The video game industry braces for a significant wave of layoffs at Xbox, with insider sources now suggesting the shuttering of Compulsion Games, the developer behind South of Midnight. Multiple reports confirm that employees at Compulsion were informed of their fate last week, signaling a major downsizing within Xbox's studio lineup.
Insider NateTheHate and journalist Jason Schreier from Bloomberg have both confirmed that the entire Compulsion Games team received notification about potential studio closure, with ongoing but unclear negotiations between Compulsion's leadership and Xbox executives aiming to possibly reverse or mitigate the shutdown. These talks are reported to be active but have yet to yield a definitive outcome.
Beyond Compulsion Games, rumors circulate around other Xbox studios, notably Arkane Lyon, which reportedly fears closure following the recent shuttering of its Austin counterpart. However, no official confirmations have been made regarding other studio closures. NateTheHate described the upcoming layoffs as a "bloodbath," emphasizing they will be substantial yet without specifying exact numbers.
These developments come amid a history of large-scale layoffs at Microsoft and its Xbox division, which has seen thousands of employees let go over the past two years, alongside the closure of studios such as Tango Gameworks and Arkane Austin. The latest round appears to continue this trend, with Microsoft’s fiscal year ending in June 2026 expected to bring official announcements on the full scale and scope of the layoffs and studio closures.