BAFTA and Peabody winner Compulsion Games is reportedly being shut down by Microsoft, just months after releasing one of 2025's most acclaimed titles and while actively hiring for a new project. The Kotaku report reveals that Compulsion leadership is in negotiations with Microsoft over the closure. The studio behind South of Midnight and We Happy Few was hiring for "a fascinating, intriguing, brand new IP" as recently as this week, according to its LinkedIn page, which lists roughly 90 developers.
South of Midnight launched last year to widespread critical praise, winning a BAFTA for Best New IP, a Peabody Award for its writing, and multiple animation awards. Its Metacritic score sits at 77. The studio was founded in 2009 and acquired by Xbox in 2018 alongside Playground Games, Ninja Theory, and Undead Labs.
The potential shutdown is part of a broader Xbox restructuring. Bloomberg recently reported that massive layoffs are coming in July, including significant cuts to marketing.
Xbox CEO Asha Sharma told employees last week that the division had declined to a 3% "accountability margin," the metric Microsoft uses to track gaming profit. She described the brand as "over-extended" and said it would go through a "reset" in the next 100 days.
Xbox Game Studios head Craig Duncan and chief of staff Louise O'Connor are also stepping down, both leaving after long tenures at Rare and Xbox. The math behind the cuts is brutal. Outside Activision Blizzard, Microsoft has invested $20 billion in Xbox over the past five years while seeing a half-billion dollar decline in revenue, according to a breakdown shared with staff.
Compulsion's closure would follow The Initiative's shutdown in 2025, another first-party studio Microsoft closed after its flagship project, Perfect Dark, was handed to Crystal Dynamics. Microsoft has not yet confirmed the Compulsion report.
