Xbox closes South of Midnight developers. Arkane Lyon also "scared" - rumor

Compulsion Games management is trying to negotiate with Microsoft.

Amid reports of a possible new wave of layoffs in Microsoft's gaming division, rumors have emerged about which Xbox studios might be at risk. According to Insider Gaming journalist Mike Straw, Compulsion Games and Arkane Lyon are among the teams whose future raises the most concerns.

Bloomberg previously reported that Microsoft is preparing for large-scale layoffs at the end of June 2026. The Verge later added that the restructuring might affect not only employees but also individual game studios. Now, Straw claims that sources within the company express serious concern about the fate of two teams — Montreal-based Compulsion Games, which released South of Midnight, and French Arkane Lyon, known for the Dishonored and Deathloop series, and currently developing Marvel's Blade.

However, the journalist himself emphasizes that these are currently just rumors. Some of the information is based on conversations his interlocutors allegedly heard within the company, not on official management decisions. Nevertheless, according to him, employees' fears are quite real.

Kotaku, which initially reported on the possible closure of Compulsion Games, provided additional grounds for discussion. The publication later clarified that the studio's management is negotiating with Microsoft regarding its future, but the details of these discussions are not disclosed.