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Update []: Kotaku has since updated its report to mention that, according to one source, Compulsion is in negotiations with Microsoft about its future.
Here's the full update:
Update 1:15pm ET: "According to one source at the studio, Compulsion leadership is in ‘negotiations’ with Microsoft over the studio’s fate, but the details of these negotiations have not been disclosed."
Original Story: Just a few minutes ago, we reported on a rumour that suggested Xbox could be closing two studios in 2026, with one of them being Compulsion Games - the studio behind We Happy Few and South of Midnight.
The folks over at Kotaku are also now reporting that Compulsion Games is set to be shut down, with the outlet stating it's "unclear" how many people will be impacted, although the studio potentially employs over 100 workers right now.
"Xbox is planning to shut down Compulsion Games, developer of Peabody Award-winning South of Midnight and We Happy Few, Kotaku has learned."
Xbox reportedly didn't respond to a request for comment when approached by the outlet.
Of course, the most recent release from Compulsion Games was South of Midnight, which drew a lot of plaudits throughout the industry for its creativity, but speculation has suggested it didn't perform as well as Xbox had hoped.
We absolutely loved the game here at Pure Xbox though, giving it an "Excellent" 9/10 score in our review and praising it as an "engaging adventure that delivers soulful stories in spades".
We'll keep an eye on the situation and let you know if Xbox responds to this report in the near future.