Today, Xbox announced what it calls “the most significant restructure in Xbox history”: Part of a larger downsizing at Microsoft that’s putting 4,800 employees out of work, the reorganization will eliminate 1,600 Xbox roles today, with the division aiming to reduce its headcount by 3,200 throughout the 2027 financial year.
Alongside the layoffs, four game development studios are leaving Microsoft ownership for new management, including South of Midnight and We Happy Few developer Compulsion Games. Previously reported as facing imminent closure, the award-winning Montreal-based developer is instead returning to independent studio status and maintaining ownership of its IP and games catalog.
An important update from Compulsion Games.
— @compulsiongames.bsky.social (@compulsiongames.bsky.social.bsky.social) 2026-07-06T15:50:11.169Z
“Today, we’re sharing that Compulsion Games will return to independent management following our time as part of Xbox. As part of this transition, we will retain the rights to Contrast, We Happy Few, and our award-winning South of Midnight,” Compulsion Games said in a statement on Bluesky. “We’re grateful for the years we spent with Xbox, for the support they provided our team, and for the opportunity to bring these games to players around the world.”
While the studio says it’s “excited to continue building the distinctive games that define Compulsion,” its first steps with its newly-regained independence will be focused on its staff.
“Our immediate priority is to support our team throughout this transition period,” Compulsion said.
Last month, reports suggested that Xbox’s looming reorganization has placed Compulsion at imminent risk of closure—a suggestion made more credible by Compulsion employees who had posted on LinkedIn and other platforms indicating they were seeking work. The status of those employees, and whether Compulsion can be expected to make further cuts to account for the financial pressures of transitioning to independent management, is currently unclear.
“We are confident in the future of Compulsion Games and look forward to this next chapter where one thing will remain constant: We will create unique games that tell important stories, all with the goal of touching the hearts and minds of our players.”
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