Earlier today, Kotaku reported that South of Midnight developer Compulsion Games may be closing its doors following a report from last week that Xbox is preparing another round of significant layoffs. Although we still have no official confirmation of Compulsion’s status, it may not be the only studio at risk of being shuttered.
Bloomberg reports that Compulsion Games, along with other studios, including Hellblade developer Ninja Theory and Psychonauts developer Double Fine, are at risk of being shut down by Xbox. The news comes from sources close to the situation who have not been authorized to speak to the press. According to Bloomberg‘s sources, each studio is negotiating with Xbox to buy itself back and go independent, though that would result in significant job cuts. Bloomberg also reports that employees at these studios have been made aware of the situation and given permission to look for new work.
If true, this information lines up with Kotaku’s earlier reports that Compulsion’s leadership is negotiating with Microsoft over the studio’s future; the exact details of this alleged discussion are unknown. Microsoft has not officially confirmed Compulsion’s closure, and the studio has not issued an official statement on the matter. However, some studio employees, such as writer Bijan Stephen and senior writer Zaire Lanier, made social media posts today announcing they are looking for work.
Last week, it was reported that Xbox CEO Asha Sharma and chief content officer Matt Booty were planning layoffs. A message penned by the pair was sent to staff detailing an “Xbox Reset” to address ongoing issues at the company. Part of this message stated that Xbox “overextended” itself by acquiring so many game studios over the last several years, while acknowledging other challenges such as declining revenue, hardware component shortages, and systems described as “overly complex” and not ready for the years ahead.
“For some of you, these realities will be surprising and even frustrating to discover. We won’t succeed by hiding hard truths, nor will we succeed by doing the same thing and expecting different results. Like the ‘everyday wins’ mentality from the first 100 days, we will sprint to make progress against hardware, content, experience, and services together,” reads a section of Sharma and Booty’s message.
Microsoft announced its acquisition of Compulsion Games and Ninja Theory during E3 2018; at the 2019 show, it announced it had purchased Double Fine. Compulsion’s most recent release was South of Midnight, which launched in 2025 to positive reviews. As noted by Kotaku, the studio had announced it was hiring only two months ago for work on a new IP.
At the Xbox Games Showcase during Summer Game Fest last week, Ninja Theory announced a new Hellblade game simply titled Senua and billed it as a pure action experience compared to previous entries. Senua is scheduled to launch in 2027. Double Fine launched its multiplayer party game Kiln earlier this year, and has shipped 2024’s Keeper and 2021’s Psychonauts 2 under the Xbox umbrella.
Game Informer has contacted Compulsion Games for comment and will update this story should they respond. Keep in mind that this is a developing story and nothing has been confirmed. We’ll be keeping an eye on the situation and will update the story as more details become available.