Well, this is terrible news. Very sad news for the employees, which I hope they can find a new job somewhere else soon.

Probably my favourite MS first party studio altogether. Even if they burned out the Fable franchise (which I don't really care because Fable 2 is still one of the best games ever made, although I really didn't like the direction the franchise was going, especially with Legends), they produced some quality gems, like The Movies and Black&White.

It's also a huge hit on Xbox. Shrinking the amount of developers and games isn't never a good thing.

No idea, Age of Empries III was their first proper 3D AoE game and back then I thought it was a really good attempt, years later they just got axed.

Edit: wait, thewy last made Halo Wars, which might have been the death knell for them as they were known for PC RTS games and Halo Wars was strictly360 only and didn't really sell gangbusters, even back then me and friends referred to that game as "babbys first RTS" despite it being ok and fun.

https://en.wikipedia.org/wiki/Ensemble_Studios

Not surprised it happened, since becoming an xbox studio they haven't really hit much, except pre release hype with fable 1. Meanwhile they're eating resources of a division I imagine is struggling to allocate budget due to low ROI (probably a net loss still). The studio is unlikely to attract costumers, and Microsoft doesn't care about diversifying its first party portfolio (since neither does their current and targeted base for the most part).

The timing however is very odd, so close to release you don't need much dev costs anymore and marketing can be skimped on.

Hope everyone lands on their feet.

This is all very surprising and disappointing. Hopefully everyone will be able to find a new home for their talents quickly, whether it's with Microsoft or not. Fable Legends was enjoyable in short bursts, I was eager to see it finished. This does seem like a step in the wrong direction for Microsoft and their alleged focus on developing exclusives for their platform(s).

Can you imagine how uneasy this is going to make other MS studios?

Do you mean BigBig and Liverpool in 2012?

I disagree with that, considering the three Fables broke the 10 million units sold combined. In fact, each sequel sold better than its predecessor:

Their worst job to date was the Kinect game, which apparently no one was interested in:

For comparison, if VGC numbers are anything to go by, the Fable franchise has sold more than the Killzone one. Yet I don't see Sony shutting down the company behind them, so it's not about being a "studio unlikely to attract costumers". They've proven to be profitable.

Who's next? Rare and Sea of thieves? Seems like an obvious choice...

Surprised by and sceptical about those numbers, but I stand correct.

In that case I have no idea what happened unless they think 3's reputation of Kinect screwed the ip m over. Even then there is potential there... 

It's called 'deflection'.