Xbox Studio Closure Reports: We've Got Big Worries

[00:00:03]Okay, then. So, let's kick off with our first questions of the week. And uh we're actually having to refilm this because the dynamic situation with Microsoft is so dynamic that it seems to be changing on a 24-hourly basis. So, our previous responses to these questions needs to be completely recalibrated. Uh let's kick off with this one from Skyrim 26 FPS edition.

[00:00:25]When I see Satcha Nadella quoted as saying, "Now we have to turn Xbox into a sustainable business." Why do I mentally insert or else afterwards? Supposed options of spinning it off presumably to die and and be reborn as Activision Blizzard 2 private equity edition or turning it into a JV i.e. dead but someone maybe Asus gets the brand. I think that's probably pushing things a bit although things are pretty dire seemingly. I just hope for a quick resolution of the Xbox fiasco as I want this industry to succeed and maybe taking a player off the board will help that. Um Djako in brackets Dan uh lads exclamation point. What do you think to the recent rumblings that Microsoft is even considering spinning off or selling Xbox? Who would your preferred buyer be?

[00:01:10]Could Elon Musk really do a worse job?

[00:01:12]Absolutely yes, without doubt. Um, and if he bought it under his macro hard anti-Microsoft uh company name, would we be living in some kind of mirror universe? More like a sort of dystopian reality where everything has kind of gone horribly wrong. Although some might say the last 10 years is pretty much evidence of a Kelvin style divergence in the timeline. Um John, um yes, we originally um uh responded to these questions in the first draft uh of the first recording session, but um we were kind of like wanting Microsoft to just shut up and get on with business basically. I think that was the uh the the overriding messages because Satcha Dadella was basically coming out and saying, "Hey, you know, um we've been subsidizing video games for the last 25 years. It's time for them. It's time for video games to pay us back essentially.

[00:02:05]And in the time since we recorded the first response to this uh to this topic.

[00:02:11]Um well, basically parts of the plan are starting to become apparent and it's pretty pretty bad news, right? Uh yes.

[00:02:23]I man I was commenting earlier that the the whiplash from this whole situation is honestly staggering because I think we came out of that recent sort of pseudo E3 presentation feeling pretty good about things right like it seemed like they were heading in a good direction. It seemed like, you know, there would be some sacrifices unfortunately, but what seems to be sort of coming out now suggests that it's actually a lot worse than we're expecting with studios either being spun out as independent in the best cases or simply being shuttered. Uh, and the names that are being mentioned is what's so concerning. Like in the case of Compulsion Games, for instance, I actually I I don't like to see that. I think they made a really cool game.

[00:03:11]They've done some good stuff, but you know, they haven't made enough games, one could argue, and the sales and performance of it was really poor. I mean, I can understand where the decision would come from, but when you're hearing, you know, you see Arcane is mentioned, um, Ninja Theories being mentioned despite just announcing a brand new game, sounds like Double Fine's going to spin out on their own hopefully. And then even stuff like Machine Games and ID Software comes up as potential things that could either get shut down or hit. We don't yet know what's going to happen, but like it's just going too far. It's like they're saying, "Hey, we're just going to close all the developers you guys like." Um, right. And that comment about them just wanting to chase, it sounds like they just want to chase like the ultra high-end AAA uh sort of experiences, whittle down their portfolio to just the basics that like hit that market and that's it. And >> right, >> I guess basically the the best thing we can hope for is that these developers are able to essentially exit from Microsoft gracefully and somehow continue, right? If they could continue, that would be okay.

[00:04:23]>> But I don't want to see studios shut down and mass layoffs occur over this.

[00:04:27]And if that's the case, if they're just essentially removing so much talent and experience, it just feels like they're c like they're creating the problem that got them in this position in the first place, right? Like if you really go back historically and look, the Xbox 360 had a remarkably strong first and third party lineup. So did the original Xbox even, but 360 especially. But then there was a point where, and I think this was on Don Matrix watch, where they basically like whittleled down their first party stuff to almost nothing and they either focused too much on connect or they just didn't have much uh because they were so, you know, convinced that the third party support was all they needed. And then they spent years and years and years building up their first party portfolio again. And now I would say over the last five years, Xbox has had a pretty great stream of games being released, right? Like their developers were producing. There's a lot of stuff in the works. Like it seemed like things on the software side were going well and now it sounds like they just want to close it all out again and they're just going to wind up in that same stupid situation.

[00:05:32]Um, and it's just it's just emblematic of this constant feeling that they have no vision for where to go forward. And it's just decisions are being made on the whim. And every year it could be different. There was that clip from Psycho Odyssey >> uh about the making of Psychonauts 2 that always goes around where somebody was asking about like uh you know when corporate visits and like oh yeah we love like Matt Boody and Phil Spencer and them you know they're they're the fun guys. It's what happens when Bill from accounting and so and so from marketing comes in on Friday. That's the problem. And it just feels like they put on a face that's like says one thing and then you know the penny pinchers come in. It's almost like they just >> uh leave them to they they say oh we're going to be hands off of the studios but they provide no guidance or support and then all of a sudden they like look at the at the you know finances and say oh we got to do something about this. Sorry guys. And it just kind of keeps happening. So >> right. Yeah. I mean, um, I'm just looking at reporting from Tom Warren, who is very well, uh, integrated, lots of sources within Microsoft. He's saying that Xbox is closing down Ninja Theory, Compulsion Games, and Double Final, also in quote unquote active negotiations about spinning off. I I wish them well.

[00:06:50]Um and um he also uh refers to an interview that Asha Sharma and um Matt Bouty gave with Windows Central. And I'm just going to quote this. Um the first conversations Asher and I had when we first met to do all of this, to her credit, she immediately emphasized supporting our studios and our games.

[00:07:10]Our ecosystem is built to be a portfolio of everything from small games to ongoing franchises to the big blockbusters. We've built at our core uh to build everything from Kil to Call of Duty, everything from um Minecraft to South of Midnight. That's core to how we're set up. This is Matt Booty here. I think we've got one of the best portfolios out there, even in the entertainment industry more broadly in terms of that range. We're dedicated to it. And here's why. I believe that almost everything big started out as something small. We cannot lose the ability to have those places where little sparks can grow into something big. The creative environment that lets us take bets and creative risks has to be part of Xbox's culture. We're committed. Our studio system is built for that. Well, are they committed based on the fact that um you know, it doesn't look as though um a lot of these studios are going to be supported in the way that was suggested there. Uh it's it's kind of shocking really the the the you know there's always a legacy quote that comes up to bite Microsoft uh in the behind whenever there's a big move like this really does suggest that there's just no sort of coherent strategy. Um well this is I mean I'm I'm staggered. I shouldn't be based on everything that's happened but I am.

[00:08:29]>> Yeah absolutely. I mean, I think it's just that whiplash between, you know, the executive statements, which seem very reasonable and seem like there's a clear direction in place, the Xbox showcase, which was really positive, really exciting as, you know, an Xbox fan or somebody who just enjoys the games on PC. Seems like there's plenty going on. And, you know, as they say, like a good range from AAA stuff down to double A stuff and indie games all kind of included. But, you know, and then the other shoe drops and then this is the kind of stuff that we have to deal with, right? And that these developers have to deal with more importantly is that it seems like, you know, there's going to be a very harsh reset for a lot of studios. And I'm sure that beyond the closures and the studios being spun off, there's also going to be a lot of them that are facing layoffs, right? So >> it's yeah it's just really problematic I think especially you know for Ninja Theory to have had a game announced and have such a positive reception to it and then to be in the headlines a few days later to say oh yeah and probably the studio won't exist after that like will that game even come out? Will it come out and then the studio closes down?

[00:09:40]Like neither of those are great options and uh yeah it's it's just a real shame.

[00:09:46]Like obviously there's a lot of pressure from Xbox and certain parts of it at least to be um always producing bangers, you know, being uh capable of producing these kind of evergreen titles that people will just spend almost unlimited amounts of money on. But I think it's really important for Microsoft and for Xbox to also be supporting these kind of mid-level um studios that have more reasonable budgets that aren't taking huge swings on everything and are able to come out with games that are made at a reasonable price and you know therefore you get a lot of different bites of the cherry, right? So >> yeah, just super disappointing news and uh yeah, hard to see how this kind of jibes with everything that Microsoft's executives have said before, >> right? Yeah, I mean the ecosystem seem to be designed for Game Pass to create a range of um uh games of varying sizes and varying shapes and different types of games to support a vibrant subscriptionbased offering.

[00:10:47]>> And I think, you know, it took years to get there. And I think, you know, part of the issue that Microsoft had with Xbox Series in particular is that there was a failure to deliver games in those first few years. Um, that has kind of like been reversed at this point. We've had some sensational games from Microsoft. Um, we had this fantastic showcase just a few weeks ago. There seems to be I don't know, John, there seems to be this incredible sort of lack of self-awareness about about everything that they're messaging to the audience at this point, you know, because obviously they went into this showcase and uh we're going to show great things.

[00:11:22]There was um a lot of interaction between um management and um the fan base and then this happens like weeks later. I just don't understand the reasoning or the strategy here. It just doesn't make sense. And you know, if there are poor decisions being made just on the messaging side, then what else is going on? I mean, man, this is this is just crazy stuff.

[00:11:47]>> From the outside, there's this sense that there's a huge conflict that's brewed between, say, the Xbox group and Microsoft corporate. You know, people like Satia Nadella at the top. What they want doesn't really seem to align well with this. And when you see them all interviewed separately, they often make statements that feel kind of conflicting, which makes it seem like they all have their own desires for things and kind of let that slip and there's no like real unified message here, which makes me do it makes me feel like Xbox if it I don't know how this is possible, but I would just it would be interesting to see it spun out as its own thing somehow, at least somewhat separate from Microsoft corporate. I mean, we know that Satia is all in on co-pilot and AI and all that nonsense.

[00:12:34]Like, to him, like, I think he is exactly the type of person that would feel zero remorse about laying off the entire gaming team, every single person, so he could, you know, invest more in AI. I genuinely think he would not care.

[00:12:50]Uh, it's that type of like personality we're probably dealing with here. And I think this is not what's interesting to him as as a business leader. and it doesn't feel like it suits what Microsoft is right now. You know what I mean? Like Microsoft of 2026 is not the same Microsoft that started Xbox. And I think I would like to see all this Xbox stuff cuz we know we know a lot of people that work at Xbox, right? We have like friends and contacts within all these studios and Xbox proper. I do believe that the people working within that organization genuinely do actually care about this stuff and they want to make great things but they're limited by this this management situation and being part of Microsoft as a company. So if they could find a way to split that would be wonderful but how that's possible I do not know.

[00:13:44]>> Right. I think, you know, fundamentally the issue with spinning off from um Microsoft is that they would still be the the effective owner. They would just be outside of the corporate structure to a certain degree.

[00:13:56]>> To a certain degree and maybe that would be what's necessary to make the decisions that are actually good for the gaming business. I I don't know. Like this is there's just there's too much going on here and we don't have enough information. I think most of most of what we're saying is just born out of frustration of seeing a business that we love and care about essentially being like ground down into nothing and this like constant whiplash between like a positive message and then a negative message. And unfortunately, I feel like the Western gaming industry especially is just in a really bad place right now.

[00:14:30]Microsoft's not the only one doing this, but it's pretty severe from their camp.

[00:14:36]And >> I feel like what we're really seeing is the effects that we all cautioned about is like all these acquisitions and like creating large conglomerates built from so many different companies. It's not sustainable and it's going to end badly.

[00:14:51]And I think there's definitely cases where certain acquisitions may have occurred because the company could no longer operate independently and they essentially needed an out and this essentially just bought them time. But I don't believe that's the case in every situation.

[00:15:05]So I don't know.

[00:15:07]>> Yeah, there does seem to be like um inconsistency in messaging because um and this goes back to um the whole uh four games situation um the business update where you know we heard about them the the beginnings of a multiplatform uh plan which everybody kind of knew was already fully formed or very close to it. And at the same time as that was happening, you know, there was very sort of careful messaging from management at that point, even though it didn't feel particularly accurate. Um, but at the same time, you had Sachin Nadella basically wading in with his size 12elves saying, uh, yeah, you know, what's the point of exclusives, that sort of thing, basically undermining management. So, you know, there does seem to be a continuing sort of um friction between Microsoft and and Xbox leadership and uh and now it seems to be the same thing happening again where you know we've basically got comments that were being made by new management just a few weeks or or you know a couple of months ago basically disappearing and uh complete about face on strategy is just absolutely baffling. I think there's just got to be a firm sort of um strategy that they're going to commit to that is positively communicated to the community because what on earth is all of this about and it is just you this lack of self-awareness you know Sachi was talking about um uh obviously the big hardware issues that we've got at the moment and you know complete sort of lack of self-awareness that Microsoft is a key player in actually causing all of that and no sort of evidence that Microsoft is, you know, going to help out uh to help out Xbox in navigating through this when surely they can to a certain degree. No, it looks as though that um they've made their investment over the last 25 years. Uh uh YouTube is making more money off Xbox than Xboxes, which is baffling. I don't know where that comment came from. I just don't know what to make of all of this at this point. And it's funny because we did record an initial response to these questions yesterday in fact where it was kind of like okay maybe they just need to shut up and get on with it and then you know come up with a strategy and and execute it and um uh you know it's sort of we have to redo our own content now to adjust to Microsoft's changing messaging over 24 hours. Absolutely baffling. Absolutely bizarre. But no, uh I still think that Elon Musk would probably do a worse job.

[00:17:42]>> Oh yeah, undoubtedly.

[00:17:45]>> Any final comments, Will?

[00:17:48]>> Um I would just say that, you know, if this is going to come to pass, I really hope that they say, "Okay, we've had to close some studios. We had made some layoffs, but from now on, we're going to invest in the studios that remain. we're going to be trying and get ourselves into a really strong position so that when Helix comes out it'll be supported by a really good like you know launch library right I think that has to be the goal here and if these cuts are necessary to make that happen then you know it still is incredibly painful but at least it would have been worth it in some sense right so I just hoped that this is the start of a consistent strategy that actually sets them up for some kind of success in the future >> yeah I think I echo that I think the bottom line is that um we just need to know what the plan is and I think more to the point the staff at Microsoft and all the development studios and you know and within Xbox itself kind of need to know what's going on because I don't think anybody does at this point it's just absolutely absolutely baffling. Uh a final comment from you John.

[00:18:51]>> Um what you said will that sounds so hopeful that would be nice. Uh, but I'm sure that's exactly what they thought when they launched Xbox Series X and S, right? And it didn't pay out. So, although they did actually end up getting the games, but I feel like now it's just I don't know. All I'll say is if they if they dare touch a company like ID Software or something, I will never forgive them.

[00:19:18]I was super angry over the things with like Bluepoint and all that with Sony, but if you go after a a studio like ID that has produced nothing but greatness and the best technology in the industry and try to shut them down or bring or cut them to to pieces, like no, it's not okay. I'm not I I could never forgive that.

[00:19:40]I think basically, you know, an explainer to the audience about what has happened and why rather than just, you know, we typically what happens is a memo from the CEO is sent to the staff and that memo is then shared with the audience and the memo is basically word salad. There's no real sort of proper explanation. It's challenging conditions, that sort of wordage. Um, what's going on? you know, you know, Xbox, you can't reach out to your fan base, uh, try to reconnect with them, show them amazing games, and then basically come back a couple of weeks later and say, "Well, actually, we've got some real problems here. Sorry."

[00:20:19]It's just absolutely bizarre.