Reports suggest that Xbox is contemplating shutting down Compulsion Games, the studio behind South of Midnight. Additionally, there are claims that Double Fine and Ninja Theory might also be in jeopardy

There are reports that Microsoft may close Compulsion Games, the developer known for titles like We Happy Few and South of Midnight. In addition, Double Fine, creators of the Psychonauts series, and Hellblade's developer Ninja Theory might also face shutdowns.

Insiders at Compulsion Games have told Kotaku that the studio is in discussions with Microsoft concerning its future, though specifics are not yet known. The number of jobs at risk remains unclear.

An article from Bloomberg mentions that other studios under Xbox, such as Double Fine and Ninja Theory, are similarly negotiating with their parent company in efforts to prevent closures.

GamesIndustry.biz is awaiting comments from Xbox on these developments.

Marking her initial 100 days as CEO, Asha Sharma noted in a blog post that Microsoft invested over $20 billion in Xbox over five years, excluding the Activision Blizzard acquisition.

She further mentioned that Microsoft's gaming division experienced a revenue decline of approximately $500 million annually. The company is said to be considering restructuring Xbox or even spinning it off as a subsidiary. This comes amid reports of future layoffs in the division.

Additionally, it has been reported that Craig Duncan, head of Xbox Game Studios, has resigned after a year and a half. Louise O'Connor, his chief of staff, has also decided to leave shortly after coming on board.

South of Midnight was honored with the Game of the Year Award at the Gayming Awards and received recognition as Best New Intellectual Property at the 2026 BAFTA Awards. The game won a Peabody Award for impactful storytelling, praised for its blend of folklore and emotional depth, according to a tweet from Compulsion.

Both Double Fine and Ninja Theory have achieved acclaim with their award-winning games.