Xbox layoffs fallout: ‘South of Midnight’ creator Compulsion Games successfully goes independent

August 26, 2026 - 01:10

The news marks a significant shift for the Canadian team, which had been part of Xbox Game Studios since 2018. While the studio did not share specific details about the financial terms or the process of leaving the Microsoft umbrella, it confirmed that the transition was smooth and that the team is already looking ahead. In a statement, the studio said it is eager to return to its roots as an independent developer, with a focus on building original, narrative-driven games.

For fans, the biggest takeaway is the future of the South of Midnight franchise. Since the game launched earlier this year to strong critical reception, many wondered what would happen to the property if the studio ever parted ways with Xbox. Now that Compulsion owns the rights, it has full creative control over any sequels, spin-offs, or expansions. The studio has not announced concrete plans for the next project yet, but it has hinted that it is exploring new ideas while keeping the door open for more work in the South of Midnight universe.

The layoffs that triggered this change were part of a larger wave of cuts across the gaming industry in 2025, with Microsoft trimming several teams despite a generally strong year for game releases. Compulsion's successful exit is a rare bright spot in that trend, showing that smaller studios can still carve out a path to independence even after being absorbed by a major publisher. For now, the team is hiring and rebuilding its core staff, with the goal of staying lean and agile as it starts its next chapter.