Xbox Game Studios Chief Steps Down as Layoffs Loom and Compulsion Games Shuts Down

Xbox Game Studios is about to get its third leader in two years. Craig Duncan, who took the helm in October 2024, is stepping down this week, The Game Business reported, citing an internal memo. His chief of staff, Louise O'Connor, is also departing.

Duncan's portfolio included some of gaming's most prestigious names — Halo Studios, The Coalition, Playground Games, Rare, Obsidian, Ninja Theory, and Double Fine — all of which will now report directly to Xbox chief content officer Matt Booty until a replacement is found, according to Engadget. The departures come just months after longtime Xbox chief Phil Spencer left the company, replaced by former AI executive Asha Sharma as Xbox CEO.

Days before the departures, Sharma and Booty sent a blunt internal memo to Xbox employees that framed the division's challenges in unusually candid terms. The memo, obtained by,¹ described a necessary "reset" of the business following a revenue decline, citing higher hardware component costs and intensifying competition for players' attention.

The most striking admission: Xbox is "over extended" after acquiring so many studios over the past decade, and "we have not adequately funded them to compete and win." It's a remarkable concession from a division of one of the world's most valuable companies — acknowledging that Microsoft's acquisition spree, which scooped up Bethesda, Activision Blizzard, and numerous smaller studios, hasn't translated into sustainable success.

Perhaps the most painful development is the shutdown of Compulsion Games, the Montreal‑based studio behind 2025's South of Midnight — a critically acclaimed title that was one of Xbox's rare first‑party bright spots. ² first reported that the studio is being shut down, with reporter ² noting that studio leadership is in "negotiations" with Microsoft over the development team's fate. At least one Compulsion employee has already posted publicly that they are looking for work, Mashable reported.

The Compulsion shutdown carries symbolic weight beyond the lost jobs: it shows that even studios producing acclaimed, well‑reviewed games aren't safe from Microsoft's cost‑cutting calculus. Quality of output, it seems, is no longer a shield.

At a conference last week, Microsoft CEO Satya Nadella addressed the turmoil with a clear message: the era of unlimited investment is over. "The challenge now for us is to think about how do you innovate both in hardware as well as in the games going forward, in an economically viable way," Nadella said, Engadget reported. After 25 years of Microsoft pouring resources into Xbox, "now we have to turn this into a sustainable business."

The numbers behind this pivot are stark. Microsoft cut approximately 1,900 gaming jobs in early 2024, then slashed another 9,000 jobs company‑wide in July 2025, with many landing inside Xbox. Multiple games were canceled and at least one other studio was closed during that round. The layoffs expected after the fiscal year ends on June 30 would be the third major reduction in roughly two years.

For builders and developers in the gaming industry, the Xbox turmoil sends a clear signal about where the big platform holders are heading:

• Studio acquisitions don't equal studio security. Microsoft bought dozens of studios with the promise of resources and creative freedom. Now it's telling them they were never adequately funded. If you're at a recently acquired studio, the honeymoon is over.
• Critical acclaim is not a lifeline. Compulsion made a genuinely good game — and is still being shut down. The metric that matters now inside Xbox is revenue sustainability, not review scores.
• The AI executive in charge is a signal. Asha Sharma came from Microsoft's AI division, not gaming. Her appointment and the language of the reset memo suggest Xbox is being run more like a SaaS business than a creative enterprise.
• Project Helix (the next‑gen Xbox) is still happening — Microsoft has been teasing it since March and sending merch to influencers. But the hardware division and the games division appear to be on diverging trajectories, with the latter bearing the brunt of cost‑cutting.