Xbox Is Reportedly Closing Compulsion Games, the Studio It Was Praising in April

Compulsion Games is the kind of studio Xbox spent the last year holding up as proof it still made things worth caring about. On Thursday, current and former staff started posting on LinkedIn that they were looking for work, and the reporting that followed says the Montreal studio behind South of Midnight is being shut down. Microsoft's fiscal year ends June 30. The timing is not a coincidence.

Here is what is actually confirmed and what is not, because the two keep getting blended together.

What we know

Multiple Compulsion employees have publicly said they are out of a job. That part is not in dispute. You can read it on their own profiles. Neither Microsoft nor Compulsion has put out an official statement about the studio's status or the scale of the cuts, so the precise headcount is still unclear. Compulsion lists fewer than 100 people on LinkedIn, which puts a ceiling on how big this particular round can be.

The closure itself is a report, not an announcement. Kotaku first reported that Xbox is planning to shutter the studio. Bloomberg's Jason Schreier, who has been ahead of every Xbox cut this cycle, reported that Compulsion and Psychonauts developer Double Fine are both in active negotiations to spin off and stay alive on their own, rather than close outright. Schreier also named Ninja Theory and other studios as being at risk. So "Compulsion is closing" and "Compulsion is fighting to escape Microsoft in one piece" are both on the table right now, and anyone telling you it is settled is guessing.

Who Compulsion is

Founded in 2009 in Montreal, Compulsion shipped Contrast in 2013, We Happy Few in 2018, and South of Midnight in 2025. That last one is why this stings. It is a hand-animated game rooted in Deep South folklore, and it landed. It won the Games for Impact award at the 2025 Game Awards, took Best New Intellectual Property at the BAFTAs, and picked up a Peabody for interactive media, which almost no game ever does. This was a small team that made something with a point of view and got recognized for it.

The part that looks bad

In April, after South of Midnight won that Peabody, Xbox CEO Asha Sharma posted on X to congratulate the team, calling it "a well-deserved recognition for storytelling that truly matters." The next day, in a Game File interview, Xbox chief creative officer Matt Booty pointed at the same game as evidence of what the company wanted to keep doing. "South of Midnight today won a Peabody Award, which I think is such a validation of the storytelling capability of games these days," he said, before adding that Microsoft is "dedicated to places where new IP can come to life and where these stories can be told."

Two months later, the studio behind that exact game is the one reportedly getting shut down. Read those quotes again with that in mind.

The bigger machine

None of this is happening in isolation. On June 10, Sharma sent Xbox staff a memo branded the "Xbox reset," and it was about as blunt as these things get. "We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices," she wrote. "In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content." Translation: we bought too many studios, and now we are unwinding it. Bloomberg had reported days earlier that significant layoffs were coming, at a scale that basically guaranteed at least one studio would not survive.

If Compulsion is the first to go, it almost certainly will not be the last. The cuts are expected to keep landing over the next several weeks.

What makes this one land harder than a line in a spreadsheet is that the people involved did the thing the company said it wanted. They shipped a well-reviewed, award-winning, genuinely original game on a reasonable budget. If that is not enough to keep a studio open inside Xbox right now, it is fair to ask what is.

We will update this if Microsoft or Compulsion says anything on the record, or if the spin-off talks Schreier described turn into something real.