Last July, when Microsoft made sweeping cuts to its gaming division, axing employees at King, Raven Software, Rare, Blizzard, and more, shuttering The Initiative, and cancelling the Perfect Dark reboot, Everwild, and ZeniMax Online’s Project Blackbird, I said it was Microsoft’s darkest day since the last one.
This week is proof that things can always get worse.
Xbox CEO Asha Sharma has announced that 3,200 people will be discarded in the company’s quest for… well, I’m not sure what. A “reset” is the publicly given statement. This translates to keeping the things that make the most money and binning off everything else. The margins must be appeased.
Almost all those studios that Xbox cherrypicked nearly a decade ago to boost its first-party offering are being cast aside. Double Fine, Compulsion Games, Ninja Theory, Undead Labs, Arkane Lyon – now surplus to requirements.
Phil Spencer’s big Game Pass plan has failed. All these studios were meant to fill out Microsoft’s subscription service, but the numbers didn’t add up in the end. Microsoft stopped reporting Game Pass subscriber figures quite some time ago now, which tells you all you need to know.
Today’s cuts are a way to stem the bleeding. But the big question is, where is this all going? The answer is: nowhere good.
“Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined,” said Sharma, expressing a desire for a flatter, leaner organisation, with fewer management layers. It’s not clear yet exactly where the job losses will come, but it seems likely the platform teams will bear the brunt, and teams at Bethesda are being stripped back to just those on the core franchises. Meanwhile, Minecraft maker Mojang and mobile behemoth King are being brought closer into the fold, reporting directly to Sharma.
The strategy is clear: keep the money makers, the big names like Call of Duty, Fallout, and Minecraft, and ditch the interesting but profit-light experimental games. From a managerial perspective, it seems sound, if depressing, especially for anyone who wants to play anything other than endless sequels from safe franchises. But then you remember that Xbox is supposedly launching a new console soon, and you begin to wonder whether any of this makes sense.
Shouldn’t all those studios be beavering away making launch titles for Project Helix, which may or may not be coming out next year? The typical strategy for a console launch is to pad it out with exclusives, after all. But nothing about this next console generation will be normal.
The soaring cost of components means we’re staring down the barrel of $1,000+ consoles, meaning the next generation will be the most niche yet – and continuing a trend whereby console gaming is becoming the preserve of the well-off, while everyone else makes do with whatever their mobile or mouldering PC can run.
Microsoft is hedging its bets by making Project Helix PC compatible – but blurring the line between PC and console is what started the rot at Xbox in the first place.
A decade ago, Microsoft talked about unifying the PC and Xbox platforms, and committed to launching its first-party titles on PC. But at a stroke, this strategy eliminated the need to buy an Xbox. Players everywhere saw the logic: buy a PC instead, and you can play all of the games on PC, as well as those on Xbox.
“Microsoft can cut and cut and cut, but the end game remains elusive”
That logic remains undefeated, and won’t be adjusted by an Xbox that also plays PC games. After all, we already have PCs that play Xbox games.
Which makes me wonder where all this is going. Microsoft can cut and cut and cut, but the end game remains elusive. The deal with consoles – with a few notable exceptions – was always that they offered simplicity and affordability, with new generations offering a significant step up over the last. Affordability is now out of the window, and the visual differences between generations have reached a point where only the most technologically attuned can tell them apart – casual audiences merely blink in confusion at words like “ray tracing” and “Gaussian splatting”.
In short, there’s little there to convince a mass audience to splurge $1,000+ on a new machine with games that look little different from the old ones, and which can already be played on various other devices. The hardcore fans and early adopters will turn up, but beyond that…
Which all leads me to think that whatever strategy Xbox has for the future, it surely can’t solely rely on selling a very expensive box in vast numbers. Can it?
The alternative might be to embrace the much-threatened streaming future, perhaps with a low-cost streaming box similar to the mothballed Xbox Keystone. Chief strategy officer Matthew Ball has hinted at the allure of streaming. But then again, that would surely rely on Game Pass, a grand experiment that has proven unfruitful. “To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content,” said Sharma. “While those businesses have created meaningful value, they did not grow at the pace we expected.”
So what’s left? Selling streamed games at full price? That one has been done, with predictably poor results. Creating a cut-price, lower-powered console? That one worked for Nintendo, but there’s no sign Microsoft intends to follow suit.
Maybe Xbox will duck back into the ancient groove, relying on producing exclusive titles for its own console. That looks like it might be its strategy, although as ever, things are confusing in Xbox land, and muddied further by the rules around Call of Duty having to remain cross platform.
“The question is, where does it end? At what point does this battle turn in Microsoft’s favour?”
It also seems unclear whether exclusivity in this case will mean true Xbox exclusivity – as in, without a PC version. That would certainly be a selling point for new hardware, but still there remains the problem of those soaring component prices and the prospect of a next-gen console few can afford. Thus, Xbox is caught on the horns of a dilemma – if it makes its games exclusive to Xbox, it will probably only be able to sell them to a relatively tiny install base of those who can afford what is probably going to be a really quite expensive new console. That shallow sales pool might not justify the vast expense of producing modern AAA titles. But if those games are available on PC as well, the reasoning for buying the console all but evaporates.
Meanwhile, Xbox retreats ever further, slimming down its studio roster yet again (although at least this time the studios in question got to look for new owners, rather than being cut off at the knees.) The question is, where does it end? At what point does this battle turn in Microsoft’s favour? Looking towards the horizon, it’s hard to see what might constitute that turning point. It’s conceivable that Microsoft might exit the expensive and margin-thin hardware business entirely, relying instead on profiting from its remaining lucrative software franchises. Or there might be an even more radical reset to come.
In short, cutting thousands of staff and offloading some of its least-profitable studios might be a way to make the spreadsheet numbers look slightly more healthy in the short term, but it does practically nothing to solve the bigger problems facing Xbox, with its ever-sliding software and hardware revenues. If anything, cuts seem counterintuitive ahead of a new console launch, while the company’s future strategy remains as confusing as it was last summer, even with new leadership. Which all leads me to think we’ll be having similar conversations this time next year.
