ANOTHER NAIL IN THE COFFIN FOR XBOX

Compulsion Games is reportedly being shut down, the latest sign that Xbox's studio restructuring is moving from speculation to action. Multiple reports indicate the studio is on its way out, and the internal communications from Xbox leadership confirm that a broader reset is underway.

Asha Sharma, who took over as Xbox boss in February, has already cut the price of Game Pass and locked Gears of War: E-Day and Clockwork Revolution as console exclusives. Now, alongside chief content officer Matt Booty, Sharma sent a memo to staff warning of a "resetover extended" with its studio system.

In the memo, Sharma and Booty laid out the scope of the problem.

"We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win. At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success. We need to reassess the balance between these and our investment priorities for the next 5 years."

The reset involves more than just words. Craig Duncan, who headed Rare and took over as head of Xbox Game Studios in October 2024, is leaving his role. So is Louise O'Connor, a veteran at the studio. The departures come at a time when Xbox needs stable leadership to navigate the contraction.

Tom Warren reported that the changes could "involve a studio closure, or changes to the Xbox studio lineup.". A studio closure fits that description, and Compulsion Games appears to be the first casualty.

THE SCALE OF OVEREXTENSION

Sharma and Booty's memo is unusually direct compared to the typical corporate restructuring communication. They admit that Xbox has not adequately funded its biggest franchises to compete, while also needing a pipeline of new IP. That tension is at the heart of the studio system problem. Microsoft has acquired a staggering number of studios over the past decade, from Minecraft and Bethesda to Activision Blizzard, but the internal priority funding has not caught up. The result is a portfolio that is wide but not deep.

For a studio like Compulsion Games, which was part of Xbox Game Studios, the reset means its future is uncertain. The reported closure signals that even studios once seen as core to Xbox's first-party lineup are not safe.

LEADERSHIP CHURN

The departure of Craig Duncan and Louise O'Connor adds uncertainty to the reset. Duncan had only held the head of Xbox Game Studios role for about six months. His exit suggests that the restructuring may not just affect studios but also the people managing them. O'Connor's departure from a senior role at Rare also signals changes at the studio level.

Sharma has been making moves since taking over: cutting Game Pass prices, securing exclusives, and now reorganizing the platform team. In May, she brought in executives from Microsoft's CoreAI team, hinting at a deeper integration of AI across Xbox services. The reset memo fits this pattern of rapid change under new leadership.

DEVELOPERS HIT HARD

The human cost is the part that often gets lost in the corporate narrative. A studio closure means job losses, disrupted projects, and a hit to morale across the rest of the organization. The reset memo acknowledges but does not offer reassurances that cuts won't come. Instead, the language is about prioritization over the next five years, implying that some studios will be deemphasized or closed to fund others.

Xbox did not immediately reply to a request for comment, so the official line remains unclear. But the internal memos and reported closure are consistent with a broader industry trend. Console makers are tightening belts after years of pandemic-era expansion. Sony has laid off thousands and closed studios; Microsoft has already had multiple rounds of layoffs in 2024. The reset at Xbox may be another chapter in that story.

LIKELY GETS WORSE, BEFORE IT GETS ANY BETTER

The reported shutdown of Compulsion Games is the first concrete result of the reset, but it likely won't be the last. The next few months will reveal which studios survive the prioritization and which are deemed expendable. For now, the signal is clear: Xbox is getting smaller, even as it tries to compete with a bigger portfolio. The tension between owning many studios and adequately funding them is not new, but Sharma and Booty are the ones who have to resolve it.