80%
Probable
Update 15/06/2026: Kotaku's report (linked below) has been updated to claim that leadership at Compulsion is "in negotiations" with Microsoft over the studio's fate, though any details and decisions have not been shared.
Original Story:
Shortly after a report from Bloomberg claimed Xbox was planning more mass layoffs for the end of June 2026, a report from The Verge added that those layoffs could also include studio closures. Now, a new claim from Mike Straw, a reporter at Insider-Gaming, adds that at least two of the studios concerned for their safety are Compulsion Games in Montreal, makers of last year's South of Midnight, and Arkane Lyon, makers of games like Dishonored, Deathloop, and the upcoming Marvel's Blade. To make matters worse, a report from Kotaku (which does not mention Arkane) adds its own claim that Compulsion is planning to be shut down by Xbox.
Straw claims sources he has spoken to, including ones higher up in the totem pole, are expressing "real concern" that the cuts will hit the entirety of their studio. While Straw and the Insider-Gaming team have proven to be reliable sources of unreleased information in the past, it's worth putting a massive asterisk on this claim since it is, at the moment, just hearsay. Straw even notes that the concerns partially come from conversations sources "overheard," rather than ones they were directly involved in.
Still, that doesn't make the fear any less real, nor does it make Compulsion or Arkane Lyon's shuttering any less of a possibility, especially when looking at the situation both studios are in. Beginning with Compulsion Games, they're an award-winning team in Montreal that just released an award-winning, very strong game last year in South of Midnight.
A fact that probably won't stop Xbox from shuttering them the same way it didn't stop them from shuttering Tango Gameworks, a studio that's only still around thanks to an unlikely saviour. There's also the fact that Compulsion is only now working on its next project, a game that won't be ready for at least a couple of years at the earliest. Add on the Game Pass game sales cannibalization that hurts every first-party Xbox game, South of Midnight included, and there's less of a financial argument for keeping Compulsion around.
As for Arkane Lyon, it's been five years since its last game, Deathloop, made it over the finish line. In that time, Arkane Austin released Redfall, which was shuttered after its dramatic failure, and led to the shuttering of Arkane Austin, something that Lyon director Dinga Bakaba called "a f***ing gut stab."
Austin was shut down months after Lyon first revealed Marvel's Blade at The Game Awards 2023. Though Lyon had that trailer ready for the showcase, we later learned that the game only entered full production in late 2024. If that's the case, Lyon has been in active production for nearly two years now, and if the game they're making won't be ready for another two years, then Xbox might not be willing to wait.
You'd think that a studio like Lyon, stacked with so much talent and the creators of some incredible games would've earned itself a little more leeway, but what's impossible to ignore is the fact that Marvel's Blade is a licensed game. It'll be making money for Disney before it makes money for Xbox, a reality we're seeing play out for IO Interactive and its new James Bond-based adventure. And with no Blade film in sight, there's no guarantee of game sales from being able to align the game with the movie.
It seems like everything is actually going from bad to worse for Xbox Game Studios, even as Sharma says and does 'the right things' for Xbox fans, like bringing back console exclusives and making Xbox Game Pass cheaper than how Spencer left it. These reports also follow the official announcement that the head of Xbox Game Studios is leaving after less than two years in the job, and Microsoft CEO Satya Nadella's mandate that the division become profitable after 25 years of investment.
About the author: David has been writing about videogames, technology, and culture since 2020, with a focus on reporting daily news across multiple publications, including GameDaily.Biz, GameSkinny, and PlayStation Universe before joining Wccftech in 2025. David started contributing as Canada/US reporter for Wccftech's gaming section in 2025. Besides being up-to-date on the industry's movements, he loves interviewing developers, reviewing games, and writing intricate essays about the symbolism and layered meanings to be found in rich narratives as he's done for publications like GamesIndustry.Biz, LostInCult, and others. Outside of games he loves movies, music, theatre, his hometown, and his family, though not necessarily in that order.
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