Xbox funded and published 2025’s South of Midnight, a highly acclaimed action-adventure game set in the American Deep South. The game’s creative director, David Sears, said he believes South of Midnight is a “generational” game that he hopes people discover and play for a long time and one that he thought would help elevate the “prestige” of Xbox.
At the same time, Sears said he wasn’t sure Microsoft’s spending spree under the previous leaders Phil Spencer and Sarah Bond–which is how Sears’ studio Compulsion got the funding to make South of Midnight–was going to work out long term.
“I literally told people, I was like, ‘Yeah, wow, this could be terrible.’ Because somebody is going to say, someday, ‘The money tap … we’re closing those floodgates.’ And that’s going to have really traumatic results downstream,” he told Ben Hanson on MinnMax.
Microsoft spent billions and billions of dollars to buy studios and franchises to help get Xbox Game Pass off the ground. The bet did not work out, and now Spencer and Bond are out. The new Xbox CEO is Asha Sharma, and one of her first moves was to cut costs dramatically with layoffs, studio divestures–including Compulsion–and game cancellations. Sharma also talked about how Game Pass needs to evolve into something that’s “more enticing to a broader range of customers.”
Asked directly if he had been in control of the Xbox funding at the time, would Sears have stopped writing checks for games like South of Midnight? “Yeah, probably,” he answered (via Kotaku).
“I wanted to make it. No doubt. Obviously. Because we made it. Would I have turned off someone else’s money flow before South of Midnight? Yeah. Because I’m not completely selfless. It just seems like, in hindsight at least, it was unsustainable,” Sears said.
A lot of people said Microsoft’s spending on Xbox Game Pass was unsustainable and ultimately going to lead to pain and turmoil. Raphael Colantonio, the co-founder of Arkane, said Game Pass is unsustainable and “increasingly damaging” to the industry. Game Pass has been propped up by Microsoft’s “infinite money,” Colantonio said.
Raccoon Logic studio head Alex Hutchinson spoke out about Game Pass devaluing games earlier this year after his game Revenge of the Savage Planet was a day-one title on Xbox Game Pass. Conversely, Rebellion touted the launch of Atomfall on Game Pass as a huge success for the company.
With Microsoft’s big bets not panning out in the way the company envisioned, the Xbox business struggled, and the ensuing Xbox “reset” has been painful for the people, teams, and fans of Xbox. Sears said hindsight is 20/20, but he always had a feeling that things just weren’t right and that the bottom could fall out one day in terms of Xbox’s spending spree.
“Of course it was going to have a ‘shocking’ outcome. It’s easy to dissect it now. But at the time … I would talk to other directors and [they’d] be like, ‘How is this happening? How did we get so lucky? Is this a golden era?’ And I would always be like … ‘For now,'” he said. “And there’s always a night when Rome burns. I didn’t know exactly when it would be, but I was always worried about it.”
Sears went on to say the Microsoft of today is “much more humane” than the company was in the ’90s and 2000s, something he said is “remarkable and commendable.”
Sears said it’s a good thing that Microsoft is allowing studios it wants to let go of get spun out instead of shutting them down outright. Compulsion, for its part, was among the studios that got spun out, and is now operating independently and seeking new projects and funding sources.
South of Midnight originally launched for Xbox and PC in April 2025, later coming to PS5 and Switch 2 in March 2026. Now that Compulsion is independent, buying the game supports the studio directly, and not Xbox.
Throughout all of the downturns at Xbox, Microsoft continues to make gigantic sums of money, in part because Xbox represents just a tiny sliver of the company’s overall business. For the latest quarter, Microsoft made $92.3 billion in revenue (up 19%) and a profit of $36.6 billion (up 32%). Microsoft CEO Satya Nadella has praised Sharma for gutting the Xbox business so heavily.
