What's happening inside Xbox: more cuts planned, growing fear among employees, and troubling Game Pass news

Even more disturbing reports about the state of Microsoft’s gaming division emerged shortly after the closure of four internal studios. And it appears that the future of Xbox looks hazy, especially without a clear strategy and vision.

Hi-Fi Rush

• According to Bloomberg, Microsoft’s decision to shut down studios such as Arkane Austin and Tango Gameworks was part of an ongoing cost-cutting initiative within the company. As anonymous sources told the publication, “more cuts are on the way.”
• Employees didn’t see studio closures coming. For example, Tango Gameworks was pitching a Hi-Fi Rush sequel, and Arkane Austin wanted to get back to making single-player immersive sims (e.g. a new Dishonored game).
• Both studios planned to hire new talent to work on the pitched projects. This could be one of the reasons for their closure.
• During a town hall, Xbox Game Studios head Matt Booty didn’t say why exactly Microsoft decided to shut down the teams, only saying that the company’s studios “had been spread too thin” and that this decision was necessary to free up resources across the Microsoft Gaming division.
• ZeniMax studio head Jill Braff also told staff that the company wanted to focus on fewer games. “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,” she said.
• Widespread cuts, including 1,900 layoffs in January, come as Microsoft’s acquisition of Activision Blizzard has forced the company’s leadership to put more scrutiny on the Xbox division.
• In more worrisome news, it appears that Microsoft’s big bet on Game Pass hasn’t panned out. The corporation has been putting a lot of effort into increasing the subscription base over the past several years, but the growth has now stopped.
• Circana’s Matt Piscatella told Bloomberg that “Game Pass spending really had its big growth period in late 2019 through early 2021 and has since settled.”
• According to a separate report from The Verge, many Xbox employees are now afraid about the possible future. Workers are reportedly guessing which studio might be the next in line for layoffs.
• The publication also confirmed Game Pass-related information from the Bloomberg article, saying that Microsoft is struggling with a slowdown in subscribers, declining console sales, and game delays.
• Sources told The Verge that the situation even made the company hesitant to add Call of Duty to Game Pass because this could undermine the game’s revenue.
• As part of internal debates, Microsoft even considered increasing the price of Game Pass Ultimate again, but no final decision has been made yet.
• The main issue is that the Xbox division is stagnating. Although Microsoft reported a 51% growth in its Q3 gaming revenue, without Activision Blizzard sales would have fallen 4% year-over-year. So there is now a lot of pressure on the company’s game development studios.
• In 2024, Microsoft plans to launch Hellblade II, Avowed, Indiana Jones and the Great Circle, a Starfield expansion, and the next Call of Duty. The performance of these titles will have an impact on the entire Xbox division, and, according to The Verge, we should expect more of the company’s first-party games to arrive on rival consoles.