Microsoft is reportedly planning to shut down Compulsion Games and may lay off more than 90 staff, a development that would shutter the Canadian studio that created South of Midnight and We Happy Few.
The potential cuts — described in the report as totaling more than 90 employees — would affect most of the studio’s workforce and come just months after Compulsion was still advertising roles for a new intellectual property.
Compulsion, founded in Canada and best known for We Happy Few and the 2013 title Contrast, released South of Midnight this spring: the game arrived on PlayStation 5 and Nintendo Switch 2 in March and launched more broadly in April 2025. Critics praised South of Midnight, but it struggled to find a sizable audience.
The timing sharpens scrutiny. Xbox leadership warned of a companywide “reset” last week as new management laid out why change might be coming: the Xbox boss highlighted a slim 3% accountability margin and noted that Microsoft, excluding Activision Blizzard King, spent over $20 billion on content, platform and hardware subsidy investments over the past five years while annual revenue declined by nearly half a billion.
Company executives have also signaled a shift in priorities. Microsoft’s chief executive has pointed out that more monetization for Xbox titles is occurring on third-party platforms like YouTube than through Xbox itself, and has urged the division to find ways to innovate in both hardware and games while doing so in a financially viable manner.
The reported plan follows a string of management departures: two long-serving executives, Craig Duncan and Louise O'Connor, left Microsoft just hours before the shutdown report surfaced.
That sequence — hires for a new IP, a well-reviewed game that failed to reach a large player base, senior exits and now a reported closure — is the tension at the center of this story. If accurate, the move would be an unusually rapid rollback: closing a studio shortly after a major release and after apparent investment in future projects.
Details remain thin. Microsoft has yet to comment publicly on whether it will proceed with a shutdown, how many staff would receive notices, or what the timeline would be for any layoffs or studio wind-down. The report that first named the figure of more than 90 staff did not include a firm schedule.
For employees, the immediate consequence would be the loss of jobs and the unraveling of projects that were advertised just months earlier. For Microsoft, the larger consequence is reputational and strategic: the company is already arguing it must turn heavy investment into a sustainable games business, and closing a development studio days after a release would be a stark demonstration of that pivot.
The next concrete steps that will determine whether this report becomes reality are straightforward: Microsoft needs to confirm or deny the shutdown and provide a timeline and details for any affected staff. Until the company speaks, the central unanswered question is whether this is a fait accompli or a contingency being weighed as part of a broader reset of Xbox's studio slate.
The most consequential fact remains the same: more than 90 people are reported to be at risk. Microsoft’s public response — and whether it chooses to move forward with closures or an alternative reorganization — will decide whether Compulsion Games survives the reset or becomes the latest studio scaled back in pursuit of a more economically viable games division.
