Microsoft set to close Arkane Lyon and cancel Marvel's Blade as Xbox layoffs begin July 6

Microsoft is preparing to close Arkane Lyon and cancel Marvel's Blade as part of sweeping Xbox layoffs set to begin on July 6, The Verge's Tom Warren reported. The studio, which created the Dishonored series and Deathloop, has been in development on the Blade game since late 2023 — a project now reported to be over budget and facing significant delays, with its window pushed from late 2026 to late 2027.

Arkane Lyon is reportedly being evaluated for either closure or sale, as is the case for at least four other Xbox-owned studios: Compulsion Games, Double Fine, Ninja Theory, and Undead Labs. Previous reports from Bloomberg and GamesBeat had flagged those four studios as at risk; The Verge's reporting adds Arkane to the list.

An over-extended division

The wave of cuts follows a stark memo from Xbox CEO Asha Sharma and Chief Content Officer Matt Booty, which warned staff: "We have found ourselves over-extended.... Going forward, this cannot continue." The message marked a sharp change in direction for a division that had spent years acquiring studios — including Activision Blizzard in a $69 billion deal — under the premise that sheer content volume would drive Game Pass growth.

The CWA union, which represents Xbox workers, has publicly expressed frustration with leadership ahead of the firings, calling for good-faith bargaining and greater transparency about which roles and studios are being cut.

Arkane's second closure in two years

The planned closure comes less than two years after Microsoft shuttered Arkane Austin — the team behind Prey and the critically-panned Redfall — in a separate round of Xbox layoffs in 2024. That closure prompted Arkane Lyon co-creative director Dinga Bakaba to post a message urging Microsoft to "take care of your artists/entertainers" rather than use studios as "strawmen for miscalculations."

If Arkane Lyon closes, it would end a studio that defined a generation of immersive-sim design. The Dishonored series and Deathloop earned consistent critical acclaim for their systemic world-building and player agency — qualities increasingly rare in an industry chasing live-service revenue. Whether Microsoft can find a buyer willing to continue those projects, or whether Blade simply disappears, remains to be seen when the cuts land on July 6.