Xbox Layoffs Have Begun at Compulsion Games

Ever since Xbox's 2026 Game Showcase, there's been a sense of dread looming over the brand.

A cloud of "significant layoffs" coming for various Xbox studios has been in the air for weeks. That news eventually shifted from layoffs to total closures. With Ninja Theory (Hellblade), Arkane (Marvel's Blade, Dishonored), and Compulsion (South of Midnight), some of the few that are reportedly on the chopping block.

Todd Howard gave a promising update for Arkane Studios and their upcoming Marvel's Blade game, saying that he "saw some stuff [the other day], and the folks at Arkane are doing a really, really great job."

Not every studio in the Xbox family is safe, though, and after rumors and speculation, it seems layoffs have, unfortunately, begun.

Several Developers at South of Midnight's Compulsion Games Have Said They Have Been Let Go

As spotted by Rebs Gaming on X, several former developers at Compulsion Games have said their time at the company has come to an end. There does not seem to be a common thread among the departments that have been hit as well; some of the developers affected worked as a narrative designer, 3D environment artist, character concept artist, and dialogue designer.

When news of Xbox layoffs first broke, it was reported that Compulsion was up for closure, before the story quickly pivoted to Microsoft entering negotiations with the studio. The terms of those negotiations have not been made public at this time.

This move, along with the presumed arrival of others, is part of a reset under new Xbox CEO Asha Sharma. Sharma talked about how the company has spent $20 billion over the past five years while acquiring studios such as Bethesda, Activision Blizzard King, and others, but has also seen annual revenue decline by roughly $500 million during that time. "Going forward, this cannot continue."

Combined with the tough decisions Sharma and Xbox leadership have talked about, the decision to engage in yet another round of layoffs is one that is unsurprising, even if it's unfortunate.

Layoffs Have Been Happening Far Too Often at Xbox

2025 saw Microsoft eliminate nearly 20,000 jobs across the company, with most affecting their Xbox division.

Those layoffs saw the cancellation of several anticipated titles, such as Rare's Everwild, an unannounced ZeniMax MMORPG, Perfect Dark's reboot, and others.

There was a sliver of hope that, even as the gaming industry continues to be dominated by layoffs and studio closures, maybe Microsoft would not see the need to continue with that. After all, South of Midnight was a critically acclaimed game. Forza Horizon 5 is an excellent game that has sold quite well. Gears of War: E-Day is looking like a return to form for one of Xbox's flagship franchises.

Alas, that wasn't the case, and I feel like we all saw the writing on the wall when Phil Spencer and Sarah Bond left the company earlier this year.

Xbox has been hemorrhaging money for quite some time, with some even suggesting that Microsoft sell the Xbox brand or restructure it as a wholly-owned subsidiary. Either way, major changes are coming to Xbox in 2026, and this is only the beginning. I wish it didn't have to come to this, though.