Xbox finds itself navigating a precarious moment. While its early-June showcase offered a glimmer of hope for the brand’s future, the financial outlook for its gaming division remains considerably darker. As part of a broad restructuring effort overseen by executive Asha Sharma, substantial layoffs are anticipated across the entire organization and early signs suggest that the cuts are already underway.

According to recent reports, at least a dozen individuals have departed Compulsion Games over the past week, the Montreal-based studio responsible for the recently released South of Midnight. While the precise circumstances surrounding these exits remain unclear, it is believed it is an early indicator that the anticipated job reductions have commenced, with further cuts likely on the horizon.

South of Midnight XBOX

XBOX Layoffs Have Begun with Compulsion Games

Compulsion Games was founded in 2009 and built its reputation on titles such as Contrast and We Happy Few. The studio was acquired by Microsoft in 2018, and since that time, it has released only one title: South of Midnight.

The action-adventure game, which draws on Southern Gothic mythology, launched in April 2025 to largely favorable reviews from both players and critics. Nevertheless, its commercial performance is widely believed to have fallen short of expectations.

As reported by Eurogamer, no fewer than a dozen staff members have publicly announced their departure from Compulsion Games in the last week. These announcements come at a time of heightened speculation that Microsoft is preparing a broader restructuring that could result in the closure or divestiture of several teams within its Xbox Game Studios division.

Through posts on LinkedIn, numerous former employees including designers, artists, writers, and animators have confirmed that they are no longer with the studio and are actively exploring new roles. At least one individual characterized their dismissal as “unexpected.”

Among the notable departures are Mike Sklavounos, principal level designer; Thomas de Rego, principal game designer; Bijan Stephen, writer and narrative designer; Marc-André Voye, technical artist; Jasjot Singh, senior artist; Ines Bouakkaoui, animator; and Sean M., dialogue designer.

Additionally, at least five other current employees have indicated that, while they remain with the studio for now, they are open to new opportunities. Whether further reductions will occur in the coming weeks remains to be seen.

XBOX despidos

Which XBOX Studios Are at Risk?

Compulsion Games may not be the only studio facing uncertainty. Beyond the developers of South of Midnight, reports have also identified teams such as Ninja Theory and Double Fine as potentially vulnerable.

While outright closure remains a possibility, a recent Bloomberg report suggests that some affected studios are actively negotiating with Microsoft’s leadership in an effort to secure independence and avoid total shutdown.

However, even if these teams manage to follow the precedent set by Toys for Bob and successfully separate from the company, significant job losses are still expected.

What are your thoughts on this developing situation? Share your perspective in the comments section below.

For more news on Xbox, click here.