In a move that has sent shockwaves through the gaming community, Microsoft's Xbox division is reportedly considering the closure of Compulsion Games, the studio behind the upcoming fantasy action-adventure "South of Midnight." According to a report from GamesIndustry.biz, the studio is on the chopping block as part of a broader cost-cutting review that also puts Double Fine and Ninja Theory at risk.
The news comes just months after Xbox announced layoffs affecting 1,900 employees across its gaming divisions, including staff at Activision Blizzard and ZeniMax. Now, it seems the axe may fall on entire studios. Compulsion Games, based in Montreal, is best known for the critically acclaimed indie hit "We Happy Few" and is currently deep in development on "South of Midnight," a narrative-driven title set in the American South with a unique visual style. The studio employs roughly 100 people.
Double Fine and Ninja Theory also on the line
Double Fine, the San Francisco-based studio led by industry legend Tim Schafer, is also reportedly at risk. The studio shipped the acclaimed "Psychonauts 2" in 2021, a title published by Xbox Game Studios. Ninja Theory, the Cambridge, UK-based developer behind "Hellblade: Senua's Sacrifice" and its upcoming sequel, is also mentioned in the report. Both studios have strong fan followings and critical track records, making their potential closure particularly jarring.
The report suggests that Xbox is evaluating the performance and cost of each studio, looking to streamline operations after the $68.7 billion Activision Blizzard acquisition. Insiders say that while no final decisions have been made, the discussions are serious and have been ongoing for weeks. Microsoft has not commented publicly on the matter.
A pattern of studio closures
If these closures go ahead, they would continue a troubling pattern for Xbox. In 2021, Microsoft shuttered Arkane Austin and Tango Gameworks, both highly regarded studios, as part of previous restructuring. The gaming industry has seen a wave of layoffs and studio closures in 2024, with over 10,000 jobs lost across major publishers. For Xbox, which has positioned itself as a home for creative, single-player experiences, closing studios like Compulsion Games, Double Fine, and Ninja Theory would be a major blow to that identity.
"South of Midnight" has not yet been released, but early previews have been positive, praising its art direction and emotional storytelling. The potential closure of Compulsion Games raises questions about the fate of the game itself. Similarly, Ninja Theory's "Hellblade II" is expected later this year, and Double Fine is reportedly working on a new project. Developers at these studios are reportedly anxious, waiting for official word that may not come until after the fiscal year ends in June.
For now, the gaming community is left hoping that these beloved studios survive the restructuring. But as the industry continues to tighten belts, the future looks uncertain for even the most celebrated teams.