Xbox in tumult as key executives leave, South of Midnight studio potentially shutting down

2 hours ago 2

Published Jun 15, 2026, 1:53 PM EDT

The looming closure of Compulsion Games is likely the only first of mass layoffs at Xbox

Hazel, the protagonist of South of Midnight, sitting cross-legged on the back of a giant fish.

Things are not going well at Xbox. Microsoft may be shutting down Compulsion Games, the studio behind South of Midnight and We Happy Few, according to a Kotaku report. Studio leadership is currently in some form of “negotiations” with Microsoft over the impending shuttering. The team is made up of more than 90 developers. South of Midnight released last year to general praise, winning a BAFTA for best new IP, a Peabody Award for its writing, and several awards for its animation at D.I.C.E. and elsewhere.

The news comes just hours after the head of Xbox Game Studios, Craig Duncan, stepped down from his role after just 18 months. He oversaw Halo Studios, Rare, Obsidian, Ninja Theory, Double Fine, and Compulsion Games, among others. Duncan previously ran Rare for almost 14 years, presiding over development of the Kinect and Sea of Thieves. Xbox Game Studios chief of staff Louise O’Connor will also leave the company. She is a fellow Rare alum and became chief of staff at Xbox this previous September.

Xbox CEO Asha Sharma and Chief Content Officer Matt Booty published a fairly dire message to its Xbox team last week. They described how, outside Activision Blizzard, the company has invested $20 billion over the past five years with a half-billion decline in revenue. They also discussed how their company has been disproportionately impacted by hardware shortages, how the overcomplexity of their platform infrastructure has contributed to a dearth of game releases, and that they need to increase the value they ship to players while reducing the time it takes to do so. Sharma previously said that Microsoft would “reevaluate" its "approach to exclusivity,” implying they may be shying away from releasing Microsoft-published games on other consoles.

Bloomberg recently reported that Xbox will make massive layoffs across the company, including significant cuts to marketing and more. At the time, it was reported that the layoffs were expected to begin in July. It is possible that Compulsion Games would be shut down at that time.

While Microsoft hasn’t publicly released sales figures for the Xbox Series X (and its lower-powered Xbox Series S counterpart), analysts believe the PlayStation 5 has outsold the system by about a 2:1 margin, a number at least partially driven by Xbox's struggle to release first-party games that drive players to its consoles. That the company is seemingly shutting down one of its few studios that managed to ship a well-received game doesn't seem like a promising way to turn that around.

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