Xbox appears to be shutting down Compulsion Games, the Montreal studio that just released South of Midnight, according to reporting from Kotaku. Microsoft has not confirmed this officially.

South of Midnight came out on April 8, 2025. It's an action-adventure game set in the American Deep South, and Xbox had highlighted it as one of its major releases for this year. Back in January, Xbox gave the game prominent attention during its Developer Direct event, where the team discussed the game's story and visual design.

The timing here is striking: the studio would close just weeks after shipping the game that was its biggest Xbox project. Compulsion had previously made Contrast (2013) and We Happy Few (2018) before Microsoft bought the studio in 2018.

It's worth noting where this story comes from: Kotaku reported this, not Microsoft directly. That matters. Kotaku has a solid track record reporting on Xbox studio closures and broke or confirmed several of them in 2024, but until Microsoft makes an official announcement, "reportedly" is the key word. The difference between a credible news report and a confirmed fact is important.

What makes this reported closure significant is the bigger picture at Microsoft. Since buying Activision Blizzard for $68.7 billion in October 2023, Microsoft has been shrinking its gaming operations. In 2024 alone, Xbox closed four studios: Arkane Austin, Tango Gameworks, Alpha Dog Games, and Roundhouse Studios. Some of these closures drew criticism, especially Tango Gameworks, which had just released Hi-Fi Rush—a game that reviewers loved and players enjoyed. The pattern is clear: Microsoft closes studios not because their games were bad, but because they don't fit into what Microsoft wants to do with gaming going forward.

It's unclear whether South of Midnight sold well enough to matter to Microsoft's decision. The game got good reviews and stood out visually from other Xbox games. But game reviews and game sales are different things, and Microsoft's decisions seem to be based on sales numbers and long-term plans rather than what critics think.

Compulsion has about 70 to 90 employees—not a huge studio by industry standards. When studios close, the focus is often on company strategy, but there's a real human cost. The studio has built up knowledge over years: experience with the software tools they use, the workflows they've developed, the team's working style, and their skill in making a particular type of game. None of that moves with the people who get laid off.

Microsoft hasn't made an official statement about Compulsion Games yet. When and if they do, we'll have a clearer picture. Right now, this reported closure is one more example of Xbox shrinking the number of studios it owns and runs.

The bigger question is: what is Xbox actually planning to do with game development going forward? It looks like Microsoft wants fewer studios working on bigger games, with help from other companies' games and games available through Game Pass. Whether that will actually produce good games over time is a question the gaming industry will keep arguing about.