Xbox reportedly to close Compulsion Games; Arkane Lyon at risk

Industry sources say Xbox plans to close Compulsion Games, the Montreal studio behind South of Midnight and We Happy Few, and that Arkane Lyon is under review. Microsoft has not issued a confirmation.

People familiar with the situation say several Compulsion developers have begun posting on social media and seeking new roles. Compulsion’s LinkedIn page lists about 90 employees; those familiar with the studio say the true headcount may be higher.

Compulsion released South of Midnight last year. The title received positive critical response and earned a BAFTA and a Peabody Award for storytelling. Two months ago the studio advertised for talent on a new original property; the status of that project is unclear.

The reports follow an internal email from Xbox CEO Asha Sharma. In the memo Sharma wrote leadership “now faced some hard decisions,” described the company’s studio system as overextended and cited a steep revenue decline as a factor in further reviews.

Sources indicate Arkane Lyon, the team behind Dishonored and Deathloop, is being reviewed. Arkane is developing Marvel’s Blade, which did not appear at the most recent Xbox Games Showcase.

An industry insider briefly suggested the Blade project might be cancelled and later retracted the claim. Arkane’s public materials continue to list the project as active, but a studio-level consolidation would put the title’s future in question.

Microsoft has not confirmed any layoffs or studio closures. The company has previously reorganized its development teams and said it would apply tighter financial discipline while prioritizing larger franchise investments.

Details about timelines, severance or project relocation have not been confirmed. Developers at the affected studios and industry observers are awaiting formal announcements from Xbox.