Xbox is reportedly shutting down Compulsion Games.
The studio, which was founded in 2009 and acquired by Xbox in 2018, most recently developed South of Midnight.
According to Kotaku, however, the studio is set to be shut down as part of widespread layoffs at the gaming division. Microsoft has yet to confirm the report.
Update
Kotaku has now updated its report, claiming that Compulsion’s leadership is in “negotiations” with Microsoft over the company’s future, but saying the nature of these negotiations is unknown.
The publication notes that two months ago, Compulsion’s talent lead Joe Palin was advertising on LinkedIn for programmers for “a fascinating, intriguing, brand new IP”, the fate of which is now no longer certain.
Concerns arose last week that Xbox was planning another round of layoffs, after Xbox CEO Asha Sharma stated during a Bloomberg Tech conference that she planned on “resetting the business” because it was “not in a healthy spot”.
In an email to employees last week, which was later published on the official Xbox Wire blog, Sharma wrote that the Xbox business had declined to a 3% “accountability margin,” which is the metric Microsoft uses to track its profit margin.
Compulsion Games released Contrast in 2013, and followed this up with We Happy Few in 2018. In June 2018, two months before the release of We Happy Few, Xbox announced that Compulsion was one of five studios it had acquired, along with Undead Labs, Playground Games, Ninja Theory, and the newly-created The Initiative.
The Initiative was closed down in 2025, as part of another round of layoffs by Microsoft.
Compulsion Games’ last title was South of Midnight, which was released last year to a generally favorable critical reception (its Metacritic score currently stands at 77). The game was then ported to PS5 and Switch 2 on March 2026, as part of Xbox’s continued efforts to release some of its previous console exclusives on multiple formats.
The game won a number of awards, including Games for Impact at The Game Awards 2025, Outstanding Achievement in Animation at the D.I.C.E. Awards and New Intellectual Property at the BAFTA Game Awards.
After South of Midnight attracted more than one million players in its first three weeks, studio CEO Guillaume Provost said the studio’s role at Xbox was “not to make blockbusters like Call of Duty, but to provide games that add distinctiveness, where we can either serve audiences that haven’t been served before or create projects that add diversity to the portfolio”.
He added: “I’m passionate about that being part of the mission for the studio moving into the future. In terms of what audience, what experiences, and what areas of the world we’ll represent next, I can’t tell you. But I think it’s an important role within Xbox for us to be a brand that appeals to people from all walks of life.”
VGC’s South of Midnight review called it “a beautiful adventure with one major flaw”, criticising its combat for being repetitive but concluding: “It presents a setting, characters and subject matter that aren’t frequently explored in this medium, and everything is presented so wonderfully that it absolutely deserves your attention.”
