Mike Straw of Insider Gaming has revealed two of the studios that could potentially be at risk during Xbox’s expected round of layoffs. According to Straw, both Arkane and Compulsion Games may be vulnerable as Asham Sharma seeks to “reset” brand.
UPDATE: Kotaku is also reporting that is has heard Compulsion Games will be getting closed.
Straw says he has been receiving messages from employees at the studios who are “scared.” Despite public messaging from Xbox, Straw claims that “many within the studios have expressed real worry and have overheard conversations about the future of the studios.”
Straw’s claims tie into earlier reporting from Bloomberg’s Jason Schreier, who previously stated that internal Xbox memos indicated layoffs are expected to take place in July. Schreier’s report also suggested that one or more Xbox studios could be at risk as part of the cuts.
Compulsion Games’ most recent project was South of Midnight, a quirky Southern Gothic adventure blessed with beautiful visuals and amazing music, but saddled with fairly uninteresting gameplay. It failed to make much of an impact on Xbox and PC, despite later getting a second chance on PS5 and Switch 2 in 2026.
There is an awkward wrinkle in Compulsion potentially being at risk, though: South of Midnight was recently awarded a Peabody in the Interactive category, with the Peabody Awards praising it for its Southern Gothic setting, Afro-Southern folklore, handmade stop-motion-inspired art style and its focus on grief, healing and cultural memory.
It’s an achievement Xbox’s own leadership has been quick to celebrate. Speaking to Game File, Xbox CEO Asha Sharma said, “The big things that we’re thinking about are we want to make great games,” while pointing to South of Midnight’s Peabody win as an example. Matt Booty, meanwhile, posted on LinkedIn that it was “inspiring to see the team at Compulsion Games recognized with a Peabody Award,” adding that the award reflected “the care and craft behind their work, and the power of games as a medium to tell meaningful stories that last.”
Which makes the idea of Compulsion being at risk all the stranger. Xbox’s leadership was publicly praising the studio’s work just weeks ago, and now employees are reportedly worried about the studio’s future. It’s horribly reminiscent of the Tango Gameworks situation.
As for Arkane Lyon, it’s currently working on Marvel’s Blade, a game announced back in December 2023 and barely heard from since. Just recently, one member of the game’s art team appeared to confirm on X that the game is alive and still being worked on. There was speculation that Blade would finally debut properly at the Xbox Showcase, which just occurred, but obviously that didn’t happen.
Arkane Austin was already shuttered back in 2024 following the release of Redfall, leaving Arkane Lyon as the remaining Arkane studio.
And Arkane Lyon is no minor outfit. This is the team behind brilliant games such as Dishonored 2 and Deathloop. Its closure would be a massive loss.
With two Xbox execs also announcing their departure today, the coming weeks and months are starting to loo like a potential bloodbath at Xbox as Asha Sharma looks to rebuild the brand, and drag it back from it 3% “accountibility” margins.
