studio amid Xbox cuts

Double Fine Productions, the creator of games like Psychonauts and Kiln, is reportedly one of three studios earmarked for closure by Microsoft as it looks to cut costs in its Xbox business. While no official announcements have been made just yet, Double Fine's BlueSky account reacted to the reports, giving us a look into how those currently at the studio are feeling.

For much of 2026, Xbox feels like it's been on an upward trajectory. The company spent most of the year making decisions that were popular with gamers, from lowering the price of Xbox Game Pass to announcing that the controversial Microsoft Copilot AI tool wouldn't be coming to consoles.

Unfortunately, a lot of the goodwill that Microsoft and Xbox had garnered took a significant hit on June 10, when CEO Asha Sharma and CCO Matt Booty released an open letter sent to Xbox staff, which stated they needed to "reset the business." Shortly after, reports started swirling that layoffs were coming, and on June 15, we learned more about what that meant.

According to Bloomberg, three studios are currently fighting to avoid closure by Microsoft: South of Midnight developer Compulsion Games, Hellblade creators Ninja Theory, and Double Fine. The report states that all three developers are currently negotiating with Microsoft in an attempt to break away and become independent, but suggests that doing so will result in "significant layoffs" even if they manage to avoid closure.

While both Compulsion and Ninja Theory have been quiet on social media, Double Fine's BlueSky account has posted since the reports were released. While the team didn't give any comment in the form of words, they did post a single emoji: The smiling face with a bead of sweat on its forehead. This emoji is usually used to express nervous laughter or to show relief when a sticky situation has gone your way.

What this emoji means in this regard is unclear. It could be the nervous laughter that comes when you're unsure what the future holds, or it could be a massive sigh of relief that they've secured their independence away from Xbox. For now, we'll just have to wait for more information.

For Xbox, the future of the company remains unclear, too. Microsoft boss Satya Nadella has already stated that Xbox needs to become a sustainable business, admitting that monetization of its products needs to improve. With reports claiming that Head of Xbox Game Studios Craig Duncan and chief of staff Louise O'Connor are both exiting the business too, Xbox is undergoing a huge period of upheaval, and it's not clear what the company will look like when it's finished.