Reports indicate Compulsion Games, Double Fine, and Ninja Theory are at risk of closure as Microsoft prepares major restructuring across Xbox. Here is what we know.
The future of Compulsion Games, the Montreal studio behind South of Midnight and We Happy Few, is now in serious doubt. According to reports from Kotaku, Insider Gaming, and Bloomberg, Microsoft is evaluating the possibility of shutting down multiple studios across its Xbox division. Compulsion is currently in negotiations with Microsoft regarding its fate, and employees have been informed of the uncertainty surrounding the studio’s future.
What Is Happening to Compulsion Games
The situation became public after Kotaku published a detailed report outlining Microsoft’s consideration of closing Compulsion Games.
Shortly after, Insider Gaming independently confirmed the story through internal sources
According to these reports, Compulsion’s leadership is in active discussions with Microsoft. One scenario being considered is a transition to independent status, although layoffs would still be unavoidable. Employees have been encouraged to explore other opportunities, but no final decision has been made.
Which Other Xbox Studios Are at Risk
Compulsion is not alone. A report from Bloomberg, written by Jason Schreier, states that Double Fine and Ninja Theory are also in negotiations with Xbox leadership to avoid closure.
Bloomberg also notes that several other unnamed studios within Microsoft’s portfolio are facing similar discussions.
What Employees Are Saying Internally
According to Insider Gaming sources, the atmosphere inside Compulsion Games has been tense for months. Employees describe a prolonged period of worry and fear, which intensified after Phil Spencer’s departure earlier this year.
One employee said:
“It did not matter who took over. We all talked about what that would mean for us. Nobody was confident that we would be okay.”
Another senior staff member described the communication issues:
“Nothing definitive was ever said, but nothing was said to reassure us either. We were simply left waiting. It seems only a matter of time.”
How South of Midnight Factors Into the Situation
The timing is particularly harsh for Compulsion. South of Midnight, released in April 2025 for Xbox and PC and in March 2026 for Nintendo Switch 2 and PlayStation 5, was widely praised by critics. It even won a Peabody Award in the Immersive and Interactive category, a rare honor for video games.
Xbox leadership, including CEO Asha Sharma and creative director Matt Booty, publicly praised the game earlier this year.
However, despite its acclaim, South of Midnight reportedly failed to meet Microsoft’s internal commercial expectations, which appears to have influenced the current restructuring decisions.
Why Xbox Is Undergoing Major Restructuring
The potential closures are part of a broader restructuring effort inside Xbox. CEO Asha Sharma has described the division as needing a reset, stating that it was not in a healthy state.
According to Bloomberg, Microsoft is preparing for large scale layoffs after the end of its fiscal year on June 30.
Adding to the upheaval, Craig Duncan, head of Xbox Game Studios, announced his departure today, marking one of the most turbulent days in recent Xbox history.
A Look Back at Compulsion Games
Compulsion Games was founded in 2009 by Guillaume Provost and was acquired by Xbox in 2018. The studio currently employs between 90 and 100 people.
This would not be the first time Xbox has closed a critically acclaimed studio. Arkane Austin, creators of Prey, was shut down in May 2024 and is again mentioned as a potential target in this new wave of restructuring.