Microsoft Reportedly Shutting Down Compulsion Games Amid Layoffs

Microsoft is reportedly planning to shut down Compulsion Games, the Canadian studio known for developing games such as *South of Midnight* and *We Happy Few*. The reported closure could result in over 90 staff layoffs, coming only months after the studio was actively advertising for new job positions related to a new intellectual property.

Microsoft has not yet issued a comment regarding these reports. This news emerges shortly after the departures of Craig Duncan, head of Xbox Game Studios, and Louise O'Connor, chief of staff, both of whom had decades of experience at Microsoft.

Compulsion Games' portfolio also includes the 2013 title *Contrast*. Reports described *South of Midnight*, an action-adventure game set in a fictionalized American Deep South, as having launched in April 2025 and on PlayStation 5 and Nintendo Switch 2 in March. It was further stated that the game was well-received by critics but struggled to find a significant audience.

The reported shutdown aligns with recent statements from new Xbox boss Asha Sharma, who cautioned about a company "reset," which many interpreted as a signal for potential significant layoffs and studio closures. An analyst reportedly commented that some studios are "brilliant for prestige and rotten for the spreadsheet."

Sharma's memo indicated that Microsoft's gaming business currently operates with a 3% accountability margin, a decline year-on-year. She stated that, excluding Activision Blizzard King, Microsoft had invested over $20 billion in content, platform, and hardware subsidy over the past five years, while annual revenue had decreased by nearly half a billion during the same period. Sharma concluded, "Going forward, this cannot continue."

Microsoft CEO Satya Nadella also remarked that "there's more monetization of Xbox games happening on YouTube" than directly at Xbox. He emphasized the necessity for the Xbox team to "innovate both in hardware, as well as in the games, going forward in an economically viable way." Nadella asserted, "No one can accuse Microsoft of not having invested for the last 25 years. Now, we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment, still."

Amid these developments, Microsoft was reportedly accelerating the development of new *The Elder Scrolls*, *Fallout*, and *Halo* games, while also considering restructuring or potentially spinning off its gaming branch. According to IGN, these events are part of an ongoing situation.