Praised in April, Killed in June: Compulsion Falls

On April 23, Xbox CEO Asha Sharma posted on X congratulating Compulsion Games on its Peabody Award. "A well-deserved recognition for storytelling that truly matters," she wrote. The next day, in an interview with Game File, she named South of Midnight as an example of the quality Xbox would be pursuing going forward. Matt Booty, Xbox's chief creative officer, echoed the sentiment, saying Microsoft was "dedicated to places where new IP can come to life."

That was less than two months ago. According to a report from Kotaku, Xbox is now shutting Compulsion Games down, with layoffs potentially affecting more than 90 staff. Multiple Compulsion employees have already begun posting on LinkedIn that they're looking for work. Microsoft has not officially confirmed the closure, and Kotaku later updated its report to say Compulsion leadership is in "negotiations" with Microsoft over the studio's fate. Bloomberg has since reported that Compulsion, Double Fine, and Ninja Theory are among studios in active talks to spin off from Xbox and go independent.

I've seen a lot of corporate whiplash in this industry, but publicly praising a studio's storytelling as something that "truly matters" and then reportedly gutting it eight weeks later is a special kind of cynical. Either Sharma meant what she said in April and got overruled, or those words were always hollow. Neither answer inspires confidence in how Xbox treats its creative teams.

Compulsion Games was founded in Montreal in 2009 and acquired by Xbox in 2018. South of Midnight launched in April 2025 to strong reviews, sitting at 77 on Metacritic, and won Games for Impact at The Game Awards 2025, Best New IP at the BAFTAs, and a Peabody Award. The game attracted over one million players in its first three weeks, and was later ported to PS5 and Nintendo Switch 2 in March 2026. Just two months ago, the studio was advertising roles for a brand new IP.

The reported closure follows Sharma's letter to Xbox employees last week, in which she revealed Xbox is finishing the fiscal year at roughly a 3% profit margin and that, excluding Activision Blizzard King, annual revenue has declined by nearly half a billion dollars despite over $20 billion in investment over five years. With fewer than 100 employees, Compulsion would represent only a fraction of the cuts Xbox is expected to make, and the studio's reported closure arrived on the same day Xbox Game Studios head Craig Duncan and chief of staff Louise O'Connor left Microsoft.