By Andy Chalk, Lincoln Carpenter

The shutdown comes just a few days after a report claiming that major layoffs at Xbox were on the way.

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(Image credit: Compulsion Games / Xbox Game Studios)

Just days after signalling that large-scale layoffs at Xbox are imminent as part of its ongoing overhaul, Microsoft's gaming division is reportedly planning to shutter Compulsion Games, the award-winning studio behind South of Midnight and We Happy Few (via Kotaku).

Neither Xbox or Compulsion Games have yet made an official statement regarding the studio's closure or associated layoffs, but multiple Compulsion Games employees have posted on LinkedIn and other social media platforms that they are looking for work.

(Image credit: Compulsion Games)

Based in Montreal, Canada, Compulsion was founded in 2009 and released its first game, Contrast, in 2013. We Happy Few followed in 2018, and its most recent release, South of Midnight, launched in 2025 to an impressive critical reception: We scored it 83% in our review, saying "its poignant tale of hope and sorrow tailored to Deep South mythos keeps its head raised high," and it won the Games for Impact award at the 2025 Game Awards, Best New Intellectual Property at the BAFTAs, and a Peabody Award for interactive media.

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Xbox CEO Asha Sharma has warned recently of major changes coming to Xbox, including a refocusing of resources on its major franchises. A Bloomberg report last week said major layoffs were going to be a part of that overhaul, in numbers that all but guaranteed at least one studio closure.

Sharma came close to confirming that in a message shared with Xbox employees: "We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices. In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content."

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Compulsion's reported closure comes just months after Xbox's new bosses bragged about the studio's achievements: In April, Sharma posted on X to congratulate Compulsion on its Peabody award, calling it "a well-deserved recognition for storytelling that truly matters." In a Game File interview published the next day, she said "the big things that we’re thinking about are we want to make great games," naming South of Midnight as an example of the kind of quality Xbox would supposedly be pursuing.

"South of Midnight today won a Peabody Award, which I think is such a validation of the storytelling capability of games these days," Matt Booty, Xbox's new chief creative officer, said in the same interview before elaborating that Microsoft is "dedicated to places where new [intellectual property] can come to life and where these stories can be told."

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If Compulsion is the first closure to happen since Sharma's letter to Xbox employees was posted, it quite possibly won't be the last: With fewer than 100 employees listed on the company's LinkedIn page, it represents only a small percentage of the total cuts Xbox is expected to make over the next several weeks.