Double Fine founder Tim Schafer has now personally confirmed the layoffs at his studio, describing them as a last resort, saying "only the survival of our studio would make us consider such a painful action." The cuts come just three weeks after Microsoft's Xbox division formally separated Double Fine from the company, leaving the Psychonauts studio to operate independently for the first time in years.

The layoffs affect an estimated two dozen staff, with Double Fine framing the decision as necessary to establish a sustainable cost structure now that it no longer has Xbox's financial backing. The situation underlines the precarious position of smaller, creatively distinctive studios following Microsoft's wider restructuring of its games division, with other studios cut loose in the same process similarly reporting an urgent need for new projects or funding to stay afloat.