The sudden closure of several video-game studios at Microsoft Corp.\u2019s Xbox division was the result of a widespread cost-cutting initiative that still isn\u2019t finished.<\/p>\n
This week, Xbox began offering voluntary severance agreements to producers, quality assurance testers and other staff at ZeniMax, which it purchased in 2020 for $7.5 billion, according to people familiar with the company\u2019s plans.<\/p>\n
Others across the Xbox organization have been told that more cuts are on the way.<\/p>\n
A spokesperson for Xbox declined to comment.<\/p>\n
Employees were shocked by the unexpected shuttering of three Xbox subsidiaries and the absorption of a fourth.<\/p>\n
The closures included\u00a0Tokyo-based Tango Gameworks, which last year released the critically acclaimed\u00a0action game\u00a0Hi-Fi Rush<\/em>.<\/p>\n Tango was in the process of pitching a sequel, said the people, who asked not to be identified, discussing nonpublic information.<\/p>\n During a town hall with ZeniMax staff on Wednesday morning, Xbox president Matt Booty praised\u00a0Hi-Fi Rush\u00a0<\/em>but did not specify why the company had shut down the development studio\u00a0behind it, according to three people who were in attendance.<\/p>\n Speaking about the closures more broadly, Booty said that the company\u2019s studios\u00a0had been spread too thin \u2014\u00a0like \u201cpeanut butter\u00a0on bread\u201d \u2014\u00a0and that leaders across the division had felt understaffed.<\/p>\n They decided to close these studios to free up resources elsewhere, he said.<\/p>\n Booty added that the shutdown of subsidiary Arkane Austin, the longtime developer of games such as\u00a0Prey<\/em>,\u00a0was not connected to the performance of its new multiplayer game,\u00a0Redfall<\/em>,\u00a0a critical and commercial flop.<\/p>\n Before its closure, Arkane had been looking to return to its roots by pitching a new single-player \u201cimmersive sim\u201d game, such as a new entry in the\u00a0Dishonored<\/em>\u00a0series, according to the people familiar.<\/p>\n Jill Braff, head of ZeniMax studios, said in the town hall\u00a0that she hoped the reorganization would allow the division,\u00a0which also develops\u00a0Fallout <\/em>and\u00a0Doom<\/em>,\u00a0to put\u00a0more focus on fewer projects.<\/p>\n \u201cIt\u2019s hard to support nine studios all across the world with a lean central team with an ever-growing plate of things to do,\u201d she said, according to audio of the meeting reviewed by Bloomberg.<\/p>\n \u201cI think we were about to topple over,\u201d she added.<\/p>\n Both Tango and Arkane released games last year and were looking to hire additional staff as they pitched new projects, which Booty and Braff suggested was the main\u00a0factor\u00a0behind their closures.<\/p>\n Shinji Mikami, Tango\u2019s founder and studio head, departed last year.<\/p>\n These\u00a0cuts at Xbox come amid a wider contraction in the video-game industry due to economic shifts following a period of rapid growth during the pandemic.<\/p>\n Recently, Microsoft\u2019s gaming division has expanded more than any of its competitors via\u00a0the\u00a0acquisitions of ZeniMax and Activision Blizzard for more than $76 billion combined.<\/p>\n In February, Microsoft cut 1,900 jobs, mostly at\u00a0Activision Blizzard.<\/p>\n The massive Activision Blizzard\u00a0acquisition has ramped up scrutiny on the Xbox division from leaders at Microsoft, according to people familiar.<\/p>\n In recent years, Xbox became deeply invested in\u00a0Xbox Game Pass, a subscription service that offers unlimited access to hundreds of downloadable games for a monthly fee.<\/p>\n To fill the service with new enticements, Xbox acquired dozens of studios, including outfits known for making smaller games, such as San Francisco-based Double Fine.<\/p>\n While most game publishers are looking to take big swings with games that cost hundreds of millions of dollars, Xbox promised to support less sprawling creative titles\u00a0such as\u00a0Hi-Fi Rush\u00a0<\/em>with smaller budgets and lower sales expectations.<\/p>\n It didn\u2019t matter if a game sold tens of millions of copies as long as it helped bolster the Game Pass library.<\/p>\n But Game Pass has not seen the massive growth that Xbox boss Phil Spencer may have been hoping for.<\/p>\n Mat Piscatella, executive director of analysis firm Circana, said that monthly, non-mobile, video-game subscription spending in the US \u201chas been flat to low single-digit growth\u201d since the middle of 2021.<\/p>\n \u201cIn our data, Game Pass spending really had its big growth period in late 2019 through early 2021 and has since settled,\u201d Piscatella said.<\/p>\n \u201cPurchasing games and add-on content as well as free-to-play models are still the vastly preferred method of getting to video games by US consumers, at least for now.\u201d<\/p>\n While there\u2019s no indication that Xbox plans to ditch the Game Pass model,\u00a0there are hints that its big bets have not paid off.<\/p>\n During the most recent quarter, sales of Xbox content and services\u00a0were up 62%<\/a>, but as Niko Partners analyst Daniel Ahmad pointed out last month, the growth\u00a0was entirely\u00a0due\u00a0to the acquisition of\u00a0Activision Blizzard<\/a>.<\/p>\n On social media, he noted that without sales from that deal, Xbox gaming revenue would have been\u00a0down approximately 5% year over year,\u00a0 \u201cwith no software and\u00a0services growth and sharp hardware revenue decline.\u201d<\/p>\n With console revenue down, the company recently began releasing some of its games on competing platforms.<\/p>\n