Xbox’s Studio Reset: Dishonored and South of Midnight Developers at Risk Amid Major Restructuring

As Xbox pivots under new leadership, beloved studios behind Dishonored and South of Midnight teeter on the brink—what’s driving the shake‑up, and what comes next?

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1. The Reset Begins: ‘Next 100 Days’ and Financial Realities

On June 10, 2026, Xbox CEO Asha Sharma and Chief Content Officer Matt Booty issued an internal memo titled “Next 100 Days: Xbox Reset,” framing the company’s urgent need to regain stability. They revealed that Xbox would end its fiscal year (June 30) with an accountability margin of just 3%, down from previous levels, despite over $20 billion in investments over five years (excluding Activision Blizzard King) . Hardware component costs, particularly storage and memory, have exploded—now more than five times higher than two years ago—crippling Xbox’s console availability and margins . The memo also acknowledged an over‑extended studio system amid shifting strategies across subscription, streaming, and devices .

2. Studios in Peril: Compulsion Games and Arkane Among Those at Risk

On June 15, 2026, Tech4Gamers reported that two high-profile Xbox studios—Arkane (Dishonored) and Compulsion Games (South of Midnight)—are reportedly at risk of closure as part of the restructuring . Multiple outlets, including Kotaku, GameSpot, Insider Gaming, and Windows Central, confirmed that Xbox plans to shut down Compulsion Games, despite its critical success with South of Midnight, which earned awards like the Peabody and BAFTA for new IP . Compulsion, with around 90–115 employees, was still hiring earlier this year for a new IP—making the timing all the more jarring .