Xbox-owned Compulsion Games, the studio behind last year’s South of Midnight and previous games We Happy Few and Contrast, could be shutting down, Kotaku reported Monday, writing that the studio is “in ‘negotiations’ with Microsoft” over its ultimate fate. The news comes after Bloomberg reported last week that Xbox is planning layoffs, and not long after South of Midnight won a Peabody Award and a BAFTA.
(Update, 6/15/26, 4:33pm– According to Bloomberg, Compulsion, Double Fine, Ninja Theory, and others are in negotiations with Microsoft, with some attempting "to spin off as they try to thwart closure." Bloomberg writes that "the studios may still have the opportunity to buy themselves back from Xbox and go independent, although many employees will likely lose their jobs as a result.")
The fact that it’s shutting down an award-winning studio isn’t some bit of oversight to Xbox: as Kotaku points out, new CEO Asha Sharma and chief content officer Matt Booty were praising the wins to Stephen Totilo’s Game File back in April, with Booty saying
our game South at Midnight today won a Peabody Award, which I think is such a validation of the storytelling capability of games these days. And that’s right on the heels of them winning a BAFTA for new IP a couple Fridays ago. And, that is our goal, right? I mean, we run a portfolio and our portfolio includes some of the biggest franchises on the planet—Call of Duty and Minecraft—but we’re also dedicated to places where new [intellectual property] can come to life and where these stories can be told, you know, in our studios like Compulsion and Double Fine.
Not so much a month later, as the company attempts to “reset the business,” as Sharma wrote in a message to Xbox staff last week. A studio that won the company prestige and awards, that ‘validated’ games and met whatever “goal” Xbox had in April, that you’d imagine would be part of the “reliable pipeline of first- and third-party exclusives and new IP [that are] critical to our success,” as Sharma wrote in her memo, is dead weight to the company now. How jettisoning Compulsion, alongside however many studios and people are sure to follow, fits into Xbox’s plans isn’t clear yet, because nothing about the company’s plans seem clear yet, even to the people calling the shots.
This isn’t the first time Xbox has done something like this: in May 2024, the company shut down several studios including Tango Gameworks, which had won a BAFTA for its game Hi-Fi Rush just the month before. (Later that year, Tango was purchased by Krafton.) In April of that year, VP of games marketing Aaron Greenberg tweeted that the game was “a break out hit for us and our players in all key measurements and expectations. We couldn’t be happier with what the team at Tango Gameworks delivered.” And a day after the shutdown, Booty told investors “We need smaller games that give us prestige and awards,” according to The Verge.
Prestige and awards aren’t the same thing as money, which Xbox appears to be in a panic to recoup, with Sharma’s memo noting slim profit margins and revenue declining by half a billion dollars in the last five years. Even games that players love don’t inherently spell cash in Xbox’s pockets. But if showcasing the kinds of stories games can tell is the “goal,” as Booty has it, and if new games like South of Midnight are a key part of what Sharma thinks Xbox does, then it’s hard to imagine the calculus here.
And it’s hard to imagine which, if any, of the other smaller studios under Microsoft’s umbrella could be safe. Fears are already swirling around studios like Double Fine and Arkane (the latter of which already saw its Austin arm closed in 2024)--while these are both speculation, they show how anxious fans are to try to predict Xbox’s thought process, and highlight how hard it is these days to understand what a company thinks comprises a game or a studio that’s good enough to deserve to keep existing. It feels like nothing but non-stop fistfuls of cash are enough to keep a studio off the chopping block, the Minecrafts and Call of Dutys that Sharma calls only part of Xbox’s value. But what’s the other part–what are the “new IP” if they aren’t the award-winners, aren’t games doing new things with story and setting that help games be something more than the stereotypes non-players have of them from those CoDs and Minecrafts, aren’t the smaller studios putting out games players love?
Sharma’s not wrong that something has to change at Xbox, and I won’t pretend to know what that should be. I wish it would be the situation Compulsion finds itself in, the situation so many studios at Xbox and PlayStation and Epic and Embracer and other big companies have found themselves in over the last few years, where no amount of just doing your job well means you might get to keep doing it. But if there’s one part of this that can feel like it’s never going to change, it’s that no matter how badly executives fuck up, it’s the workers and their art that pay the price.
