This Canadian video game studio just swept the awards circuit. So why is it reportedly closing?

UPDATE — July 6, 2026. Compulsion Games confirmed it will continue as an independent studio in a post to social media: “Today, we’re sharing that Compulsion Games will return to independent management following our time as part of Xbox…. We’re excited to continue building the distinctive games that define Compulsion while taking the next steps in our journey.”

“It’s very much a dream come true,” said Farah Brixi of Compulsion Games. The Montreal-based developer has been making time during its Monday meetings for celebration, as the team’s latest game, South of Midnight, claims award after award — Game of the Year at the Gayming Awards being the latest. “We have a moment where we celebrate together. In the industry right now, good news is rare.”

Less than a week after CBC Arts spoke with Brixi, Kotaku reported that Xbox — the company that acquired Compulsion Games in 2018 — will lay off staff and the award-winning studio faces closure. Compulsion is one of several in this position, according to IGN. The news follows reports by Bloomberg that the gaming division of Xbox faced significant layoffs, following a restructuring by CEO Asha Sharma. A public memo to Xbox staff says the “reset” will address declining annual revenue and the increased costs of hardware components. 

Compulsion Games is attempting to negotiate with Xbox go independent, reports Bloomberg. Staff have publicly begun looking for employment. But at the time of writing, there is no confirmation that the studio is being closed or that layoffs have occurred.

Despite multiple attempts, CBC Arts did not get a response from either Xbox or Compulsion Games regarding reports of the Montreal studio’s closure.

The news highlights the precarious nature of the video game industry, plagued by many factors, but chiefly the skyrocketing cost of hardware. The Kotaku report is especially shocking as it comes on the heels of South of Midnight and Compulsion Games sweeping the awards circuit. These accolades include the Games for Impact award at the Game Awards, the BAFTA for new intellectual property, the D.I.C.E. Award for Outstanding Achievement in Animation, a Peabody Award for immersive and interactive storytelling, and no fewer than seven honours from the Canadian Game Awards, including best narrative, game of the year and studio of the year.

This is not an isolated case, however. Vancouver’s Ivy Road Games closed on March 31. So it was a solemn moment when the shuttered studio’s hit title, Wanderstop, was named best indie game at the Canadian Game Awards this year. It is a testament to the state of the industry that trophies won’t keep the lights on. Still, the huge success of South of Midnight makes Compulsion’s potential fate stand out as a real head-scratcher. 

The game follows Hazel Flood, a young woman whose hometown is devastated by a hurricane, during which she watches her home — with her mother inside — get washed away by a flooding river. She sets off in pursuit, and along the way, discovers she is a Weaver — someone who can influence the folkloric creatures of the game’s Southern Gothic setting. Through exploration and combat, players are immersed in a rich and vibrant world, with a soundtrack that evokes the American South and handcrafted, stop-motion cutscenes that help tell the story.

WATCH | South of Midnight trailer:

Carl-Edwin Michel, executive producer of the Canadian Game Awards, can see why South of Midnight has been so successful. “It is such a unique story,” he said. “We’ve seen the gameplay before, but the way it was approached — the visuals, the fact that the story came from the deep American South, and a main character who is a Black woman — is not a combination you see all that often. It is something new, something refreshing.”

Michel also thinks it came out at just the right time. “It’s a smaller studio bringing a fresh perspective — not a big, big studio producing another first-person shooter. I think people were craving something like that.”

Katya Ryabova, who writes the video game substack Playing This Week, was one of the jurors for the Canadian Game Awards. “Among the other games, it stood out as being the most approachable, a visually memorable and distinct game, and mechanically it was great to play,” she said.

The game’s visuals are striking. The world comes to life through its rich environments, featuring the larger-than-life characters such as the helpful Catfish or the gargantuan Two-Toed Tom. Every moment of Hazel’s adventure is infused with humanity.

For the studio, the game’s success was surprising. “Every time we got an award, we had no idea it was going to happen,” said Brixi. “Our lead artist went on stage at the Canadian Game Awards without a speech. It’s not part of the job description, and it’s not our everyday life.”

Brixi said the recognition has been validating for the team. “We need to feel like we’re not creating something in a vacuum, but we’re also connecting with an audience. Also from a narrative standpoint, there have been discussions about whether there is an audience for narrative games. It validates something Compulsion has always cared about, which is to give a narrative-driven experience. The story should always raise the stakes.”

The Peabody award announcement described the game’s strengths clearly: “For illuminating a so often overlooked corner of American cultural memory though extraordinary craft; for centering a Black woman’s healing journey not as subject matter to be mined but as a way of seeing the world; and for proving that interactive storytelling helps us understand the weight we carry and the possibility of setting it down, South of Midnight wins a Peabody Award.”

Compulsion’s hard work and creativity have earned the studio a strong following, critical acclaim and the trophies to back it up. In a crashing industry, however, that may not be enough to sustain it. And at the moment, it is uncertain how the decorated Montreal developer will weather the storm.