Ever since Bloomberg's report that there would be layoffs at Xbox at the end of the month, the entire video game industry has been on high alert. Waiting in horror to see how bad the layoffs would be this time, with initial claims pointing to them being potentially as bad as when Microsoft laid off 1,900 employees at Xbox and shuttered Tango Gameworks and Arkane Austin in 2024. Or perhaps even as bad as the layoffs last year, which cut 9,000 employees across Microsoft and also drastically impacted the Xbox division. Today, we're hearing more bad news that is starting to make the scope of these layoffs a bit clearer, and it's potentially as bad as people are fearing.
Compulsion Games, the studio behind South of Midnight, is reportedly getting shut down. We've heard this from Insider-Gaming and Kotaku, but now we're also hearing it from reliable insider NateTheHate, who adds that the team was actually told "last week" of their fate, which doesn't go against other reports we've seen today. Bloomberg's Jason Schreier, who initially reported on the layoffs, added that the whole of Compulsion Games was "informed on Friday about what's happening." Schreier did not elaborate further on what that was.
Kotaku updated its report to claim that Compulsion's leadership is trying to negotiate something with Xbox, though the exact nature of those negotiations is unknown. If Compulsion was informed of its shuttering last week, it could have easily gone into immediate negotiations to find a way not to be shuttered, with those talks still ongoing now.
Outside of Compulsion Games, neither NateTheHate nor Schreier name other studios as being shut down, though the other name currently floating around is Arkane Lyon, which is reportedly fearing that it is due to be shuttered, just two years after its sister studio in Austin was shut down.
What NateTheHate does add, however, is that the layoffs will be "a bloodbath," and that while it's unclear just how bad the layoffs will be, following the chatter that occurred during Summer Game Fest, NateTheHate claims, "the constant is that layoffs are going to be significant."
Microsoft's fiscal year ends on June 30, 2026. Either shortly after, or shortly before its fiscal year concludes, we should have an official answer on what is happening with Compulsion, and if any other studios are getting shut down in what is seemingly an annual occurrence for studio shut-downs at Xbox now.
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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