The sudden closure of several video game studios in Microsoft's Xbox division was the result of a widespread cost-cutting initiative that has not yet ended.
Xbox this week began offering voluntary severance deals to producers, quality assurance testers and other staff at ZeniMax, which it bought in 2020 for $7.5 billion (roughly Rs. 6.26.28 crore), according to people familiar with the company's plans. Others in the Xbox organization have been told more cuts are on the way.
An Xbox spokesman declined to comment.
Employees were shocked by Tuesday's unexpected closure of three Xbox subsidiaries and the absorption of a fourth. The closures include Tokyo-based Tango Gameworks, which released the critically acclaimed action game Hi-Fi Rush last year. Tango was in the process of releasing a sequel, said the people, who asked not to be identified discussing non-public information.
During a town hall with ZeniMax staff Wednesday morning, Xbox president Matt Booty praised Hi-Fi Rush but did not specify why the company had shut down the development studio behind it, according to three people familiar with the matter. they attended
Speaking about the closings more broadly, Booty said the company's studios had been spread too thin, like “peanut butter on bread” — and that division leaders had felt understaffed. They decided to close those studios to free up resources elsewhere, he said.
Booty added that the shutdown of subsidiary Arkane Austin, the longtime developer of games like Prey, was not connected to the performance of its new multiplayer game, Redfall, a critical and commercial failure.
Before its closure, Arkane had been looking to return to its roots by releasing a new “immersive sim” single-player game, such as a new entry in the Dishonored series, according to people familiar with the matter.
Jill Braff, head of ZeniMax Studios, told the town hall that she hoped the reorganization would allow the division, which also develops Fallout and Doom, to focus more on fewer projects. “It's difficult to support nine studios around the world with a lean core team with an ever-increasing supply of things to do,” he said, according to audio of the meeting reviewed by Bloomberg.
“I think we were about to go down,” he added.
Both Tango and Arkane launched games last year and were looking to hire additional staff while pitching new projects, which Booty and Braff suggested was the main factor behind their closures. Shinji Mikami, founder and studio head of Tango, left last year.
These cuts at Xbox come amid a broader contraction in the video game industry due to economic changes after a period of rapid growth during the pandemic. Recently, Microsoft's gaming division has expanded more than any of its competitors through the acquisitions of ZeniMax and Activision Blizzard for more than $76 billion combined. In February, Microsoft cut 1,900 jobs, mostly at Activision Blizzard.
The massive acquisition of Activision Blizzard has increased the scrutiny of the Xbox division by Microsoft leaders, according to people familiar with the matter.
In recent years, Xbox invested heavily in Xbox Game Pass, a subscription service that offers unlimited access to hundreds of downloadable games for a monthly fee. To fill the service with new enticements, Xbox acquired dozens of studios, including outfits known for making smaller games, like San Francisco-based Double Fine.
While most game publishers look to make big changes with games costing hundreds of millions of dollars, Xbox committed to supporting less creative titles like Hi-Fi Rush with smaller budgets and lower sales expectations . It didn't matter if a game sold tens of millions of copies as long as it helped bolster the Game Pass library.
But Game Pass hasn't seen the massive growth that Xbox boss Phil Spencer might have hoped for.
Mat Piscatella, chief executive of analytics firm Circana, said monthly non-mobile video game subscription spending in the U.S. “has been flat to low-single-digit growth” since mid-2021.
“In our data, Game Pass spending really had its big growth period in late 2019 through early 2021 and has leveled off since then,” Piscatella said. “Purchasing games and additional content, as well as free-to-play models, remain the most preferred method of accessing video games for US consumers, at least for now.”
While there's no indication that Xbox plans to abandon the Game Pass model, there are signs that its big bets haven't paid off. In the most recent quarter, sales of Xbox content and services rose 62 percent, but as Niko Partners analyst Daniel Ahmad noted last month, the growth was entirely due to the acquisition of Activision Blizzard. On social media, he noted that without sales from that deal, Xbox game revenue would have fallen roughly 5 percent year-over-year, “with no growth in software and services and a sharp decline in hardware revenue.”
With console revenue down, the company recently began releasing some of its games on competing platforms. In a March interview with gaming site Polygon, Spencer said that “the thing that worries me the most about the industry is the lack of growth.”
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