Multiple reputable sources suggest that Microsoft will be shuttering multiple studios, following statements over the past week from Xbox boss Asha Sharma and Microsoft CEO Satya Nadella.
Kotaku initially reported that Xbox is planning to shut down Compulsion Games, the developers of South of Midnight, with multiple employees posting on social media sites that they were looking for jobs. The story was then updated with a source suggesting that Compulsion is “in negotiations” with Microsoft as to what will happen to the studio.
Insider Gaming backed this up, suggesting two big studios were to close, later clarifying that the teams in question were Compulsion and Arkane. Another trusted insider, NateTheHate, has described the upcoming cuts as a “bloodbath” and that Double Fine may also be spun off and become independent again.
Bloomberg are reporting Compulsion, Ninja Theory, and Double Fine are in negotiations with the possibility that they can buy back their independence. Ninja Theory has just revealed Senua, a full action-adventure follow up to the Hellblade series for 2027, so this would be fairly surprising.
While all that is going on, the head of Xbox Game Studios, Craig Duncan, has stepped down from his job. He would have overseen Arkane, Compulsion, and Double Fine, so it’s hard not to link his departure with these rumours.
While South of Midnight had decent reviews, including an 8/10 from TSA, it didn’t sell particularly well either upon its original Xbox release or with the PS5 port a year later. Arkane Studios’ most recent release is Redfall, which was developed by the already-shuttered Austin, Texas, branch, and, like South of Midnight, it did not sell well.
According to research by Alinea Analytics, neither of the games caused any significant uptake in Game Pass subscriptions. The top five of 2026 so far is headed up by Forza Horizon 6, with 6.8 million new players, but the rest of the top five are third-party games, with Cyberpunk 2027 in fifth place, adding 1.3 million new players.
Per analyst Rhys Elliot, the maths just doesn’t work. “The day-one launches on this list clearly pulled enormous audiences while leaving real money on the table, especially the third-party titles selling six to ten times better on PlayStation,” he writes. “Two of these are third-party games where Xbox is paying for the privilege of cannibalising someone else’s sales. ”
“It’s great for consumers. But it’s not really sustainable. At a 3% margin, with first-party tentpoles minting money at full price elsewhere, the math on giving those tentpoles away on day one gets harder every quarter. Pulling Call of Duty was the first move. It won’t be the last.”
Source: Kotaku / thegamebusiness / LinkedIn