Microsoft is Closing Compulsion Games: The Xbox Studio Behind South of Midnight

Xbox is closing Compulsion Games, the Montreal-based studio that made South of Midnight and We Happy Few. This is part of a massive Xbox restructuring that has already cost thousands of jobs across Microsoft's gaming division.

What is Compulsion Games?

Compulsion Games is a Canadian video game studio founded in 2009 in Montreal. Microsoft acquired the studio back in 2018 as part of its big push to build more Xbox first-party exclusives. The team is responsible for three games: Contrast, We Happy Few, and, most recently, South of Midnight, which launched in 2025.

The studio had around 90+ employees at the time of the closure reports, and several developers had already started posting on LinkedIn and social media, looking for new work, a sign that things were not going well behind the scenes.

What Happened: The Closure News Explained

In June 2026, the gaming news outlet Kotaku first reported that Microsoft was planning to shut down Compulsion Games. The report stated this was part of a major "reset" that Xbox had been planning, aimed at cutting costs across the entire gaming division.

What makes this particularly painful is that South of Midnight was critically praised. It was described as one of Xbox's rare first-party bright spots in 2025, and still, that wasn't enough to save the studio. This clearly shows that even well-reviewed games are not protecting studios from Microsoft's cost-cutting decisions.

Shortly after the Compulsion Games news broke, Xbox Game Studios head Craig Duncan also stepped down from his position. This made it clear that something much bigger was happening inside Xbox at the leadership level.

Is Compulsion Games 100% Closed?

Not officially confirmed yet, but the picture looks very grim. According to Bloomberg journalist Jason Schreier, Compulsion Games' leadership entered negotiations with Microsoft about their future. The studio is reportedly exploring options like becoming independent or being acquired by another company to avoid a full shutdown.

The same report noted that Ninja Theory (Hellblade) and Double Fine Productions (Psychonauts) are also in a similar situation, in talks with Microsoft about separation. This suggests Xbox is trying to offload multiple studios rather than simply closing them all.

Why is Xbox Closing So Many Studios?

Microsoft CEO Satya Nadella has publicly stated that Xbox needs to become a sustainable business after 25 years of heavy investment. The company has been on a spending spree, buying Activision Blizzard for $69 billion, and ZeniMax before that, and the financial pressure is now showing.

Xbox reportedly "over-extended" itself, and leadership sent a memo to staff acknowledging this. The result has been thousands of layoffs over the past few years, with even deeper cuts expected in July 2026.

Here's a quick look at the studios currently at risk:

Studio - Known For - Status

Compulsion Games - South of Midnight, We Happy Few - Reportedly closing / in negotiations 

Ninja Theory - Hellblade series - In negotiations for independence 

Double Fine - Psychonauts 2 - In negotiations for independence 

What This Means for Xbox Game Pass and First-Party Games

Every studio that closes or goes independent is one less team making exclusive Xbox games. Compulsion Games was actively hiring for a brand-new IP just weeks before this closure news dropped, meaning a completely new game project has likely been cancelled.

For Xbox Game Pass subscribers, fewer first-party studios means fewer day-one exclusives on the service. This is a real concern for gamers who rely on Game Pass as a reason to stay in the Xbox ecosystem.

How to Get South of Midnight at the Best Price

If you haven't played South of Midnight yet, now might be the right time, especially given the uncertainty around Compulsion Games' future. You can find the best deals on South of Midnight and other Xbox games by comparing CD key prices and digital game codes on price comparison sites. Always buy from verified sellers to make sure your game key activates without issues.

FAQs

Q1: Why is Microsoft closing Compulsion Games?

Ans: Microsoft is closing studios as part of a major Xbox reset to reduce costs. Even though South of Midnight received strong reviews, the studio was reportedly caught in company-wide financial cuts.

Q2: Is South of Midnight still playable after the studio closes?

Ans: Yes. Games you already own or have access to through Game Pass will continue to work. A studio closure does not delete your games.

Q3: Is Compulsion Games officially closed?

Ans: As of June 2026, Microsoft has not made an official announcement. The studio's leadership is reportedly in negotiations with Microsoft about an independent buyout or acquisition.

Q4: Will there be a South of Midnight sequel?

Ans: No sequel has been announced. Given the closure situation, a sequel looks very unlikely at this time.

Q5: What is the Xbox reset?

The Xbox reset refers to a major internal restructuring at Microsoft's gaming division, aimed at cutting costs, reducing studio count, and making Xbox a more financially sustainable business.

Keep an eye on cdkeycompares for the latest game deals on South of Midnight and other Xbox titles. Prices often drop significantly when studio news like this breaks.