Microsoft's Xbox division is reportedly planning to close Compulsion Games, the Montreal-based studio responsible for titles such as We Happy Few and the recently released South of Midnight. This potential closure follows recent reports of impending large-scale layoffs across Xbox.
Multiple employees from Compulsion Games have begun posting on social media platforms, including LinkedIn, indicating they are seeking new employment. Neither Xbox nor Compulsion Games have issued an official statement regarding the studio's status. However, these actions align with recent warnings from Xbox CEO Asha Sharma about significant changes within the company, including a strategic refocus on major franchises and a potential consolidation of resources.
Sharma recently communicated to Xbox employees that the company had expanded its studio system significantly to support various strategies across subscription, streaming, and devices. She acknowledged that this expansion has led to overextension as strategies shift in a market with more readily available content. These statements have fueled speculation that studio closures are inevitable as part of the ongoing overhaul.
Compulsion Games, founded in 2009, released its debut title Contrast in 2013, followed by We Happy Few in 2018. Its most recent game, South of Midnight, launched in 2025 and received critical acclaim, earning an 83% score in our review for its "poignant tale of hope and sorrow tailored to Deep South mythos." The game also garnered significant awards, including the Games for Impact award at the 2025 Game Awards, Best New Intellectual Property at the BAFTAs, and a Peabody Award for interactive media. This recognition makes the reported closure particularly notable, especially considering recent public praise from Xbox leadership.
In April, Xbox CEO Asha Sharma congratulated Compulsion Games on its Peabody Award, describing it as "a well-deserved recognition for storytelling that truly matters." Around the same time, Matt Booty, Xbox's new chief creative officer, highlighted South of Midnight in a Game File interview as an example of the quality Xbox aims to pursue, emphasizing Microsoft's dedication to fostering new intellectual property and compelling narratives. The stark contrast between this public praise and the reported closure plans has drawn significant attention.
Sources indicate that Compulsion Games, with fewer than 100 employees listed on its LinkedIn page, represents a fraction of the total workforce reductions Xbox is anticipated to implement in the coming weeks. Reports from Bloomberg also suggest that Compulsion and fellow Xbox studio Double Fine are in active negotiations to spin off independently as a means to avert closure, with Ninja Theory and other studios also potentially at risk. If Compulsion Games is indeed shuttered, it would mark the first confirmed studio closure following Sharma's internal memo about upcoming changes.