Compulsion Games leaves XBOX
Compulsion Games to Part Ways with Xbox, Transitioning Back to Independent Studio
In a stunning twist following weeks of intense industry speculation, Montreal-based developer Compulsion Games is officially separating from XBOX. The studio behind We Happy Few and the critically acclaimed South of Midnight will transition back into an independent entity, reclaiming full ownership of its intellectual property and future roadmap.
The announcement came Monday morning as part of a sweeping internal memo from XBOX CEO Asha Sharma, detailing what she termed "the most significant restructure in XBOX history." The broader reorganisation includes the elimination of approximately 3,200 roles across Microsoft's gaming division through fiscal year 2027, with 1,600 layoffs taking effect today.
"Resetting XBOX": The Spinoff Details
According to the internal memo titled "Resetting Xbox," Microsoft is actively scaling back its aggressive studio acquisition strategy of the last decade. Rather than shutting down the celebrated Canadian studio—a fate many employees and fans feared after rumours leaked in mid-June—XBOX has negotiated a separation agreement that allows Compulsion Games to walk away intact.
Under the new arrangement, Compulsion Games will return to independent management. Crucially, the studio is retaining its entire back-catalog, current intellectual property, and a financial buffer provided by Microsoft to secure development on its next project.
XBOX CEO Asha Sharma addressed the decision directly in a public blog post:
"We have learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested. As we reset XBOX, we will help independent creators succeed by providing open development tools and audiences to realise their vision. Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games."
Creative Freedom vs. Commercial Realities
The move marks the end of an eight-year partnership. Microsoft acquired Compulsion Games in 2018 during a massive first-party studio buying spree.
The studio recently swept the awards circuit with its Southern Gothic action-adventure title, South of Midnight, taking home multiple honors including:
Game of the Year at the Gayming Awards
Seven trophies at the Canadian Game Awards (including Studio of the Year and Best Narrative)
A prestigious Peabody Award and a BAFTA nomination
Despite the overwhelming critical acclaim and praise for its striking stop-motion visual style, industry reports suggested South of Midnight struggled to hit the commercial and Game Pass metrics required by Microsoft. Sharma noted in her memo that XBOX is currently operating at margins "3 to 10 times lower" than its industry competitors, heavily impacted by an industry-wide "hardware crisis."
By returning to independent status, Compulsion Games avoids the chopping block while regaining the freedom to publish its future titles across multiple platforms without first-party constraints.
A Seismic Shift for Xbox Game Studios
For Compulsion Games, the transition represents a challenging but hopeful leap back into the indie wilderness—armed with a war chest of awards, their own IP, and the autonomy to chart their own course in a volatile industry.
We loved South of Midnight here at Out of Sync Gaming. Check out our full spoilercast and read the review here.
What does this change in XBOX mean for the future of the brand? Let us know your thoughts in the comments below!