Xbox Cuts More Studios, Refocus Amid Subscription Stagnation

Key Takeaway

• Xbox, under Microsoft Corp., is closing studios including Tokyo's Tango Gameworks, as part of a strategic cost-cutting and realignment effort.
• The reorganization aims to focus on fewer, strategically important projects amid industry contraction and challenges with Game Pass growth.
• Despite significant acquisitions like ZeniMax for $7.5 billion, Xbox faces stagnation in subscription service growth since mid-2021.

Xbox Initiates Studio Closures

Microsoft Corp.'s Xbox division has recently undertaken a series of studio closures and job cuts as part of a broader cost-cutting initiative. The closures affected several studios, including the Tokyo-based Tango Gameworks, known for the critically acclaimed action game Hi-Fi Rush. These moves come as part of Xbox's efforts to streamline operations and focus resources more effectively. Xbox president Matt Booty, during a town hall meeting, explained that the decision was driven by a need to concentrate on fewer projects, citing that the company's studios had been spread too thin. Despite the success of games like Hi-Fi Rush, Booty clarified that the closures were not a reflection of the studios' performance but a strategic realignment.

Strategic Reorganization and Future Focus

The reorganization within Xbox and its subsidiary ZeniMax aims to prioritize projects that align with the company's future direction. Jill Braff, head of ZeniMax studios, expressed during the town hall that managing nine global studios had become increasingly challenging. The goal of the reorganization is to enable a more focused approach to project development, ensuring that resources are allocated to initiatives that are deemed most critical to Xbox's strategic objectives. This includes potentially shifting focus towards projects that could drive future growth and innovation within the company.

Industry-Wide Contraction and Game Pass Challenges

The video game industry is currently experiencing a period of contraction following a surge in growth during the pandemic. Xbox, in particular, has expanded significantly through acquisitions, including the purchase of ZeniMax for $7.5 billion and a proposed acquisition of Activision Blizzard for over $76 billion. However, the Xbox Game Pass subscription service, a key component of Xbox's strategy to offer a wide range of games for a monthly fee, has not seen the anticipated growth. According to Mat Piscatella, executive director of analysis firm Circana, subscription spending in the video game sector has shown only flat to low single-digit growth since mid-2021. This stagnation poses challenges for Xbox as it seeks to justify its significant investments in content and services.

Street Views

• Mat Piscatella, Circana (Neutral on Xbox Game Pass):

  "Monthly, non-mobile, video-game subscription spending in the US 'has been flat to low single-digit growth' since the middle of 2021... Game Pass spending really had its big growth period in late 2019 through early 2021 and has since settled."

Management Quotes

• Matt Booty, President of Xbox:

  "The company’s studios had been spread too thin — like 'peanut butter on bread' — and that leaders across the division had felt understaffed. They decided to close these studios to free up resources elsewhere." "The shutdown of subsidiary Arkane Austin was not connected to the performance of its new multiplayer game, Redfall."

• Jill Braff, Head of ZeniMax Studios:

  "It’s hard to support nine studios all across the world with a lean central team with an ever-growing plate of things to do... I think we were about to topple over."