The analysis by Bloomberg and The Verge shows what a dangerous situation Microsoft and Xbox have manoeuvred themselves into.

Not many gamers expected that Microsoft would suddenly reduce Xbox studios to such a significant extent. Tango Gameworks and Arkane Austin, two respected teams, are no longer developing games. This surprising move shows that the crisis in the video game industry is more severe than we thought, but the situation is even bleaker than that.

The crisis may affect Xbox, one of the sector’s most important companies, which invests the most in building a successful future.

Bloomberg has come up with a lot of exclusive information about what Microsoft plans to do with its video game division. It turned out that the company was planning further layoffs. Xbox has reportedly begun offering voluntary severance packages to manufacturers, quality control staff, and many ZeniMax employees. Moreover, many employees know that more Xbox cuts are on the horizon, adding to the fear and uncertainty.

The main signs of the Xbox crisis summarised

• Hellblade 2 was also internally considered for PS5.
• Tango Gameworks was working on a sequel to Hi-Fi Rush, which will never be released.
• Arkane Austin wanted to remake a new single-player immersive sim, similar to Dishonored, but it was never released.
• These layoffs and closures allow them to focus on fewer games.
• “I think we were on the verge of collapse,” said the head of ZeniMax studios.
• With the acquisition of Activision Blizzard, Microsoft brought the Xbox division under closer control.
• Xbox Game Pass isn’t getting the growth Phil Spencer was hoping for.
• The big bets on Xbox Game Pass didn’t pay off.
• There is a lot of uncertainty within Xbox about what the future holds.
• Even if Phil Spencer said yes, Microsoft is debating internally whether Call of Duty games should be included in Xbox Game Pass or not.
• Microsoft has considered raising the price of Game Pass Ultimate again.
• Xbox’s business won’t grow without Activision Blizzard.
• 2024 will be crucial for all Xbox studios.

Matt Booty, head of Xbox Game Studios, praised Hi-Fi Rush in a press conference, but did not explain why Tango Gameworks was shut down. He also noted that Xbox studios were scattered like “peanut butter on bread”. Three studios were closed to free up resources. As well as being able to focus on other teams and more important games within Bethesda.

Also, it should be clarified that Arkane Austin was not shut down due to Redfall, which generated “minimal sales” and will not receive any more updates.

Microsoft is not done with downsizing – some studios may close in 2024

After acquiring Bethesda and Activision, Microsoft recently announced over 1,900 layoffs at Activision Blizzard. The company’s significant growth during the pandemic has practically meant a severe setback for many developers, especially Xbox. No one would have thought in 2022 that two years later, the company would be laying off thousands of employees and closing studios loved by the community.

Xbox Game Pass and other services aren’t growing; in fact, they’ve been stagnant for years; however, it is clear that Microsoft has no plans to abandon the Game Pass model despite the difficulties.

Worryingly, Xbox Series X/S sales fell by 31% compared to the same quarter last year. Excluding Activision Blizzard’s revenue, the Xbox division’s revenue was down 4% year over year.

The Verge, on the other hand, provided important information about the Xbox situation. After the head of Arkane harshly criticised Xbox after the closure of its sister studio, sources say that these harsh statements reflect the internal reality of many developers: dissatisfaction and fear about what to expect with Xbox. Not surprisingly, many workers were shocked by the closure of Tango Gameworks – they did not expect it.

According to a report from The Verge, Xbox is currently struggling with slowing Game Pass subscribers (they reported 34 million last February), slowing sales of the Xbox Series X/S, and ongoing internal delays in game releases.

Xbox is currently in the middle of a strategy shift with its own games. Four have already been released on other platforms. These are Hi-Fi Rush, Pentiment, Grounded and Sea of Thieves. The latter is reportedly selling very well on PS5. This would not rule out Hellblade 2 debuting on Sony’s console sooner or later.

One of the most important questions within Microsoft is whether Call of Duty games will be included in Xbox Game Pass. There’s been internal debate over whether the subscription service cannibalises revenue from Activision’s shooter series. On the other hand, Bethesda will likely focus on a few licenses that are destined for success.

Xbox is in a precarious position right now. However, Microsoft is said to be confident that the upcoming announcements, especially the summer event where a new Gears and the next Call of Duty will be unveiled, will increase the community’s enthusiasm.

Source: Bloomberg, The Verge