Xbox Studio Closure Fears Grow as Compulsion Games and Arkane Lyon Face Uncertainty

Xbox is reportedly preparing for another difficult round of cuts, and new claims suggest that Compulsion Games and Arkane Lyon have become part of the internal concern around possible studio closures.

Bloomberg recently reported that Microsoft’s gaming division plans more layoffs by the end of June 2026.

The Verge later added that the cuts could also include studio closures, which has raised fresh concern across Xbox Game Studios.

Insider-Gaming reporter Mike Straw now claims that people connected to Compulsion Games and Arkane Lyon fear that the cuts could hit their entire studios, although the report still depends on internal chatter and has not been confirmed by Microsoft.

Compulsion Games released South of Midnight last year, but the studio is now early in development on its next project, which means Xbox may not see another major release from the team for several years.

Arkane Lyon is working on Marvel’s Blade, but the game reportedly entered full production in late 2024, so it still appears far from release.

• Compulsion Games: The Montreal studio has talent and recent praise, but its next game will take time.
• Arkane Lyon: The studio has a strong legacy with Dishonored and Deathloop, but Marvel’s Blade carries high costs and licensing pressure.
• Xbox: Microsoft wants stronger profits from its gaming division after years of heavy spending.

Kotaku also reported that Compulsion’s leadership is in talks with Microsoft over the studio’s future, though no final decision has been shared.

For now, Microsoft has not announced any closure, but these reports show growing pressure inside Xbox as the company weighs costs, release timelines, and long-term studio value.