Xbox Entertainment Studios, which has been earmarked for closure as part of wider Microsoft restructuring plans, could yet be sold, with Warner Bros. linked to a potential deal.
The Hollywood Reporter's sources claim Warner and Xbox Entertainment Studios have held preliminary talks about forming a strategic partnership.
Were a deal to be struck, Warner would take on a number of experienced development executives and a pipeline of digital projects in mid-development.
The report adds that Warner would look to merge Xbox Entertainment Studios with Machinima, in which it owns a stake.
A Warner Bros. spokeswoman said that the studio is "constantly having preliminary discussions regarding business opportunities with numerous companies at any given time. A conversation is just that - a conversation."
LA-based Xbox Entertainment Studios opened in February 2013 with a mission to "create true interactive content for Xbox and other devices that will change the way entertainment content is experienced and delivered".
But in July 2014, Microsoft said it would close Xbox Entertainment Studios as part of wider restructuring plans, which will see the company lay off 18,000 employees - roughly seven per cent of its total staff - throughout the next year.
While the move resulted in the axing of a large portion of Xbox Entertainment Studios' projects, work on some series, including Halo: Nightfall and an Atari documentary titled Signal to Noise, is continuing as planned under the guidance of a small number of staff.