Microsoft’s situation has not ended according to the most famous analyst

Microsoft has abruptly closed four studios, and it seems that the situation will not end soon, nor do they seem to have any sort of plan regarding it.

Microsoft is not having the best week of its life. At least not when it comes to Xbox. Having closed four game studios out of nowhere, without giving further explanations, brand users and game fans are angry. And while normally the explanation for these things is commercial performance, it seems that this time there is something else. Or rather, something less.

According to Jason Schreier, one of the most important journalists in the gaming industry, this sudden closure has been the result of a cost-cutting initiative that is not yet finished. Stating that, in fact, all of this is only going to get worse.

If you don’t know what happened, last Tuesday, May 7th, Microsoft announced the closure of four studios from one of its subsidiaries, ZeniMax. These were Arkane Austin, Tango Gameworks, Alpha Dog Games, and Roundhouse Studios. They are known respectively for creating Redfall and Prey, The Evil Within and Hi-Fi Rush, Mighty Doom, and an unnamed project that has been canceled.

With little explanation, the studios were closed via email by Matt Booty, director of Xbox Game Studios. Stating in that same email that they are looking to reprioritize titles and resources, he has only promised to relocate part of the Roundhouse Studios team, who will now work on the production of The Elder Scrolls Online.

All of this comes after Redfall was a commercial failure for Arkane Austin, but Mighty Doom performed relatively well for Alpha Dog Games and Hi-Fi Rush was a success in terms of reviews, sales, and downloads on GamePass for Tango Gameworks after a more discreet success with Ghostwire Tokyo. Something that makes the sudden and impersonal closures tremendously surprising, especially the closure of Tango Gameworks. A game that, in May 2023, one of the leaders of the Xbox marketing department called “a success in every measure”.

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In addition to all this, it is worth mentioning all the information that has come out in subsequent days. Such as the fact that Arkane Austin was working on an update for Redfall to add a single-player mode and a promised DLC in its special edition. But according to Schreier, this is just the tip of the iceberg of the drama that Xbox is immersed in.

Last Wednesday morning, Xbox and Zenimax executives held a meeting with the employees of the latter company. In this meeting, Xbox President and man who fired hundreds of people and closed four studios via email, Matt Booty, praised the work done by Tango Gameworks with Hi-Fi Rush. However, he did not provide any explanation as to why he had suddenly closed the studio for which he only had good words for their game.

About the closures, he only spoke in general terms, stating that they tried to cover too much with so many studies. Like someone spreading butter on bread. Because of that, the most important studies in the division felt lacking the human resources they needed. Because of that, they have decided to close these four studies to free up resources and allow these other studies that need it to grow organically.

All of this comes with some particularly brutal twists. The first one is that the fact that Redfall was a critical and commercial failure had nothing to do with its closure. The next one is that, in fact, the two largest studios out of the four were already planning sequels. At Arkane, they wanted to go back to their roots and make a new immersive sim, perhaps a new Dishonored. At Tango Gameworks, they wanted to capitalize on the success of Hi-Fi Rush and make a sequel. Two possibilities that no longer exist, as both studios have been closed.

If Booty’s statements weren’t demoralizing and alarming enough, then Jill Braff, head of ZeniMax Studios, took the floor. Stating that it is difficult to sustain nine studios worldwide, she says that this “reorganization” will serve to focus on fewer projects. Something that aligns with the idea of exclusively focusing on larger and more beneficial short-term projects.

Regarding the reason why these studios are closing, beyond empty words, the most convincing reason given by Booty is that both Tango and Arkane had released a game in 2023 and were now looking to hire new staff to present new projects. This implies that the success or failure of the projects, within ZeniMax and Xbox, is absolutely irrelevant. What matters is whether their personal accounts balance for the next fiscal year.

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All of this is even worse when you consider the context from which it comes. Microsoft acquired ZeniMax and Activision Blizzard for over $76 billion and last February cut over 1,900 jobs. Most of them from Activision Blizzard, arguing that there were redundancies to be eliminated.

In three months, not only have they gone from having tremendous redundancies within Microsoft, but they are also short of staff in their key studios. Something that doesn’t fit with any coherent business strategy, except that they may have lied in some of their statements. Except that, apparently, Xbox’s business strategy has not been working as expected for several years now.

Xbox has been investing heavily and consistently in Xbox Game Pass for a few years now. Their business model has been to offer great games, but also smaller and experimental games, through a competitively priced streaming service. Games like Hi-Fi Rush. Making it enough, even if a game didn’t necessarily sell well, if it helped grow the Game Pass numbers.

The problem is that, according to Mat Piscatella, executive director of the analysis firm Circana, monthly subscriptions to video game streaming services have hardly grown since mid-2021. The biggest growth of Game Pass happened between late 2019 and early 2021, plummeting since then. Buying video games and free-to-play games with in-game purchases are the preferred ways for players. At least for now.

In any case, Xbox’s content and services have grown by 62% in the last quarter. Something that, according to Daniel Ahmad, analyst at Niko Partners, has been entirely due to the acquisition of Activision Blizzard. With a 5% decrease in profits year over year, no real growth in software or services, and a significant drop in hardware sales.

What is Microsoft’s plan from here? We don’t know. They are discussing whether to bring Call of Duty to Xbox Game Pass or not, but we don’t know their specific plan. It seems that streaming services are not the future, not even for video games, and their plan to make medium and small games relied on that service. That, along with the fact that insiders have repeated that this is not over, makes us fear for the state of all Xbox and ZeniMax studios that don’t make Call of Duty, Fallout, and The Elder Scrolls. Because unfortunately, right now, it seems that they are all at risk of being closed.