Xbox is reportedly planning to shut down Compulsion Games, the studio behind South of Midnight, in the clearest sign yet that the company’s latest reset is moving beyond talk and into the structure of its game-making business.
The report lands now because Xbox is already in the middle of a broader reshaping. Asha Sharma sent a memo warning of a reset ahead of expected layoffs, and that memo followed a period in which she and Matt Booty said Xbox had over extended itself with its studio system. In the same discussion, Sharma said Xbox needs to reassess the balance between industry-defining franchises, new IP, and where it puts money over the next 5 years.
That makes the Compulsion Games report more than a single studio story. It points to a company that is no longer just trimming around the edges. In February, Sharma took over and made decisions that included cutting the price of Xbox Game Pass and making Gears of War: E-Day and Clockwork Revolution Xbox console exclusives. In May, she reorganized the Xbox platform team. In October 2024, Craig Duncan took over as head of Xbox Game Studios after previously running Rare. The reported shutdown now sits inside that same chain of changes, with the studio system itself under review.
The friction is hard to miss. Sharma’s memo argues that Xbox needs a better balance between franchises and new IP, but the reported shutdown would reduce one of the studios meant to produce that new work. That is exactly the kind of contradiction that makes this more than a routine personnel shuffle: Xbox is saying it must be more disciplined about what it builds, while the report suggests it is also willing to shrink the studio base it has long described as critical to success.
There is also fresh movement at the top of Xbox Game Studios. Craig Duncan and Louise O'Connor are both leaving, according to a separate report, adding to the sense that the current reset is reaching executive level as well as studio level. Duncan’s path matters here because he only took over the division in October 2024, which makes the speed of the turnover especially notable.
What remains unanswered is whether Xbox has finalized the shutdown or is still considering it. Tom Warren reported last week that the company’s changes could include a studio closure or changes to the Xbox studio lineup, and the Compulsion Games report now gives that warning a specific target. If the shutdown goes ahead, it would be the sharpest sign yet that Xbox’s reset is not just about priorities on paper. It is about which teams get to keep building at all.
