Layoffs have begun at Compulsion Games as Xbox's studio reset continues

Compulsion Games, the Montreal-based studio behind South of Midnight and We Happy Few, has started laying off staff as Microsoft's restructuring of its gaming division moves forward.

The details:

• Layoffs began at Compulsion on June 25, with the exact number of roles affected still unknown at the time of writing. Reports suggest the studio could see more than 90 employees cut as part of the reduction.
• The cuts follow an internal memo from new Xbox CEO Asha Sharma outlining a "business reset" aimed at improving Microsoft's gaming division after it recorded a 3% profit margin. Compulsion is among several Xbox studios caught in the resulting restructuring alongside Ninja Theory and Double Fine.
• South of Midnight, Compulsion's most recent release, launched day-one on Game Pass in April 2025 and was accessed by more than one million subscribers through their monthly subscription rather than purchased at retail. Reports suggest this dynamic - where Game Pass accounting failed to reflect the game's actual reach - contributed to the studio being flagged for cuts.
• South of Midnight won a Peabody Award following its release, making Compulsion one of the more critically decorated studios facing potential closure in the current round of Xbox cuts.
• Studio leadership is reportedly in discussions with Microsoft about the possibility of spinning off as an independent company, though no deal has been confirmed. Jason Schreier separately noted that Compulsion management has allowed staff to seek new work, suggesting the studio anticipates significant further reductions regardless of the outcome of those talks.