The abrupt shutdown of multiple video-game studios within Microsoft’s Xbox division arises from an ongoing cost-reduction strategy that remains in motion.
This week, Xbox initiated voluntary severance packages for producers, quality assurance testers, and other employees at ZeniMax, which Microsoft acquired in 2020 for $7.5 billion (approximately Rs. 6,26,28 crore), according to sources familiar with the situation. Employees throughout the Xbox organization have been informed that further job cuts are anticipated.
An Xbox spokesperson has chosen not to comment on the matter.
Employees expressed disbelief following Tuesday’s sudden closures of three subsidiaries and the integration of a fourth. Among those affected was Tango Gameworks, based in Tokyo, recognized for its critically acclaimed title Hi-Fi Rush, which launched last year. Tango was reportedly in discussions for a sequel prior to the studio’s closure, as per insiders who spoke on the condition of anonymity due to the sensitive nature of the information.
At a town hall meeting with ZeniMax staff on Wednesday morning, Matt Booty, president of Xbox, acknowledged the success of Hi-Fi Rush but did not elaborate on the reasons behind the shutdown of its developing studio, according to multiple attendees.
Booty stated that the division’s studios had been stretched too thin, likening the situation to “peanut butter on bread,” leading leaders within Xbox to feel that resources were insufficient. The decision to close certain studios was made to reallocate resources effectively, he explained.
The closure of Arkane Austin, a studio famous for games like Prey, was not directly linked to the performance of its latest multiplayer title, Redfall, which has faced criticism both commercially and critically, Booty said.
Prior to its closure, Arkane had been aiming to revisit its roots by proposing a new single-player “immersive sim” game, potentially a new installment in the Dishonored series, according to informed sources.
Jill Braff, head of ZeniMax studios, expressed during the town hall that the reorganization aims to enable the division, which is also responsible for titles like Fallout and Doom, to concentrate on a reduced number of projects. She remarked on the challenges of supporting nine studios globally with a lean central team facing ever-increasing demands for time and focus.
“I think we were about to topple over,” she remarked, reflecting on the organization’s condition.
Despite releasing games last year and seeking new hires, both Tango and Arkane face closures, which Booty and Braff suggested stemmed from the ambitious plans for new projects. Additionally, Shinji Mikami, the founder and head of Tango, departed from the studio last year.
These job cuts coincide with a broader contraction in the video-game industry, prompted by economic shifts following a period of rapid expansion during the pandemic. Microsoft has aggressively grown its gaming division, notably through its acquisitions of ZeniMax and Activision Blizzard, totaling over $76 billion combined. Earlier in February, the company also eliminated 1,900 positions, primarily at Activision Blizzard.
The substantial acquisition of Activision Blizzard is believed to have heightened scrutiny over the Xbox division from Microsoft’s leadership, according to insiders.
In recent years, Xbox has heavily invested in Xbox Game Pass, a subscription service offering unlimited access to a vast library of downloadable games for a monthly fee. To enhance the service, the company has acquired numerous studios, including those known for producing smaller games, such as Double Fine from San Francisco.
While many game publishers pursue ambitious high-budget titles, Xbox has committed to supporting innovative smaller projects like Hi-Fi Rush, emphasizing the belief that even a modestly successful game can contribute positively to the Game Pass offering.
However, Game Pass has not achieved the expected explosive growth that Xbox leader Phil Spencer might have envisioned.
Mat Piscatella, executive director at analysis firm Circana, noted that monthly, non-mobile video-game subscription spending in the U.S. has experienced minimal growth since mid-2021, trend-wise stagnant.
“In our data, Game Pass spending exhibited significant growth primarily between late 2019 and early 2021, but has since plateaued,” Piscatella stated. “For U.S. consumers, traditional purchasing and free-to-play models remain the preferred methods for acquiring video games.”
While there is no indication that Xbox intends to abandon the Game Pass model, recent developments suggest that the major investments may not have yielded the anticipated returns. Although Xbox recorded a 62 percent increase in sales for content and services over the most recent quarter, as highlighted by Niko Partners analyst Daniel Ahmad, this growth was solely attributed to the Activision Blizzard acquisition. Ahmad pointed out that, excluding sales from that acquisition, Xbox gaming revenue had likely declined by around 5 percent year over year, indicating a lack of growth in software, services, and a steep drop in hardware sales.
With declining console revenue, the company has begun to release some of its titles on competing platforms. In a March interview with gaming outlet Polygon, Spencer expressed concern over the industry’s stagnation, stating, “the thing that has me most concerned for the industry is the lack of growth.”
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