Eight years. That's how long Compulsion Games sat inside the Microsoft family before Monday, when word leaked that Xbox wants to shut it down.
The Montreal studio is one of at least three on the chopping block, according to reporting from The Verge and Bloomberg surfaced by Engadget. The other two are Ninja Theory, maker of the Hellblade series, and Double Fine, the storied outfit Tim Schafer co-founded back in 2000. Three studios. All bought during the same acquisition wave. All now facing the door at roughly the same moment.
Compulsion's most recent release, South of Midnight, only landed in April 2025. It pulled a Peabody Award, which is not something most video games can say. And now the team behind it is reportedly trying to buy itself back from Microsoft rather than vanish.
A brutal turn for a studio barely a year removed from its proudest release.
The studios fighting to keep the lights on
Ninja Theory staff got the news first. Employees were told Monday the studio would close, per The Verge, though the team is hunting for a buyer who can keep it running. They turned up at Xbox's Summer Game Fest event not long ago, teasing a new game slated for 2027. Whether that project survives is anyone's guess.
Double Fine's leadership, meanwhile, is in talks to purchase the studio back from Xbox, Bloomberg reported. Compulsion is reportedly in the same boat. Picture that conversation. You sold your company to one of the richest firms on earth, and now you're negotiating to undo the deal before someone pulls the plug.
And according to Bloomberg, the bargaining stretches beyond those two. Several teams housed within Xbox Game Studios are reportedly pushing to stay alive in one form or another. The umbrella is enormous, covering Arkane, Bethesda, id Software, Obsidian, Playground Games and the entire Activision Blizzard King operation, among dozens of others. Plenty of names, plenty of risk.
Xbox hadn't clarified the closures or the buyout talks when Engadget published.
How Microsoft got this big in the first place
The spending started in 2018. Microsoft's haul that year was a quartet of developers plus a brand-new venture: Compulsion Games and Ninja Theory came aboard alongside Playground Games and Undead Labs, while the company also stood up a fresh team it dubbed The Initiative. So Compulsion and Ninja Theory have been in the building since the very first round. There's a grim symmetry to them facing closure together.
Then the pace got faster. In 2020 and 2021, Xbox absorbed eight more studios through its ZeniMax Media purchase, which is how Arkane, Bethesda and id ended up under the same corporate roof. Then came the big one: the $69 billion bid for Activision Blizzard announced in 2022, the largest deal the video game business has ever seen. Regulators fought it for the better part of two years before it closed at the end of 2023.
Buying studios is the easy part. Keeping them is harder, and Microsoft hasn't kept all of them. Since the acquisitions, the company has run several large layoff rounds across its gaming division, cutting thousands of jobs. It already closed The Initiative, the studio it built from scratch in 2018.
Spend tens of billions assembling the most decorated roster in gaming, then close the studios that made the prestige work? Strange way to protect an investment. But that appears to be the road Xbox is on.
A leadership shakeup running underneath all of it
None of this is happening in a vacuum. Xbox is in the middle of an executive reshuffle that would unsettle any company.
Phil Spencer, the longtime face of the Xbox division, stepped down this year. Asha Sharma took over as CEO, part of a broader changing of the guard at the top. And on the same Monday the studio news broke, Xbox Game Studios head Craig Duncan departed. Duncan had only stepped into that job in October 2024. Roughly twenty months, and out.
New bosses, new priorities, and a lot of nervous people doing the math.
Staff across Xbox are reportedly bracing for more cuts in 2026. The dread followed a public memo Sharma published in mid-June, landing right after the buzz from Summer Game Fest had cooled. Bad news tends to travel best once the party ends.
Why a Peabody studio still wasn't safe
Here's what makes the Compulsion situation sting. This wasn't a quiet underperformer nobody noticed. South of Midnight was a swampy, Southern-gothic adventure that critics liked and that earned a Peabody, an award usually reserved for documentaries and prestige TV. The studio had a clear creative identity, stretching back to Contrast and the unsettling We Happy Few.
None of that, apparently, is enough when the parent company decides to trim. Awards don't show up on a balance sheet. A studio can do everything a publisher claims to want (ship a distinctive game, draw acclaim, build a following) and still find itself negotiating for its own existence a year later. That's the part that should bother anyone who cares about who makes games, and how.
The buyback talks are the thread to watch. If Compulsion and Double Fine pull off independence, they'd join a small group of studios that escaped the corporate machine intact, though going it alone without a publisher's funding is its own gamble. If the deals fall apart, the games stay with Microsoft and the teams scatter.
What happens next
The immediate question is whether any of these buyback negotiations close. Studio leaders are racing against a shutdown timeline they don't fully control, and finding the money to repurchase a company from Microsoft is not a weekend task. Outside backers would need to step in fast.
The larger question is what Xbox even wants to be now. It bought a generation of developers on the promise of more games and more variety. Now it's reportedly closing or selling the ones it acquired earliest, while bracing the rest of its staff for another round of cuts in 2026. The strategy that defined Xbox for nearly a decade looks like it's being quietly dismantled.
For the people at Compulsion who made an award-winning game and got a closure notice as thanks, the next few weeks decide everything. Keep an eye on whether a buyer materializes, and on what Sharma's team says once it's done with memos and ready to explain itself.