Asha Sharma marked the conclusion of her first hundred days as Xbox CEO with a public blog post in which she called for the next hundred days to be a “reset” of the business. Highlighting the division’s low “accountability margin” and declining revenues, along with macro factors like the hardware component crisis, Sharma’s post was a fairly obvious omen of layoffs to come – corporate executives don’t say things like “we have found ourselves over extended” or start talking about “hard truths” unless a whole lot of people are about to lose their jobs.
Sharma’s second hundred days ended a little over a week ago, and the promised reset has seen hundreds and hundreds of layoffs across Xbox studios and business units, along with the shuttering or divestment of several entire studios. Even for an industry that has become grimly accustomed to swingeing cuts and layoffs in recent years, this reset is particularly brutal.
The whole point of a reset, though, is that you press the button once. It’s a major disruption, but then it’s over; the process is horrible, but the tradeoff is certainty and stability for those who remain. Yet neither certainty nor stability are being widely felt within Xbox right now.
Another 268 jobs were cut this week, on top of the 1,600 or so already gone, and Xbox reshuffled its studios again, while admitting that no buyer has emerged for Ninja Theory. The studio will now probably be shuttered, while the fate of the last of the studios Xbox planned to divest, Arkane, remains up in the air.
“The whole point of a reset is that you press the button once”
This isn’t just a case of some final tweaks to the Xbox structure limping in a few days after the supposed hundred-day-long reset period. Xbox hasn’t finished cutting yet by any means; it announced the intention to slash 3,200 jobs earlier this summer, so even after this week’s layoffs, there are still hundreds of more job losses to come before that target is reached.
The hundred-day period was only ever a catchy title for a blog post, I guess; in reality, nobody seems to actually know how long this reset will continue, and how long Xbox staff will go into work every day with the threat of redundancy hanging over their heads.
Part of the problem is that nobody has yet deigned to outline a clear vision for what Xbox will actually look like after this reset – to the point where it’s starting to feel awfully like no such vision actually exists. This week’s studio reshuffle makes some big changes, moving Obsidian under the Bethesda umbrella and making Activision into effectively the new custodian of the Halo franchise (as well as of venerable studio Rare, one of Microsoft’s first really big Xbox acquisitions back in the day). In essence, major studios and IP are being moved out of Xbox’s own studio arm and into the major publishers Microsoft acquired to scale up the Xbox business.
“Nobody has yet deigned to outline a clear vision for what Xbox will actually look like after this reset”
It’s not quite clear how that fits with earlier statements about the reset removing layers of management to permit more direct control of development efforts. Perhaps it simply doesn’t. What it fits with rather more neatly, though, is the only-partially-in-jest idea that was batted around when Microsoft purchased Activision Blizzard King, namely that the relative scales involved meant this would eventually end up being an Activision Blizzard takeover of Xbox, not vice versa. It’s hard not to be reminded of those comments when Halo, Xbox’s crown jewel IP right from the moment of the first console’s launch, now sits within Activision, while Halo Studios, the internal studio created especially for the franchise, is being gutted.
There are some more prosaic explanations for this than a power grab amid the chaos of the reset, though. On a purely financial level, moving some of Microsoft’s most valuable studios and IP into these business units might help to soften the blow of the impairments the company is almost certainly going to have to take on their valuation in future. Microsoft bought Activision Blizzard at what we can now clearly see was the peak of its valuation, and propping up that book valuation by reorganising the company to add valuable assets to it might help make that look a little less painful to investors.
“A buyer for the Xbox business as a whole is very unlikely to emerge”
A more conspiracy-minded thinker might also argue that if Microsoft wants to exit the games business without taking too drastic a loss, this would be a reasonable step to take along the way. A buyer for the Xbox business as a whole is very unlikely to emerge, especially given the massive headwinds for console hardware being whipped up by the component cost crisis. But if you wanted to get a decent price for Activision Blizzard and Bethesda in order to exit the sector without losing too much face, hollowing out Xbox Game Studios by moving the crown jewels inside those units would make sense.
I don’t think that’s what’s happening. My priors about the likelihood of Microsoft attempting a sale remain the same as a few months ago – I suspect that despite some clear hostility to the games division from other parts of the company’s management, Microsoft overall would find the humiliation of writing off tens of billions while being seen to exit yet another major consumer sector hard to stomach. I also think that a buyer willing to pay a face-saving price for Activision Blizzard is unlikely to emerge, even with Halo thrown in to sweeten the deal.
Moreover, none of that is particularly coherent with the other things going on around the business – in part because none of this is particularly coherent in general. A handful of studios and assets remain within Xbox Game Studios – in essence, it now has a support studio for Activision’s Halo games (what’s left of Halo Studios), along with the developers of the Forza games (the newly merged Playground Games and Turn 10), Gears of War (The Coalition), and Clockwork Revolution (InXile Entertainment). If the restructure is really designed to move development oversight away from Xbox Game Studios and into the Bethesda and Activision organisational structures, it’s not clear why those studios weren’t included. Perhaps they will be eventually; Xbox does seem profoundly allergic to ripping off the Band-Aid in one go.
“None of this is particularly coherent in general”
(Minecraft creator Mojang is worthy of a mention here, too, just for the sake of completeness. Microsoft seems to have some big if not yet very clear ideas about the future of that particular money printer, and it sits alongside Activision, Bethesda, and Xbox Game Studios, directly under the Xbox umbrella organisation itself. Minecraft’s success is off at a tangent from the entirety of the rest of the Xbox business, and how the division’s leadership thinks it can be integrated into their strategy remains entirely up in the air.)
What makes all of this feel especially incoherent, though, is Physint. Xbox Game Studios raced in to snap up publishing rights to Hideo Kojima’s upcoming game when Sony decided to bow out of its partnership with him. Perhaps that will turn out to have been a masterstroke, but one thing is certain – it means Microsoft, in the throes of its reset, obsessing over costs and efficiency, just made a major commitment to back a very expensive game that won’t be released, even optimistically speaking, until around 2030 or later.
In isolation, I don’t think Physint is a bad game for Xbox to have on its roster. In isolation, I don’t think Activision – a company with a very deep pool of knowledge about managing FPS franchises – is a bad custodian of Halo. I can see the argument for Obsidian moving in under Bethesda’s structure, given it’s been put to work on a new Fallout game. And I can, regretfully, see that there’s a case to be made that Xbox was too big, too bloated, and had its attention spread too thin. In isolation, you can argue any of those points and sound reasonable.
“Taken together, none of this feels like strategy”
The problem is that taken together, none of this feels like strategy, and it certainly doesn’t feel like a vision of what Xbox is actually going to be once this reset completes. Just like Sony, Microsoft must surely feel the seconds trickling through its fingers as the day approaches when it’s going to have to tell the public what its next-gen system will be and how much it will cost. That difficult announcement is only going to have any hope of winning over consumers if it’s coming from a company with a clear, well-articulated, and credible pitch for what that expensive system will do – a promise of what that likely $1,000+ price tag is going to buy you in the half-decade or more of its lifespan.
That’s not something a company without a clear, strongly executed vision can accomplish. Right now, bluntly, I’m not sure any company is on track to accomplish it convincingly – but for Microsoft, the stakes are especially high, and the hill to climb is especially steep. It can’t even take the first step up that hill until this interminable reset finally wraps up and a credible strategic vision for what Xbox will be in the next five or ten years actually emerges.