Microsoft Reportedly Plans to Close Compulsion Games Studio

*Reports indicate the Canadian developer behind We Happy Few and South of Midnight faces shutdown as part of an Xbox reset, though talks with leadership are ongoing.*

Microsoft is preparing to close Compulsion Games, the studio acquired in 2018 and known for Contrast, We Happy Few, and the recently released South of Midnight. The move would affect more than 90 employees, according to a Kotaku report cited by GameSpot.

The decision forms part of a larger “reset” of the Xbox business. A separate report from Mike Straw at Insider Gaming adds that Arkane Austin faces similar closure, following the earlier shutdown of that studio’s Austin location in May 2024. Arkane Lyon continues work on the upcoming Marvel’s Blade game.

Compulsion leadership and Microsoft are now in negotiations over the studio’s future, though the exact terms remain unclear. South of Midnight had received multiple awards before the reported cuts surfaced.

Thurrott framed the potential closure as the first visible casualty of the reset, noting the timing comes despite the studio’s recent critical recognition.

Why it matters

Studios acquired for their distinctive creative output now sit inside a corporate structure that appears willing to discard them when targets shift. Developers who joined Microsoft expecting stability instead confront abrupt dissolution, while remaining teams absorb the message that recent performance offers little protection. The pattern of selective closures—Arkane Austin last year, Compulsion now—suggests Xbox intends to shrink its first-party footprint rather than expand it.

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Sources:

• GameSpot
• Thurrott

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