Layoffs Hit Psychonauts Studio Just Three Weeks After Xbox Split

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Published Jul 28, 2026, 4:42 PM EDT

Jake Valentine is a Contributor at DualShockers with more than two decades of experience covering the video game industry. Since 2004, he has written about games across news, reviews, guides, lists, interviews, and event coverage, with experience covering major shows, preview events, breaking news, and one-on-one developer interviews.

Before joining DualShockers, Jake contributed to Outrun Gaming, GameRant, and The Game Fanatics. He has also worked in editorial, brand management, and operations roles, giving him a broad perspective on both games coverage and digital media. He holds a Bachelor’s Degree in Electronic Media and Broadcasting.

Earlier this month, XBOX began its reset, resulting in a total of 3,200 job losses across the company.

This includes the 1,600 layoffs at the start of the month, with another 1,600 planned over the next twelve months. Beyond that, several studios XBOX acquired over the years would be leaving the XBOX family. Compulsion Games and Double Fine, for example, will become independent studios, but that has come with its own set of challenges.

"We're thankful to everyone at XBOX for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us," the company said in a statement earlier this month.

Today, however, comes the unfortunate reality of what XBOX's reset means for the industry at large.

23 "Important" Members of Double Fine Have Been Let Go

In a new statement, Tim Schafer, founder of Double Fine Productions, confirmed that the company is letting go of 23 developers.

"As a small, tightly-knit team, these actions are not taken lightly," the statement reads. "Only the survival of our studio would ever make us consider such a painful action. Our transition to becoming an independent company also means becoming a size that we can sustain."'

Schafer's statement also indicates the people affected were vital to Double Fine.

The people we are losing were all important. They all made an impact on our games and culture, and they will be missed.

Originally founded in 2000, XBOX acquired Double Fine in 2019. The company released the highly anticipated platformer Psychonauts 2 in 2021 to rave reviews. While official numbers are not available from XBOX, we do know that Psychonauts 2 was the studio's most successful commercial release, selling at least 1.7 million copies as of April 2022.

Its follow-ups, unfortunately, have been nowhere near as successful. Despite rave reviews, 2025's Keeper flopped commercially, and Kiln, released earlier this year, didn't pan out any better.

Video Game Development Continues To Be a Scary Place

Layoffs have dominated the world of video games over the past few years, and there appears to be no end in sight. Beyond that, there appears to be no way to stop it.

Despite impressive review scores and sales for Assassin's Creed Black Flag Resynced, Ubisoft still laid off 51 people at Ubisoft Barcelona. It appears that there's no amount of success that can stop these job losses from happening, short of a game generating billions of dollars in revenue.

An XBOX spokesperson released a statement to Kotaku following the layoffs:

Double Fine fully returned to independent management earlier this week, with their IP, catalog, and runway for their next games. As they begin their next chapter as an independent studio, we look forward to seeing what they create next.

It's ironic, considering that having XBOX as a publisher gave Double Fine the ability to produce unique, exciting, and artistic video games that no one else is doing. Yet that wasn't enough to save the studio from having to let go of 23 talented, hard-working developers.