Microsoft's Xbox plans more cuts after studio closure

(Bloomberg) — The sudden closure of multiple video game studios in Microsoft Corp.'s Xbox unit comes as a result of a far-reaching cost-cutting plan that hasn't yet been completed.

Xbox this week began offering voluntary severance agreements to producers, quality assurance testers and other staff at ZeniMax, which it acquired for $7.5 billion in 2020, according to people familiar with the company's plans. Other officials across the Xbox organization have been told that further layoffs are in the works. Method.

An Xbox spokesperson declined to comment.

Employees were shocked Tuesday when three Xbox subsidiaries unexpectedly closed and a fourth was absorbed. Among the closures was Tokyo-based Tango Gameworks, which released the critically acclaimed action game Hi-Fi Rush last year. According to people involved who spoke on condition of anonymity to discuss non-public information, plans are underway for a sequel to Tango.

During a town hall with ZeniMax staff on Wednesday morning, Xbox president Matt Booty praised Hi-Fi Rush, but declined to say why the company shut down the development studio behind it, according to three people in attendance. It is said that there was not.

Speaking more broadly about the closure, Booty said Studio Shad was stretched too thin, like Peanuts Batalonpan, and leaders across the department were feeling understaffed. They decided to close these studios to free up resources elsewhere, he said.

Booty added that the closure of subsidiary Arkane Austin, which has long developed games such as Prey, was not related to the performance of its new multiplayer game Redfall, which was a critical commercial failure.

Before shutting down, Arkane was aiming to return to its roots by launching new single-player immersive simulation games, including a new installment in the Dishonored series, according to people familiar with the matter.

Jill Braff, head of ZeniMax Studios, said at City Hall that she hopes the reorganization will allow the division, which also develops “Fallout” and “Doom,” to focus on fewer projects. He said he was there. More work will continue to be done, she said, according to audio of the meeting reviewed by Bloomberg.

I think we almost flipped out, she added.

Tango and Arkane both released games last year and were looking to hire additional staff as they pitched new projects, which Booty and Braff suggested was a major factor in the closure. Tangos founder and studio head Shinji Mikami retired last year.

These layoffs at Xbox come as the video game industry shrinks further due to economic changes following a period of rapid growth during the pandemic. Recently, Microsoft's gaming division expanded beyond its competitors by acquiring ZeniMax and Activision Blizzard for a total of more than $76 billion. In February, Microsoft cut 1,900 jobs, mainly at Activision Blizzard.

Officials say Activision Blizzard's major acquisition has increased scrutiny from Microsoft executives on the Xbox division.

In recent years, Xbox has invested heavily in Xbox Game Pass, a subscription service that gives you unlimited access to hundreds of downloadable games for a monthly fee. To give the service new appeal, Xbox has acquired dozens of studios, including companies known for making smaller games, such as San Francisco-based Double Fine.

While most game publishers are looking to make big moves with games that cost hundreds of millions of dollars, Xbox is looking to create less expansive creative projects like Hi-Fi Rush with smaller budgets and lower sales expectations. We promised to support the title. It didn't matter if the game sold tens of millions of copies. As long as it helps enhance the Game Pass library.

But Game Pass hasn't seen the huge growth that Xbox chief Phil Spencer might have expected.

Matt Piscatella, executive director of analytics firm Circana, said monthly non-mobile video game subscription spending in the U.S. has been growing flat to low single digits since mid-2021.

According to our data, Game Pass spending actually experienced a period of strong growth from late 2019 to early 2021, and has since stabilized, Piscatella said. Purchasing games, add-on content, and even free-to-play models remains a highly preferred way for U.S. consumers to obtain video games, at least for now.

There's no indication that Xbox plans to do away with the Game Pass model, but there are signs that its big bet hasn't paid off. In the most recent quarter, Xbox content and services sales rose 62%, but as Nico Partners analyst Daniel Ahmad pointed out last month, this growth was solely due to the Activision Blizzard acquisition. was. He noted on social media that without the revenue from this deal, there would have been no software and services growth, hardware revenue would have been significantly lower, and Xbox gaming revenue would have been down about 5% year over year. .

As console revenues have declined, the company has recently begun releasing some games on competing platforms. In his March interview with gaming site Polygon, Spencer said that what concerns me most about this industry is the lack of growth.

–With assistance from Dina Bass.

2024 Bloomberg LP

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