Reports suggest that Xbox is evaluating the possibility of shutting down Compulsion Games, the South of Midnight studio. Additionally, studios Double Fine and Ninja Theory are also rumored to be facing potential closure.

A stylized, monstrous catfish-like creature with intricate blue and green markings and bright orange eyes emerges from misty swamp water, with a person sitting on its head and small red-winged appendages visible. A rabbit is in the foreground, looking towards the creature. — Image credit: Compulsion Games

Update, June 16: Employees of Ninja Theory, the creators of Senua, were allegedly briefed in a call on June 15 about the potential shutdown of the studio, as reported by The Verge. The company is apparently seeking a buyer.

Original story, June 15: Reports indicate that Xbox may close down Compulsion Games, known for We Happy Few and South of Midnight, while Tim Schafer's Double Fine and Ninja Theory, famous for Hellblade, may face similar threats.

According to details from Kotaku, insiders claim Compulsion Games' leadership is engaged in "negotiations" with Microsoft to determine the studio's future, but no specifics have been given. The impact on staffing remains uncertain.

A piece by Bloomberg adds that multiple Xbox studios, including Double Fine and Ninja Theory, are in similar discussions, as efforts are made to possibly separate these entities to avert closure.

GamesIndustry.biz has contacted Xbox seeking further comments.

Marking her 100-day milestone as CEO, Asha Sharma shared in a blog post that Microsoft, excluding Activision Blizzard, has invested over $20 billion in Xbox throughout the past five years, although annual revenue has decreased by about $500 million.

There are also allegations of impending layoffs within Microsoft's gaming sector. Additionally, the possibility of spinning off Xbox into a separate entity or restructuring it into a fully owned subsidiary is being explored.

Earlier today, it was noted that Craig Duncan, head of Xbox Games Studios, departed from his role after 18 months, alongside his chief of staff Louise O'Connor, who has also left less than a year after joining.

South of Midnight was honored with the Game of the Year Award at the recent Gayming Awards, and it claimed the title of Best New Intellectual Property at the BAFTA Awards 2026. In April, Compulsion celebrated winning a Peabody Award for "stories that matter," emphasizing the heartfelt narratives intertwined with folklore.

Additionally, Double Fine, known for its acclaimed Psychonauts games, and Ninja Theory are recognized for their award-winning titles.