Xbox first-party studio closures hit Compulsion Games, devs behind We Happy Few, South of Midnight

Compulsion Games will reportedly shut down as Microsoft adjusts the Xbox business.

2

Microsoft has decided to close first-party studio Compulsion Games, the developer behind titles like Contrast, We Happy Few, and South of Midnight, sources tell Kotaku. The studio is said to be negotiating its future with Xbox.

Microsoft acquired Compulsion in 2018, announcing at E3 that the developer would be joining Xbox.

The studio's parent, Xbox Game Studios, has also lost its leader: XGS chief Craig Duncan has also left Microsoft after 15 years and his second-in-command, chief of staff Louise O'Connor is also out.

Following a revitalization strategy, pundits now believe that new Xbox CEO Asha Sharma was partly brought in to chop up the organization up and make it more appealing for a potential deal with outside parties. Reports indicate Microsoft has discussed the idea of spinning off Xbox into a subsidiary similar to LinkedIn or GitHub. Other possibilities include a joint venture similar to billion-dollar deal that Ubisoft signed with Tencent.

Sharma hasn't been coy about her plans for Xbox, saying that the group "cannot continue" under-delivering on investments. Sharma revealed publicly that Xbox's profit margin will be just 3% this year, indicating substantial issues behind the scenes.

Shutting down divisions will reduce costs but also the amount of games and content that Microsoft can produce. Compulsion's titles, like all of those from Xbox Game Studios, launch directly into Xbox Game Pass. The dynamics of this business remain mysterious and it's unclear how developers properly recoup development costs from Game Pass, especially as it pertains to the more direct first-party studios under XGS.

It's likely that Compulsion's titles simply didn't make enough of an impact on the Xbox business. Microsoft is preparing mass layoffs at Xbox in a bid to get its budgets and spending under control, and the group has already laid of thousands of workers across its divisions.