An award-winning studio is facing closure. Insider Gaming sources can confirm Xbox is planning to close South of Midnight developer Compulsion Games.
News of the pending closure was first reported by Ethan Gach and Rebekah Valentine at Kotaku.
Speculation of the studio’s future began to pick up late last week and over the weekend. In that time, multiple sources, including high-level employees at Compulsion, spoke to Insider Gaming under the condition of anonymity.
UPDATE: According to Kotaku’s Valentine, “Compulsion leadership is in ‘negotiations’ with Microsoft over the studio’s fate, but the details of these negotiations have not been disclosed.”
Despite work being in progress on the next game at the studio, employees say that there has been “worry” and “fear” for months. After Phil Spencer stepped down earlier this year, that fear grew as many said they felt changes were going to come down under new leadership.
“It didn’t matter who took over,” one source said. “We all talked about what it meant for us. No one was confident we’d be ok.”
Another high-level employee said that the messaging coming into the studio didn’t do anything to calm nerves.
“Nothing was definitively said [about Compulsion being in trouble], but there was nothing said to assure us that things were okay,” they said. “We were just left hanging when the topic would be brought up. Just feels like a matter of time.”
Released in April 2025, South of Midnight was received positively by critics, even winning a Peabody Award in the Immersive and Interactive category. Commercially, however, the game failed to meet internal expectations at Xbox.
The Montreal-based studio currently employs around 90-100 people. It was acquired by Xbox in 2018.
Xbox did not respond to Insider Gaming’s request for comment by the time of publication.
In other news, read about the struggles surrounding the development of the next Ghost Recon game at Ubisoft. And for even more Insider Gaming delivered directly to your inbox, sign up for our newsletter.
Mike has been covering the gaming industry since 2012, and has reported on some of the largest events in the industry while also working as an investigative reporter. Outside of…
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