Xbox Layoffs: Has Microsoft's Studio Buying Strategy Failed?

After spending a near-incomprehensible amount of money and resources on studio acquisitions, Microsoft is finally ready to make its mark on the gaming industry by... firing another 9,000 workers, about 4% of its workforce. While this latest wave of layoffs is not specific to the Xbox division, there were no shortage of victims in gaming-related products and services.

Notable casualties include an entire game studio, The Initiative, as well as the cancellation of at least two publicly known projects, the Perfect Dark reboot and Everwild. Other layoffs were reported at ZeniMax, King, and Turn 10, though the scale of these layoffs was not as fatal.

Some will undoubtedly be quick to point out that while the situation is unfortunate, Perfect Dark and Everwild have been in development for years with next to nothing to show for it. At the same time, it would be hard to imagine that anyone (especially Xbox fans) would feel particularly inspired by the layoffs--doubly so when an educated guess would suggest that Microsoft is doing these layoffs to chase the AI white whale.

Xbox: Buy Him Out, Boys!

One might go so far as to say that Xbox's recent decisions give the impression that they are aimless. Despite the vast fortune spent on acquisitions, the general public is simply not seeing the deluge of new games that they might have been anticipating.

After all, Xbox has been acquiring game studios since 2002 with Rare. Mojang was their next big purchase in 2014. The money really started flying in 2018 with the addition of seven smaller studios, including Obsidian and Double Fine. 

By Xbox's own count, acquiring Bethesda put them at 23 studios. However, the eventual closure of The Initiative, Alpha Dog Games, Tango Gameworks, and Roundhouse Studios sets that number down to 19. The subsequent Activision Blizzard acquisition boosts them back up to 22 game studios, though it should be noted that Activision itself runs a number of studios, most notably Treyarch, Infinity Ward, and Sledgehammer Games.

Xbox once boasted that by purchasing Bethesda, they can "begin working together to deliver more great games to everyone." Since then, Activision Blizzard was also acquired to help "create new worlds and stories."

Bethesda has certainly been trying to deliver on that promise, albeit to mixed results. Quality aside, the studios under Bethesda Softworks have consistently been putting out a new game about once a year, regularly rotating between their associated studios.

Activision Blizzard on the other hand has not deviated much from its strategy of launching Call of Duty ad infinitum. Of course, given that Activision Blizzard is in charge of genre-defining live-service properties like Overwatch, World of Warcraft, and Diablo, there's not much of a rush to launch anything new. Candy Crush's popularity is not to be underestimated either seeing as how it made some $20 billion in revenue since 2012.

The Coalition and Halo Studios are in somewhat unique positions, overseeing Gears of War and Halo respectively. These are supposed to be the traditional crown jewels of Xbox's first-party IPs, but it's been almost six years since a new game has been released under either banner.

Halo Infinite started out strong in 2021, only to fizzle out due to an underwhelming quantity of post-launch multiplayer content. Xbox seemed to be getting ready to go on a Gears of War blitz with back to back releases of Gears 5 and Gears Tactics, except that never materialized. 

Then there's Playground Games, the studio behind the upcoming Fable. The game probably isn't dead, although there hasn't been much gameplay footage since it was announced in 2020, so make of that what you will.

Mojang appears to be the only group that is showing signs of life. Between the recent release of a Minecraft movie and a couple of spin-off games, Minecraft is clearly the most active of the major Xbox properties.

Xbox: Obsidian Entertainment's New Best Friend?

Even so, the latest round of layoffs didn't leave Xbox's supposed big guns unscathed as ZeniMax was forced to shelve an original MMO that they were working on. Rare is evidently not allowed to touch anything other than Sea of Thieves as they were working on Everwild before it was cancelled. Turn 10 lost half of its team despite the fact that they are partly in charge of the Forza franchise, though given Forza Motorsport's lackluster user reviews, this might've happened eventually anyway. 

Undead Labs has been radio silent as well. Under normal circumstances, this is hardly unusual, but one should no longer hold their breath when it comes to State of Decay 3 given the recent layoffs.

That being said, the comparatively smaller companies have seemingly fared better under Xbox.  World's Edge is doing a fairly good job at handling the Age of Empires franchise, having released both Age of Empires IV and Age of Mythology: Retold. Compulsion Games just released South of Midnight to favorable user and critic reviews.

Ninja Theory's Senua's Saga: Hellblade 2 won a couple of accolades at The Game Awards last year. Meanwhile, Double Fine is set to release Keeper in October, and inXile Entertainment's upcoming Clockwork Revolution looks promising as well.

Obsidian Entertainment is outright thriving. Since its acquisition in 2018, Obsidian launched The Outer Worlds, Grounded, Pentiment, and Avowed--four very different games of consistently high quality launched at reasonable intervals with room for sequels. In fact, The Outer Worlds 2 is set to release in October.

Alas, even with the success of these smaller studios, the shutdown of Tango Gameworks in spite of Hi-Fi Rush's overwhelmingly positive reception is recent enough to be in the back of everyone's mind.

Xbox: But What About the Hardware?

While it would be unrealistic to expect every individual studio to follow in Obsidian's footsteps, it doesn't seem that unreasonable for Xbox fans to ask for a reason to remain Xbox fans.  

The annual Call of Duty and Bethesda game can be played on any platform. The next Fallout and Elder Scrolls are years away at best. Halo and Gears of War have been missing in action for almost six years. Fable was delayed until 2026. There are barely any new first-party IPs, much less anything that can move consoles.

Console sellers are a moot point anyways because Xbox is being hopelessly outsold in hardware. The only advantage that is left is Game Pass. The normalization of the $80 price tag plays directly into Xbox's hand by offering people an affordable alternative to buying games.

This holiday season is the perfect time to put this notion to the ultimate test with the releases of The Outer Worlds 2, Ninja Gaiden 4, and Keeper. One first-party game from a solid developer, one exclusive third-party game, and one relatively quirky game representing the vast majority of games that you could find in the Game Pass library. If those three games can convince people to sign up for Game Pass en masse, then a pivot to subscription services might not seem like a fool's errand after all.

Unfortunately, this sole advantage might be ceded too if Microsoft decides to up the price of Game Pass any further. We are already at a stage where only the most expensive tier of subscribers can actually play new games on launch day. If affordable games aren't enough to move consoles, then raising the price is the only surefire way to lose the remaining players over time.

Xbox: More Money Please

Keep in mind that none of this is happening in a vacuum. According to Microsoft's fiscal year earnings press release from April 30, their net income was $25.8 billion, with Xbox content and services seeing an increased revenue of 8%. By comparison, Sony claims that it had a net income of 980 billion yen (approximately US$6.7 billion) in 2024 and that its gaming and network services division enjoyed 16% year-over-year growth. This suggests that PlayStation is continuing its dominance in spite of Xbox's acquisitions and apparent shifts to subscription services.

In any case, this would imply that Microsoft's recent cuts and layoffs weren't exactly life saving for the company, further lending credence to the idea that this is all to fuel Microsoft's AI push. If anything, it looks like Xbox's first-party developers and Game Pass are managing to keep the brand afloat, because it's definitely not because of console sales. Furthermore, if the layoffs and project cancellations were necessary from a financial standpoint, this brings up the question of why wasn't someone cancelling these projects earlier.

Everwild was in development for a decade. Unless Rare was sitting on the next Elder Scrolls or Grand Theft Auto tier game, there's no excuse for any game to be in development for so long with nothing to show the public. Similarly, there's no reason for Perfect Dark to have been on life support for half a decade with barely any gameplay to show for it. Redfall which should've never been released at all, or at least delayed and completely remade so that it matched the strengths of the studio.

Xbox then flipped to the other extreme by axing ZeniMax's new MMO while it was still in the crib. The game showed promise according to internal tests, and given ZeniMax's resume, there's no particular reason to doubt such claims. Nonetheless, it gives the impression that Xbox has no idea what it's doing when it comes to making games. 

Xbox: Oh, I Didn't Get Rich By Writing a Lot of Checks

If anything, this puts all the blame at the hands of Microsoft and Xbox's leadership. At the end of the day, even with whatever was going on with Everwild and Perfect Dark and all the money Microsoft spent on Game Pass and studio acquisitions, Xbox still turned a profit by its own admission. 

That last point cannot be repeated enough. As expensive as Activision Blizzard and Bethesda and all the other gaming studios and Game Pass partnerships were, Xbox still made money. Perhaps it wasn't as much money as its main competitor, but the game studios accomplished the only goal that matters in capitalism, and it still wasn't enough to save some of the workers from being laid off and their projects cancelled. 

Incidentally, this sandwiches Microsoft's CEO massive 63% raise between two huge waves of layoffs, as if he was somehow outputting the value of almost 12,000 workers singlehandedly. Microsoft's wealth can't possibly have come from its workers, no, it must've fallen from the heavens as a gift for chasing "AI" projects. The workers merely sell their labor to produce everything, run everything, and maintain everything, then suffer the most regardless of how a business performs. What possible use can they have in making a company profitable?