- The make around 5 billion in revenue per quarter
- The problem according to them is profit margin - around 150-160 million
So first of all, they are big! Secondly they are not at a loss. They just have a "thin, non-growing margin". So to fix all this they are trimming down, so they can "return to growth" (which I think is ridiculous).
Some points -
- They are huge business even now - 5 billion per quarter revenue is no joke
- They did not have to buy all those studios
- They looked at Netflix, and wanted the sweet monthly subscription cash stream
- Then they did not have to give away popular games day one on Game Pass
- And finally, they did not have to raise Game Pass prices to improve the profit margins. Of course, consumers pulled out.
- Once again, short term vision, crazy decisions, bad spending spree and a constant need to "make numbers go up" and who has to pay for all this?
With due fairness, these are two different sets of leaders and two different strategies.
A lot of the strategy you outlined -- buying all these studios, replicating netflix, giving away day one games, raising game pass -- was a strategy put in place by Phil Spencer. Phil pushed for this investment with the promise it would pay off later for MS. He's talked publicly about having to convince Nadella to put up ungodly amounts of cash for these investments and about how the bar for expected return was very very high. It seems like it clearly hasn't worked out to Microsoft's expectations or they've lost patience for waiting, and Phil has now "retired to spend more time with his family" (i.e. been fired).
Now Asha is here and presumably has a mandate to fix this and get back the profit margins that were expected from xbox. Sarah Bond, the xbox president, has resigned, and with this letter it seems the previous Xbox COO is out too. There is clearly a huge shift in Xbox leadership happening and it shouldn't be surprising that Asha -- who is known as a business-driven executive and not a 'gamer' -- is going to be reverting a lot of previous strategy decisions.
My 2c is that Phil's strategy made sense on paper, but I don't think they were able to manage this many studios in practice: nearly all the studios they bought have failed to produce the number of games expected on time or on budget. It also turned out that overly cheap gamepass would cannibalize their business and overly expensive gamepass turned away subscribers. I think the netflix model isn't something you can speedrun and execution of it turned out to be very hard and expensive. Maybe it would've worked out with more time but it seems Nadella didn't think so anymore.
Xbox around 2021 had around a 12% profit margin and the gaming industry as a whole was around 17-22% . In 2023 the target for the division was put to 30% . We see this new restructuring because the target was put this high. Microsoft really wanted Game Pass to be a steam competitor which is pretty much what everyone in the industry tries to do and fails. The push for Game Pass prices to be higher was to get the 30% margin and that didn't work out. They aren't operating at a loss they are operating at a goal and they failed the goal. From other child comments many studios they bought probably were below average. We can see this restructuring basically is that they failed the target, the old guard went out as the new guard came in.
Being a Steam competitor involves making a store that's actually good. All the other major stores/platforms don't really seem to give a shit, to be frank. Steam has like 20x their feature set, and the gap appears to be still growing.
If anything, it should be easier to make cool new features when you own the hardware side of the platform experience too, but no, it's Steam that has stuff like remote play together, not PSN or Xbox.
I don't know if I care about the features, what I do care about is the games and a lean-back experience which is not sweaty. I play games to escape the drudgery of software development and the last thing I want to do is mess with an .INI file.
I love the Steam Deck because it feels like a consumer electronics device: it has the reliability of Linux but not the sweat. The Steam Deck is the only device I've seen that works 100% perfectly with Airpods, for instance, including Apple devices.
I was at Best Buy the other day and saw an ASUS device that looked pretty cool until I picked it up and saw a Windows desktop with fonts not scaled appropriately for the size of the device. Like, wazzup? Steam Big Picture turns my big Windows machine at home into a game console and does the same for my Mac Mini. How is it you can have the back of frickin' Microsoft and not be able to do the same?
Not to say that Steam isn't packed with features that are valuable to many gamers, but just having a great selection of games that "just work" and knowing I can enjoy my investment on the devices I have now and devices I get in the future is worth a lot.
>Microsoft really wanted Game Pass to be a steam competitor which is pretty much what everyone in the industry tries to do and fails.
Gamepass is quite literally the most anti-steam strategy ever. It's a massive loss leading (or rather, low margin leading) service relying on a pseudo-rental service to provide value. Steam got to where it is by keeping all its costs lean and developing a service around taking a cut from premium digital goods.
>From other child comments many studios they bought probably were below average.
In revenue, maybe. That's the fault of Microsoft in two fronts. One for purchasing game studios who always operated at low margins, and two for directing them to focus on quality over budget. Double Fine and Ninja Theory aren't studios you buy with an expectation of 30% ROI in 6 years (ignoring the pandemic in the middle of that). Let alone when you explicitly tell them not to worry about finances.
On an artistic level, Hellblade was an insutry darling and about as close as you can get to an "oscar-bait" of a game. It's something you buy for prestige. Double Fine is a very seasoned indie studio who delivered several cult classics. You buy that for a brand that gives you variety from the current "online FPS juggernaut". Those strategies changed dramatically over the decade.
I wrote a while ago about how companies seem to have gotten the idea into their head that subscriptions are unconditionally good, rather than a contingent good based on the exact circumstances of the subscription: https://jerf.org/iri/post/2023/streampocalypse-and-first-pri...
Gamepass as a subscription to make sure you always have something to play, that has a lot of old games or indie games and other games that have no commercial value makes sense to me. The back catalog for any of the current consoles is plenty deep with games that have lost their ability to move units independently but still have a lot of value and can also give that perception of value. Such a plan is picking up pennies, but it's a lot of pennies.
I've never understood putting your new releases out on gamepass and bragging about that as your primary value proposition. Many new games are, say, 20-30 hour experiences, assuming you play them from start to finish once. One does not need to spend too much time with "this % of other players got this achievement" to see how many players tend to drop off of a game even that long. So if you put your new game that you would have sold for $60-80 dollars to me directly and it translates to three weeks of engagement on your $15-ish/month (depending on level) subscription, it's hard to see how that is an economic win. Put that game on Gamepass in a year or two, sure, that can make sense, but on release? And that not as a mistake, but a deliberate strategy? I can not fathom the mindset that leads to that.
As a deal for customers it seems to have been pretty good but I've never understood how Microsoft expected to make money on that plan. The streaming-video proposition of making a high-budget release to keep your subscribers makes quite a bit more sense, you could never have counted on getting $70 out of a customer for those anyhow, and even that economic proposition I think has proved more complicated than the streaming companies expected. The Gamepass model has just seemed insane.
I expect it to move to more like what I described at the beginning. As a way to turn a lot of old and hard-to-monetize content into a subscription stream it's brilliant. As a way of releasing new AAA titles it's crazy. Movie studios played with that model and I don't think they liked it at all.
> - The make around 5 billion in revenue per quarter - The problem according to them is profit margin - around 150-160 million
> So first of all, they are big! Secondly they are not at a loss. They just have a "thin, non-growing margin". So to fix all this they are trimming down, so they can "return to growth" (which I think is ridiculous).
How is that profit margin distributed though? King (Candy Crush etc) and Mojang (Minecraft) are specifically called out as money-makers, it's possible that they're carrying the majority of profits while everything else is a dud:
> We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested.
As an example, Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.
On the margins, that's crazy thin for the size of the org... One bad quarter could turn from a few million in profits to hundreds of millions in losses. It's too close, and there's no way to build/store funds for any kind of storm at that level.
Now, I think the vast majority of the pain is more than self-inflicted... I think actual business, marketing and focus need to start taking priority over idealistic political PoV. Let the games target their natural audiences and have the broadest appeal... at a certain point, trying to gain 1% of audience means alienating 25% or more.
Keeper needs an optimization pass so badly. Once I finished the first zone the framerate dropped to the floor on my Steam Deck. Presumably it runs okay on the current XBox, but it sure feels like Double Fine's attention has moved on and will never return.
Absolutely drop-dead gorgeous but I don't think I am going to ever finish it until I get a Deck 3/4 in like 5-7 years.
>Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.
Hard to really say. Kiln and Keeper can easily be made up for by the sales of Psychonauts 2. I'm sure an indie Double Fine would not have been able to make those kinds of games.
This takes me back to Pertinent, another small game from a reputable studio, had its main writer saying that "this kind of game would not be possible without Gamepass". Which I 100% believe. Microsoft definitely didn't buy Double Fine trying to make the next Fortnite, but that arthouse strategy clearly isn't a factor these days.
Game Pass was never a sustainable business model. People liked it because when a new game came out, they could buy a month of game pass for like $15, play through the game in a couple weeks, and cancel. It was a really good deal because Microsoft has spent the past decade+ trying to recover from their terrible fumble of the Xbox One launch, so they were subsidizing gamers to come back to their platform.
With the money being spent on AAA titles these days, they are not going to make any money without increasing the price of Game Pass majorly. The big price bump they quickly backtracked on was an attempt to make Game Pass somewhere closer to being profitable.
Game Pass was always a sustainable business model. You can offer a large library of old games for $5 or $10 a month, and people will pay for it. (GameTap did it long before Microsoft did).
The problem is that they also decided Game Pass needs to be a "Netflix competitor for games". Putting brand new day-one major releases on there for like $15/month was never a good idea, especially because all the brand-new games they released were mostly their own. It cannibalized their own game sales.
You don't have to have a subscription have your own day-one games on it. You could give them a 6 month or 12 month head-start on sales, before putting them in the Game Pass subscription.
(Except during major pandemics) Even Hollywood movie studios usually let new movies play for a month or two in theaters, then another month or two of full-price purchases on digital or DVD/BluRay sales, before putting their own films in their own subscription services
> Then they did not have to give away popular games day one on Game Pass
A company that sells consoles complaining about not having enough games after 25 years in business and acquiring most popular game studios is hilarious.
They keep cutting game studios, killing games and then set ambitious profit margins. At some point you have to question, do the people in charge understand their own business at all?
They just gutted bungee and basically killed Destiny 2, not because the game won’t sell, but because it won’t generate the profits they unrealistically set.
While Bungie had historically been tied to Xbox / Microsoft during the Halo era, Bungie spun out to be its own company in 2007, and then was bought by Sony in 2022. It was Sony, not Microsoft, driving the most recent layoffs at Bungie.
Completely agree. Their problem is that corporate wants more money to funnel back into AI and it is really inconvenient that Xbox provides only a couple billion dollars per month whereas Office and Cloud provide many more billions. What a complete joke.
It comes across to me as a really honest letter. At least they are talking about spinning out studios instead of shutting them down, I think that plays better than previous announcements. (e.g. make a hit game like Hi-Fi Rush and get shut down!)
Spencer's strategy for Xbox was very 2010 coded: rely on the billion/trillion dollar company to undercut the competition and gather market share and leverage. Classic embrace, extend, extinguish. That's why they bought a bunch of arthouse studios who don't immediately make money, invested hard in a subscription service that was wildly unprofitable (a strategy that even TV services couldn't make profitable, mind you), and focus on moving software more than hardware.
That strategy shifted dramatically between rising interest rates, a cooling consumer market, business uncertainties, and companies simply wanted to throw any excess fat into the AI rat race. So those art house studios were removed, Gamepass needs to enshittify pre-maturely,production needs to slow from a variety of offerings to the usual safe and sure releases. And of course, the biggest expense needs to be trimmed down on: because no one is stopping them from doing it in the US.
The number will still go up, but in different ways. They aren't doing this because they are in the red, they are doing it because they want all the money instead of a lot of it.
Well this is the new Xbox boss, Aska Sharma trying to course correct her own actions after pushing out Phil Spencer (and team). Phil had a deep understanding of the game world about profit margins and how the Xbox is essentially a stake in keeping Microsoft in the minds of consumers, a place in the home. Aska has a shallow understanding and sees only the financials and wanted to increase profits. Now she is burning it all down to try and “reset” and replace people with LLMs to increase profit margins. I imagine she will be pushed out herself end of year or next Spring (2027) once her naïve plan back fires.
Asha came from the AI division of Microsoft, she didn’t pop out of nowhere. She is strongly tied to the Microsoft LLM plays.
IMO Phil was very clearly pushed out by “AI will cut costs talk”. No one makes huge investments into acquiring companies and then suddenly retires (after running the division successfully for decades) and none of his underlings were promoted into the role, they all left when he did.
I think Phil was pushed out by the complete failure of his strategic vision when confronted with reality. He had a vision of growth and prestige, and money would follow. I loved his vision in its grandiose and lofty goals, but he completely failed to capture any of the "how to make it happen". It stays a fantasy.
Don’t know why this is being downvoted because it’s absolutely on the money. She’s a very green exec that is doing the classic “change everything to make it look like I’m doing something” while also not really achieving anything.
The rebrand to ‘XBOX’ is a good example of how they’re already out of ideas
It was pretty rich seeing armchair video game industry analysts act like the new CEO was gonna usher in a new age for Microsoft's gaming division because she got to announce the updated logo and some games that would have obviously been in development long before she became CEO.
Microsoft is never going to figure out gaming. It's more art than engineering and they can barely manage the engineering with all the intervention from marketing and HR in their products.
To me it's mostly unfortunate that this has left PlayStation with no direct competition because they've noticed and leaned into the not-giving-a-shit attitude after they had such a great console generation with the PS4. It's kinda crazy that we're already almost due for a new console generation and there's very little appetite for new consoles after this generation where it feels like it barely got started. And between graphics almost certainly at the point of diminishing returns, and hardware prices like they are right now, I can't imagine there's a market to sell something more capable than current gen consoles. The industry is in a very strange state.
To me, the graphics abilities have been there for a decade... what we need are better games and gameplay. More fun games without gotcha, pay to win, loot box efforts. Too much effort is going for dazzling graphics at the expense of overall gameplay. How many people are still playing CoD, WoW and so many other games from over a decade ago? How many refreshes of Final Fantasy have we seen?
The graphics can only carry you so far. There's indy adventure games with SNES level graphics that have millions of daily users.
Also dazzling graphics has been mostly visual instead of experiential, that is, with the advances in GPU capabilities, we do get beautiful effects, but the intractability with the said infra is seems to be stagnant (and in some cases regressed)
The way things interact in the game world peaked around mid 2000s, just in time when CPUs started to not follow moors law.
As of now, interactive environments are still almost as good as half life 2 from 2004. Gaming is all about the feel of it, which also includes the visual component.
I think graphics peaked ~2015. But interaction still leaves a lot to be desired; we still have slipping and characters who can't walk stairs in AAA games to this day. Making characters more physically grounded and present seems like the obvious thing to improve to me.
This is something audiences are clearly desperate for today. I think it's obvious when looking at the huge success of Helldivers, Bodycam, Ready Or Not, Arc Raiders, (none of which are particularly innovative) players appreciate high quality, tactile and grounded world interaction.
This is where Nintendo is at. It’s hilarious how much fun me and my kids are having playing games like Animal Crossing, Super Smash Bros, Mario Party, Pokemon Pokopia, and the surprise smash hit has been Tomodachi Life: Living the Dream. My kids make all the neighbors and have them get married and laugh about it and it’s just such a goofy concept. The graphics are good enough that you no longer notice there’s graphics, just the art.
Switch 2 is a fantastic console with an astonishingly fun first party library, and Nintendo just over there doing their own thing like they’ve always done.
Nintendo are basically the only people who held out against in game spending, for which I salute them.
I spent a few years in and around the industry and there was so much insanity around the need for in game monetization that it just made things much worse.
And because the game studios didn't care about it, none of the money stuff worked, making executives even more upset.
All to catch some vision of F2P money which is an entirely different business that these companies couldn't possibly support.
It's very sad for the industry overall (this particular decision is MS killing stuff off because the margins aren't good enough to funnel more cash into GPU gods).
Nintendp dabbled briefly with it. But they know their audience and very much did not want to risk any PR hit by associating too closely with the typical gacha/lootbox model. They saw the Roblox/Fortnite smoke long before most of the industry and turned off very quickly.
But there's one specific statistic to why Nintendo can keep doing what it does in a way no one else can: 98% retention rate. You get into Nintendo and you basically never leave. Even for Japan, that's well above the 70% retention rate you'd expect. Keeping that kind of institutional knowledge for an entire career makes them really good at what they do, and the unfortunate decades of Japan's economy meant they were less tempted by amassing huge loans or risks on experimental stuff.
Maybe they didn't become trillionaires, but it means they amassed a huge war chest and can weather storms that US companies are currently in the middle of.
There's a lot I don't like about Nintendo, but the one thing I admire about them is they understand that fancy cinematic graphics aren't what make a great game.
The pandemic and scalpers really destroyed peoples apetite for the "new thing" when this generation came out, and with that boost missing studios saw little point in going exclusive perpetuating the vicious cycle, it's just in the past few years that there's really been exclusives for this generation that didn't also support older consoles.
And even then, already the PS4/XbOne generation added stratification making it more "PC-like" with the XbOne-X having heftier hardware (not to mention it being PC-like compared to PS1/PS2/PS3/Xbox360), that then continued with the Xbox-series-X and Xbox-series-S.
Consoles aren't specialized hardware for "magic experiences" and everyone knows this, it's just another "device" that happens to be connected to a TV with a controller where people are gatekeeping software availability.
Microsoft also didn't do themselves any favor with that naming scheme. In the current generation (I think?), you have:
- Xbox X
- Xbox S
- Xbox Series X
- Xbox Series S
Compared to:
- PlayStation 5
- PlayStation 5 Pro
or:
- Nintendo Switch
- Nintendo Switch OLED
- Nintendo Switch Lite
Anyone who's literate in English (and knows that OLED means "nicer screen") can immediately rank the PlayStations and Switches into "good, better, best". But with the Xbox, how is anyone supposed to know which one is which? Is the Series version better or worse? Is it a whole new generation, with whatever backwards-compatability implications that a new generation brings? I need a chart and I probably still won't be able to tell you if you ask me in a month.
Slight correction. Last generation was the Xbox One (already a confusing name because some people thought that was referring to the original first Xbox)
A few years into the generation they updated the Xbox One, putting it into a smaller form factor called the Xbox One S, and at the same time released a spec bump model called the Xbox One X. I don't believe any of these are still available for purchase.
The new generation has the smaller/lower-powered Xbox Series S, and the higher-specced Xbox Series X. Leaving the overall generation with seemingly no name, other than "Xbox Series" I guess?
But yes, the names are terrible because S and X both refer to consoles from last gen and current gen.
This is absolutely correct, I game on Xbox pretty much every day or every other day, I have been with Xbox since 360 or whatever the first one was called. I am still constantly confused by the naming. There also was another revision to the top of the line Xbox series X and the Xbox series X digital edition. I can’t imagine someone looking at the naming scheme pre-release and saying yes, let’s go with that.
> And between graphics almost certainly at the point of diminishing returns, and hardware prices like they are right now, I can't imagine there's a market to sell something more capable than current gen consoles.
I haven't bought a console since the Xbox360 and Wii. But I have a friend who still games pretty heavily and is low income. He can not afford the latest PS5 and is still on a PS4. We were talking the other day and he said "I love consoles because they are simpler and cheaper than a PC but now I can't afford either. The graphics aren't getting much better so what am I paying for? What happened to $400-$500 consoles? Remember when consoles were 200-300?" Of course those last few prices were 90/00's but I agree, the cost of a new console is quite insane for not much gain.
Two years ago, you could get an XBOX/Switch for 300, or a PS/Steam Deck for 400. Granted, the PS and XBOX were digital only. But now the cheapest XBOX is 500, the Switch 2 will soon also be 500, the PS5 starts at 600, and the Steam Deck is 789. Things have been going up slowly, but the last year has been absolutely killer.
I read that when they designed the Xbox Series S and X they knew it was going to be difficult to lower prices down the road because wafer costs were increasing every year. Which is why they launched with 2 models from the get go, one cheaper than the other. And even so they were losing between 100 and 200 dollars per console.
Now things are even worse with the RAM and SSD components crisis. The Series S has now the price of the Series X when it launched.
$200 in 1985 (NES launch price/date), adjusted for inflation is just shy of $600 in 2026. RAM and GPU prices are really hurting the consoles right now, but compared to inflation benchmarks up until about 2020 they were considerably below inflation.
When she was announced it was broadly assumed that she was being brought in to kill the division.
But then she did some minor, pandering actions and suddenly everyone was "oh boy! A new era of xbox!" Only it was all a ruse to ensure people didn't jump ship too quickly and make the bleeding too heavy. They want people to keep pumping money into a platform heading to the graveyard.
> We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes.
This is the new trendy management style - a few executive owners and then everyone else are expendable ICs, with almost no movement opportunity upwards. Only those on the Peter Thiel list or the equivilent among your private equity owners will be considered for key executive positions.
It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio
Yes, but only because the bar is so low. "We can't commodotize innovation" is not an especially subtle insight, and pretty much everyone other than executives at companies like this understand it without having to spend billions to try it out.
But they've already spent the money. They spent about 70 billion on activision blizzard. That was and still is an outrageous amount of money that will take fever to break even let alone turn a profit.
Call of Duty absolutely prints money, fwiw. King are weird because they basically have been doing the same game in different skins for like 15 years now.
Just because they already spent the money yesterday, it does not follow that the best decision today is to just carry on as if was still the correct decision. Yes they cannot get that 70B back, but if they have to choose between:
1. a long dragged out distraction over decades trying to make it work
2. a painful but quick 40B write down and the ability to refocus the company on better projects tomorrow
.. then they are, quite rightly imo, going to pick #2. In fact I would assume this going to be the next announcment.
They can't afford to buy every other successful studio, which means that their anticompetitive moat has to be competitive. Otherwise, they could have made the whole thing profitable the usual Microsoft (monopolist) way.
At some point, the games industry decided it wanted to be interactive Hollywood, and the consequences are entirely predictable. Meanwhile, Nintendo just quietly shipped 3.8 million units of Tomodachi Life in two weeks, and 4 million of Pokopia in five. They're making actual games. Sony's obsession with prestige cinematic bloat, like Xbox, has also put them in a slow-motion death spiral that's going to become painfully obvious in a few years.
My kids begged for me to buy Tomodachi Life and Pokemon Pokopia and they’ve been absolute smash hits in the house. Pokemon got me hooked for a month or two until I mostly beat it, and the kids play Tomodachi Life every day and have funny little stories to tell. So many modern games just aren’t fun, it doesn’t matter what the graphics look like if the game is boring.
To some extent - but you can't get away with Hollywood Accounting Practices in the same way.
Also one must consider the likes of Hideo Kojima who can sell ~7 million copies of a new IP that is effectively a cinematic Walking Simulator as an Auteur acrimoniously splitting from the traditional studio system.
Clair Obscur: Expedition 33 also shipped over 5.4 million copies as a AA, in what is also arguably an interactive cinematic on-rails RPG.
Nah, expedition has enough of a game in it. Parry mechanic is pretty addictive, and gameplay is kinda fun. Exploration, too, is strictly gaming aspect, not cinematic.
God of war is plainly movie on rails compared to E33
That is encouraging, but my stock portfolio paints a different picture. Nintendo is unfortunately doing terribly this year. I still believe in their core mission, even if some of their litigiousness and anti consumer practices have put me off
Nintendo is also a Japanese company and japanese stocks aren't doing great due to their economy and the weak yen. Also, stock price does not correlate with good games or a healthy business.
Nintendo also shipped Metroid Prime 4, with massive delays and unsatisfied customers, following the same "interactive Hollywood" philosophy which disappointed Metroid fans.
Same thing goes for Star Fox, a remake of a remake of a remake, with poor visual and dialogue choices.
And meanwhile, the same silent push for digital-only, forced upgrades and the like...
> Nintendo also shipped Metroid Prime 4, with massive delays and unsatisfied customers, following the same "interactive Hollywood" philosophy which disappointed Metroid fans.
I'm not convinced that Metroid at least really is a great data point for "Nintendo is ruining things in-house". From Wikipedia[1]:
> Nintendo announced Metroid Prime 4 with a teaser trailer during the Nintendo Direct presentation at E3 2017, and announced that Retro Studios, who developed the previous main Prime games, would not be involved.[15][16] In February 2018, Eurogamer reported that Prime 4 was being developed by Bandai Namco Studios in Japan and Singapore.
> In January 2019, the Nintendo EPD manager Shinya Takahashi announced that development had restarted under Retro with Tanabe remaining as producer. Takahashi said the previous studio had not met Nintendo's standards and that the decision to restart was not taken lightly.[21] Shortly after, Nintendo reevaluated Prime 4 after noticing changing attitudes towards open-world games, but maintained the direction as the development was already taking longer than planned. The team ignored new developments in action and shooting games to prioritize the adventure elements.
There's a perspective where this is almost the exact opposite of the problem being discussed about Microsoft. They chose to let it get developed externally, suffered delays, and by the time they moved it back in-house, the ecosystem had moved from under them. They probably could have chosen to rethink everything and delay it further, but they also arguably could have avoided having to make that call by keeping it in-house and letting the studio who made the previous entries work on it from the start and landing it in time that the original vision still fit what people wanted.
My point wasn't about Nintendo ruining things in-house rather than them following the exact same trends than Sony & Microsoft, only a few years late.
MP4 is what OP was talking about, an "interactive Hollywood" experience that betrays previous Metroids, adds discutable open-world design cues, and locks features behind $30 figures.
This isn't the first time Nintendo has outsourced a disappointing Metroid game, if Other M is any indication. Remains to be seen if this is part of a larger trend for that company.
I’ll concede that Metroid Prime 4 has been sitting on my shelf.
But Star Fox? Phenomenal. Such a fun game. Luckily I have the pro controller so I could map A to the back paddle or else my poor old tendons couldn’t handle the rapid fire shooting required at the high levels, but I’ve had an absolute BLAST playing the remake.
Star Fox (SNES), Star Fox 2 (SNES mini), Star Fox 64, Star Fox 64 3D, Star Fox Zero and Star Fox (Switch 2), while having minor gameplay differences, are all retellings of the same in-game story (the eponymous Lylat Wars).
Moreover, Star Fox was kind of... programmed by teenagers. Miyamoto is credited as both the producer and designer, but both Cuthbert and Goddard were 18 or 19, and Wombell (artist and designer) was maybe in his mid-20s.
Star Fox's development is an incredibly wild story where British teenagers argued what the SNES could do with bespoke hardware, and they ended up being shipped out to produce it because Nintendo felt they couldn't ever do it themselves. It all started with Argonaut's demo of what would eventually be released in Japan as "X". Entirely software-based 3D, on the original Game Boy.
There's actually a very humble quote by Miyamoto where he learned that someone can't just get better as a function of age and experience, after he clearly realized that these teenagers could produce something no one else in Nintendo ever had a hope of. Perhaps it's why the franchise has done so little -- Nintendo's just not in a remotely similar headspace the Argonaut lads were.
Between 1 and 2 was the 3DS remake which added levels and cleaned up the story some. The Switch Starfox includes those parts, too, from what I've heard.
What I mean by "interactive Hollywood" is a game with a $200M+ budget that relies entirely on high-fidelity graphics and cinematic stories to differentiate itself, while offering almost zero new gameplay innovation.
Neither of your examples fit that description. Metroid Prime 4 wasn't chasing Hollywood cinematic design; it was a highly targeted attempt by producer Kensuke Tanabe to make a tight, isolated first-person exploration formula resonate (especially in Japan where it has consistently failed). Its goals are mechanical, not cinematic. Meanwhile, Star Fox is a classic arcade rail-shooter remake with modernized cutscenes, not a prestige movie-game. Early sales data shows it's actually working well, too, having just debuted at #1 on the physical charts in Japan and nearly doubling Star Fox Zero's launch week in the UK.
Ultimately, Nintendo operates like a Consumer Packaged Goods company. They treat their library of IPs like a diversified product portfolio rather than betting the farm on individual interactive movies. They use massive, high-margin, mechanics-first games like Tomodachi Life and Pokopia to generate enormous cash reserves. They then use those profits to subsidize legacy IPs like Metroid or Star Fox to keep core fans happy and feed their broader brand ecosystem. Because Nintendo spreads its risk across a wide spectrum of lower-budget games, they can easily absorb a minor product flop. Sony's interactive Hollywood model sinks $300M into a single basket, meaning one bad miss can completely wreck a studio.
This is incredibly sad for a lot of my friends who are finding themselves out of work despite delivering well received products.
But at the same time I appreciate the candor of Asha saying that the corporate management are to blame and letting studios go back to being independent where possible.
Phil Spencer really messed up. Everyone in the industry knew Microsoft were making bad calls trying to dig themselves a hole with gamepass and simultaneously digging a hole with their acquisition spree. I’m glad that Asha is laying this bare even though it sucks to be brought in as the hatchet person.
This is an example of the glass cliff and I’m hoping she can help right the ship. I think they need to split to a wholly owned subsidiary rather than be in Microsoft proper, and I expect that to be announced at the Q1 investor meetings.
Phil really dug their hole deep. Microsoft themselves encouraged it. It’s been a decade of sheer incompetence at the highest level so I’m hoping they can right this without taking out half the industry in their wake.
I disagree, it wasn’t Phil that dug a hole but Asha who pushed Phil out with no plan. Why is Asha finally revealing her plan years later if she was such a good fit? She came in trying to automate away peoples jobs with AI for the last year or so and that is obviously failing. It wasn’t Phil that invested the entire company’s well being on stochastic parrots.
She has done everything but focus on delivering games (product).
Just looking at Sharma’s history, she rejoined MS in 2024. Xbox was struggling long before that, so I don’t see how anyone can blame Sharma for the past 10 years…
Xbox has been profitable almost continuously since a few years into the Xbox 360. It's fascinating how "profitable but low margins" equates to "struggling" to so many.
Right? It seems intuitive that markets can eventually saturate, and that there's a floor for how low you can get costs, so growth can't be infinite. Maybe you could make an argument that you want to grow in scale with inflation so that your profit doesn't eventually become meaningless, but you don't need to "reset" your multi-billion dollar revenue business to achieve that; you can get that by just bumping prices in line with inflation every few years.
You can blame her for the last 10 years because she's CEO _now_. That's what you do. You blame the head of the organization for the organization's problems.
Ratio of consoles sold Xbox vs PS5 was 1:3 before that, after that it fell in the 1:10 territories (december 2025)
Using Phil as a scapegoat and Sharma as the savior is disingenuous.. and is honestly pretty consistent with how i view Microslop: opportunists, tasteless, and visionless executives, shareholders and fanboys
The fall of Xbox started before the launch of thier current gen:
- HW: they announced 2 SKUs, with polar opposite performance profiles
- SW: their system sellers got delayed to couple years
The reset needs to happen at the highest executive order, not at the lowest, workers implement whatever project was greenlit
People chose PS5/Switch over Xbox (it now sells 3x less than Switch 1, wich is a previous gen console), people see through the lies of the media
For that kind of announcement, I found it surprisingly open and detailed (at least if everything in there is true).
Still, some points are telling.
> Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.
So the layoffs are not because they're operating at a loss and had to cut costs urgently. The margins are there, they aren't even thin, they're just not thick enough...
> In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.
Was a bit surprised that Minecraft got such a special status, but not at all surprised by King. All the studios getting nerfed, except the engagement maximizing mobile games...
Game Pass has caused a lot of direct sales losses to game developers in favor of Microsoft trying to find a Netflix-like cash cow for itself. The numbers never added up, but it is not a surprise everyone nodded and went along with it. I wonder what the career repercussions would be for speaking up - but it doesn’t matter because they are getting fired anyway.
I was always very skeptical of the $300 million figure. It sounded like the same math that the movie industry used for pirating. If I was subscribed to Game Pass I might have downloaded CoD to see what it's about. That doesn't mean I would have paid full price for it.
> Last year, Bloomberg reported that Microsoft estimated it had lost $300 million in direct sales of Call of Duty games due to the title’s inclusion in Game Pass, according to an anonymous employee.
Yeah, that's a bullshit number. It's like when people provide piracy counts as lost direct sales, a lot of people will download something for free, those same people won't always pay full price if they can't download it for free.
I downloaded a TON of games from Game Pass, played <1hr, and uninstalled. Without GP I would have just never bought the game.
Gamepass devalued games in my opinion. If you “train” your user base to get used to not buy games they will. It also did not help they were almost giving Gamepass away for nothing. You could chain multiple offers and get like 3 years or more of the best tier for the price of less than 2 games.
They never had the user base to sustain so many studios making AAA games under a subscription model.
They will just continue smash thru exactly what is killing them because they do not know how to reset. More micro transactions, Halo 14-39, games launching before they're ready, price increases, etc. All of that looks good on paper, so they will take no action against. The XBOX is hitting icebergs, and instead of slowing down, they will just call for more speed.
Microsoft laid off most of its Halo talent in a previous lay off cycle, stripping 343 Industries of most of its staff and rebooting it as Halo Studios as a shell to mostly outsource development to other companies in the way that Call of Duty was built on the game development equivalent of sweat shops. They've already shown that they don't have the guts to make Halo 14-39, they seem to be only doing yet another remake of Halos 1-3 and maybe Reach, this time in Unreal and with "AI" to help "upscale" everything. Just four Halo games endlessly remade until people forget why they were ever originally popular.
> We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes.
xbox-specific issues aside, this proposes an interesting view of the future of work.
I also notice the growing trend to have EM carry individual contributor duties, I thought it was mostly a consequence of using coding agents but perhaps it's not: the EM figure as we know might just be a consequence of the golden zirp times (do you remember the endless technical EM vs non-technical EM debates?)
That messaging is for investors. To a dev's ears, it's a meaningless thing to say.
It reminds me when Elon took over twitter and made a comment to the effect of "we need to rethink the entire tech stack from the ground up". Someone asked Elon what was wrong with the tech stack, and he called them a jackass.
I think some of these game studios got so content with Microsoft constantly paying that they forgot to make games that would actually sell.
South of Midnight took 7 years to make and cost $100 million to make... yet sold hardly any copies and I'm not even sure who they were trying to make it for.
Meanwhile you have studios like Sandfall and Warhorse pumping out games on a fraction of the budget that ship millions (and imho, make better games).
Compulsion Games was also a strange acquisition / team to decide to put $100M + 7 years of trust into. They had two games by that point, neither with amazing reviews.
At least from what I saw the game had a huge amount of hype leading up to its launch and the thing that kept people from buying it was just playing enough of it on Game Pass. For some players it was too short and everything they wanted to accomplish was easily done with Game Pass shortly after its launch. For other players like me we bounced off of its tone while playing it. The stop motion animated intro felt like a bait and switch going into its game play, and I had a bunch of uncomfortable feelings about cultural appropriation from a Montreal studio trying to capture a "deep South bayou" aesthetic and failing at some of the subtleties, from what I saw.
> I think some of these game studios got so content with Microsoft constantly paying that they forgot to make games that would actually sell.
I mean, if you're assuming that Microsoft had a fully hands-off approach to managing these companies after buying them, then sure. It's not clear to me that you can make a compelling claim about whether the issues were from the bottom or the top just by looking at the final outputs.
Plus there's plenty of evidence that Microsoft hasn't been hands off across that time period. At the very least we've seen them cancel a Rare game and layoff a bunch of Rare staff because of it, The Initiative shut down for not meeting game development goals, 343 Industries stripped apart for low results versus expectations with Halo Infinite and the "new" Halo Studios is basically just a shell and an outsourcing venture in direct line with ActiVision's old Call of Duty tactics.
Impacted non-studio dev here. It's a bloodbath like some of the leaks in the past few weeks have said. Many important platform/infra teams getting gutted, even in areas where there's supposedly a ton of future investment.
> It is neither possible nor desirable to own every great independent studio.
The sheer hubris. Yes, the monopoly is not desirable for gamers because the games end up all being the same MS-dictated corporate crap. Microsoft imploding is good for everybody in the long run and we can't wait for that day.
My son setup Gamepass a few years ago. It was the biggest rip off I've ever seen. So many things about Microsoft are out of kilter. I'm about to migrate my daughter away from a 3 year old Lenovo Yoga to a Macbook Air M5 - it's just too hard to administer, its now sluggish and the AI is completely in the way. She doesn't need it, and despite a few business practices of Apple I don't really like if I have to choose between them and Microsoft, then I choose Apple.
I was not like this as a teenager. I went through DOS, Windows 3.1x, Window 95, Windows 98, Windows 2000/XP and then all the way to Windows 7. I have completely changed my mind now, it's really only Apple I want to use. Everything about Apple is easier.
Xbox has an interesting opportunity going forward, that I expect they'll fumble.
Interest in physical media has actually been on the upswing, and, with Sony announcing their plans to abandon physical media, it feels like MS has a chance be the "good guys" like what Sony did to MS when MS threatened to ruin physical media prior to the Xbox One release.
However, I'm expecting Microsoft to simply follow Sony's path, because I think they are already going down a path that favors digital-only, and I also think they just don't care to distinguish themselves. It seems like Xbox's claim to fame for the past few years is "It has game pass, and it can play a lot of the same games PlayStation can."
> Interest in physical media has actually been on the upswing, and, with Sony announcing their plans to abandon physical media, it feels like MS has a chance be the "good guys" like what Sony did to MS when MS threatened to ruin physical media prior to the l One release.
Not only that, but RAM/GPU/SSD prices going up so much recently (which is especially jarring for SSDs, which for like a decade had been getting more affordable; I bought a 120 GB SATA SSD in 2012 for around $100, and I was able to buy a 1 TB m.2 one for around the same price a few years ago) is starting to equalize pricing for PC gaming. In 2022, the initial Steam Deck launched for just $400, and it continued to be offered at that price for a few years, which made it cheaper than the Switch 2 launch price.
I feel like if I were a console manufacturer, I would be trying to figure out a way to take advantage of that. Other than price (previously), the other obvious selling point of PC gaming is more control over your system, so there could be an opening to try to lure away wayward PC gamers with some changes that give them a bit more control on the console. I agree with you that I can't really imagine Microsoft doing this though.
> I doubt that they will go back to where Sony are now.
I agree. However, I do think they would get some positive attention (and some accompanying sales) if they were to backtrack and announce a console more like the 360.
It feels doable if they care to do it. Physical media should still be viable for holding all the game data for a while longer. Blurays can manage up to 128 GB, and I think the average game install size is ~60GB right now, giving most games some room to grow.
The biggest issue with a strategy like that is that they're, like you said, pushing digital-only hard already, and they're also trying to save money, so the idea of spending more money to make future consoles with disk drives, and to make disks, is unlikely to appeal to them.
It is a shame, though, because it seems like the Xbox 360 will have been widely viewed as peak Xbox until the end of Xbox.
On one hand, the idea of using Microsoft’s crazy amounts of money to try to build a subscription gaming business feels like it should have been more successful than it has been. On the other, I think gaming has some distinct qualities vs TV/Movies/Music or other types of software that makes the idea seem way less appealing. Curious to see what the new direction looks like
I want XBOX to be one of the few companies that entertains more than a billion people each day
"more than a billion"? What are we doing here? Do you have any idea what your target market is? Surely someone in your organization can provide you with a good stretch goal ... >10% of all humans using an XBox daily is not that.
Seriously, I cannot fathom why you would say this. Innumeracy? Narcissistic delusion? Stealth launch for a new industrial human cloning project?
Any details about the studio spin-outs? The rumors were that Double Fine etc. would be closed, but all we know now is that some of them are being sold to management and others are being sold to other investors. Nothing about any commensurate restructurings.
> Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
Yeah, that is what I was referring to about the lack of detail on restructuring. I want to know if people are losing their jobs and/or titles are being cancelled as part of these sales.
Senua and State of Decay 3 are the only currently announced titles of the studios in question and it does say that those games will be completed by their studios under their new owner. It's still an interesting mystery who the new owner will be, though.
Microsoft just never sorted out their exclusivity problem, tried to acquire their way to it, only to then be stymied by regulators, all the while having second-best hardware compared to the PS5.
I think the Xbox Series X will be my last Xbox after owning Xbox, Xbox 360, Xbox One, and the Xbox Series X. I was all-in on their platform and I even paid for Game Pass for many years.
But they kept increasing the cost of Game Pass with no new features, the platform has seemed stagnant, and honestly I can't tell you why my Series X is better than my Xbox One. Literally I don't see a difference. I'm sure there is one but as a user I really didn't feel like it was a big step up. I bought it because I had every other Xbox and it seemed like the next logical step.
That coupled with most games feeling like lootboxes wrapped in just enough of a game to justify calling it one, at higher and higher price points, all while trying to get more money after they've taken your $70/$80 for the base game. Oh wait, you bought the poor-person $70 version? You really need to the Ultra Collectors Edition Gold Special Release Version for $120. Oh also, make sure you are buying the season pass...
Meanwhile I buy games on my steam deck and/or from indie developers for a max of $30 and get way more gameplay/fun that the "AAA" games (which have largely sucked IMHO).
I'm over here playing Mass Effect 1-3, Skyrim, Fallout 4, and other games OVER A DECADE AGO. They are the only games not completely ruined by lootboxes, always-online BS, or trying to sell you a shell of a game with extras you have to buy [0]. I was excited for Starfield (Skyrim in space!!) but it was a complete bust. After spending, quite literally, 1000's of hours in Skyrim (and buying and rebuying the Anniversary/Special/Collector's edition enough times to be embarrassing) I could not get excited about Starfield and stopped playing after a few hours. The new Halo was meh, I played through it and the open world was somewhat cool but I guess they wanted to do seasons of new content and I have zero interest in that. Give me a solid single player game, that's all I want. I cancelled Game Pass after realizing I was paying an absurd amount of money to play a single game (Deep Rock Galactic).
I think I'll stick to my Steam Deck which I enjoy way more than my Series X.
[0] Yes, Skyrim/Fallout had expansion content but it's tame compared to most games today.
"Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. "
This is a total mess IMHO.
- The make around 5 billion in revenue per quarter - The problem according to them is profit margin - around 150-160 million
So first of all, they are big! Secondly they are not at a loss. They just have a "thin, non-growing margin". So to fix all this they are trimming down, so they can "return to growth" (which I think is ridiculous).
Some points -
- They are huge business even now - 5 billion per quarter revenue is no joke
- They did not have to buy all those studios
- They looked at Netflix, and wanted the sweet monthly subscription cash stream
- Then they did not have to give away popular games day one on Game Pass
- And finally, they did not have to raise Game Pass prices to improve the profit margins. Of course, consumers pulled out.
- Once again, short term vision, crazy decisions, bad spending spree and a constant need to "make numbers go up" and who has to pay for all this?
With due fairness, these are two different sets of leaders and two different strategies.
A lot of the strategy you outlined -- buying all these studios, replicating netflix, giving away day one games, raising game pass -- was a strategy put in place by Phil Spencer. Phil pushed for this investment with the promise it would pay off later for MS. He's talked publicly about having to convince Nadella to put up ungodly amounts of cash for these investments and about how the bar for expected return was very very high. It seems like it clearly hasn't worked out to Microsoft's expectations or they've lost patience for waiting, and Phil has now "retired to spend more time with his family" (i.e. been fired).
Now Asha is here and presumably has a mandate to fix this and get back the profit margins that were expected from xbox. Sarah Bond, the xbox president, has resigned, and with this letter it seems the previous Xbox COO is out too. There is clearly a huge shift in Xbox leadership happening and it shouldn't be surprising that Asha -- who is known as a business-driven executive and not a 'gamer' -- is going to be reverting a lot of previous strategy decisions.
My 2c is that Phil's strategy made sense on paper, but I don't think they were able to manage this many studios in practice: nearly all the studios they bought have failed to produce the number of games expected on time or on budget. It also turned out that overly cheap gamepass would cannibalize their business and overly expensive gamepass turned away subscribers. I think the netflix model isn't something you can speedrun and execution of it turned out to be very hard and expensive. Maybe it would've worked out with more time but it seems Nadella didn't think so anymore.
Xbox around 2021 had around a 12% profit margin and the gaming industry as a whole was around 17-22% . In 2023 the target for the division was put to 30% . We see this new restructuring because the target was put this high. Microsoft really wanted Game Pass to be a steam competitor which is pretty much what everyone in the industry tries to do and fails. The push for Game Pass prices to be higher was to get the 30% margin and that didn't work out. They aren't operating at a loss they are operating at a goal and they failed the goal. From other child comments many studios they bought probably were below average. We can see this restructuring basically is that they failed the target, the old guard went out as the new guard came in.
https://www.bloomberg.com/news/articles/2025-10-23/microsoft...
Being a Steam competitor involves making a store that's actually good. All the other major stores/platforms don't really seem to give a shit, to be frank. Steam has like 20x their feature set, and the gap appears to be still growing.
If anything, it should be easier to make cool new features when you own the hardware side of the platform experience too, but no, it's Steam that has stuff like remote play together, not PSN or Xbox.
I don't know if I care about the features, what I do care about is the games and a lean-back experience which is not sweaty. I play games to escape the drudgery of software development and the last thing I want to do is mess with an .INI file.
I love the Steam Deck because it feels like a consumer electronics device: it has the reliability of Linux but not the sweat. The Steam Deck is the only device I've seen that works 100% perfectly with Airpods, for instance, including Apple devices.
I was at Best Buy the other day and saw an ASUS device that looked pretty cool until I picked it up and saw a Windows desktop with fonts not scaled appropriately for the size of the device. Like, wazzup? Steam Big Picture turns my big Windows machine at home into a game console and does the same for my Mac Mini. How is it you can have the back of frickin' Microsoft and not be able to do the same?
Not to say that Steam isn't packed with features that are valuable to many gamers, but just having a great selection of games that "just work" and knowing I can enjoy my investment on the devices I have now and devices I get in the future is worth a lot.
>Microsoft really wanted Game Pass to be a steam competitor which is pretty much what everyone in the industry tries to do and fails.
Gamepass is quite literally the most anti-steam strategy ever. It's a massive loss leading (or rather, low margin leading) service relying on a pseudo-rental service to provide value. Steam got to where it is by keeping all its costs lean and developing a service around taking a cut from premium digital goods.
>From other child comments many studios they bought probably were below average.
In revenue, maybe. That's the fault of Microsoft in two fronts. One for purchasing game studios who always operated at low margins, and two for directing them to focus on quality over budget. Double Fine and Ninja Theory aren't studios you buy with an expectation of 30% ROI in 6 years (ignoring the pandemic in the middle of that). Let alone when you explicitly tell them not to worry about finances.
On an artistic level, Hellblade was an insutry darling and about as close as you can get to an "oscar-bait" of a game. It's something you buy for prestige. Double Fine is a very seasoned indie studio who delivered several cult classics. You buy that for a brand that gives you variety from the current "online FPS juggernaut". Those strategies changed dramatically over the decade.
I wrote a while ago about how companies seem to have gotten the idea into their head that subscriptions are unconditionally good, rather than a contingent good based on the exact circumstances of the subscription: https://jerf.org/iri/post/2023/streampocalypse-and-first-pri...
Gamepass as a subscription to make sure you always have something to play, that has a lot of old games or indie games and other games that have no commercial value makes sense to me. The back catalog for any of the current consoles is plenty deep with games that have lost their ability to move units independently but still have a lot of value and can also give that perception of value. Such a plan is picking up pennies, but it's a lot of pennies.
I've never understood putting your new releases out on gamepass and bragging about that as your primary value proposition. Many new games are, say, 20-30 hour experiences, assuming you play them from start to finish once. One does not need to spend too much time with "this % of other players got this achievement" to see how many players tend to drop off of a game even that long. So if you put your new game that you would have sold for $60-80 dollars to me directly and it translates to three weeks of engagement on your $15-ish/month (depending on level) subscription, it's hard to see how that is an economic win. Put that game on Gamepass in a year or two, sure, that can make sense, but on release? And that not as a mistake, but a deliberate strategy? I can not fathom the mindset that leads to that.
As a deal for customers it seems to have been pretty good but I've never understood how Microsoft expected to make money on that plan. The streaming-video proposition of making a high-budget release to keep your subscribers makes quite a bit more sense, you could never have counted on getting $70 out of a customer for those anyhow, and even that economic proposition I think has proved more complicated than the streaming companies expected. The Gamepass model has just seemed insane.
I expect it to move to more like what I described at the beginning. As a way to turn a lot of old and hard-to-monetize content into a subscription stream it's brilliant. As a way of releasing new AAA titles it's crazy. Movie studios played with that model and I don't think they liked it at all.
> - The make around 5 billion in revenue per quarter - The problem according to them is profit margin - around 150-160 million
> So first of all, they are big! Secondly they are not at a loss. They just have a "thin, non-growing margin". So to fix all this they are trimming down, so they can "return to growth" (which I think is ridiculous).
How is that profit margin distributed though? King (Candy Crush etc) and Mojang (Minecraft) are specifically called out as money-makers, it's possible that they're carrying the majority of profits while everything else is a dud:
> We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested.
As an example, Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.
On the margins, that's crazy thin for the size of the org... One bad quarter could turn from a few million in profits to hundreds of millions in losses. It's too close, and there's no way to build/store funds for any kind of storm at that level.
Now, I think the vast majority of the pain is more than self-inflicted... I think actual business, marketing and focus need to start taking priority over idealistic political PoV. Let the games target their natural audiences and have the broadest appeal... at a certain point, trying to gain 1% of audience means alienating 25% or more.
Billion USD grocery chains operate on 2-3% margins just fine...
Keeper needs an optimization pass so badly. Once I finished the first zone the framerate dropped to the floor on my Steam Deck. Presumably it runs okay on the current XBox, but it sure feels like Double Fine's attention has moved on and will never return.
Absolutely drop-dead gorgeous but I don't think I am going to ever finish it until I get a Deck 3/4 in like 5-7 years.
Really 191 players or 191k players?
>Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.
Hard to really say. Kiln and Keeper can easily be made up for by the sales of Psychonauts 2. I'm sure an indie Double Fine would not have been able to make those kinds of games.
This takes me back to Pertinent, another small game from a reputable studio, had its main writer saying that "this kind of game would not be possible without Gamepass". Which I 100% believe. Microsoft definitely didn't buy Double Fine trying to make the next Fortnite, but that arthouse strategy clearly isn't a factor these days.
Game Pass was never a sustainable business model. People liked it because when a new game came out, they could buy a month of game pass for like $15, play through the game in a couple weeks, and cancel. It was a really good deal because Microsoft has spent the past decade+ trying to recover from their terrible fumble of the Xbox One launch, so they were subsidizing gamers to come back to their platform.
With the money being spent on AAA titles these days, they are not going to make any money without increasing the price of Game Pass majorly. The big price bump they quickly backtracked on was an attempt to make Game Pass somewhere closer to being profitable.
Game Pass was always a sustainable business model. You can offer a large library of old games for $5 or $10 a month, and people will pay for it. (GameTap did it long before Microsoft did).
The problem is that they also decided Game Pass needs to be a "Netflix competitor for games". Putting brand new day-one major releases on there for like $15/month was never a good idea, especially because all the brand-new games they released were mostly their own. It cannibalized their own game sales.
You don't have to have a subscription have your own day-one games on it. You could give them a 6 month or 12 month head-start on sales, before putting them in the Game Pass subscription.
(Except during major pandemics) Even Hollywood movie studios usually let new movies play for a month or two in theaters, then another month or two of full-price purchases on digital or DVD/BluRay sales, before putting their own films in their own subscription services
> Then they did not have to give away popular games day one on Game Pass
A company that sells consoles complaining about not having enough games after 25 years in business and acquiring most popular game studios is hilarious.
They keep cutting game studios, killing games and then set ambitious profit margins. At some point you have to question, do the people in charge understand their own business at all?
They just gutted bungee and basically killed Destiny 2, not because the game won’t sell, but because it won’t generate the profits they unrealistically set.
Point of clarification:
While Bungie had historically been tied to Xbox / Microsoft during the Halo era, Bungie spun out to be its own company in 2007, and then was bought by Sony in 2022. It was Sony, not Microsoft, driving the most recent layoffs at Bungie.
Bungie is not a MS studio since 2007.
Completely agree. Their problem is that corporate wants more money to funnel back into AI and it is really inconvenient that Xbox provides only a couple billion dollars per month whereas Office and Cloud provide many more billions. What a complete joke.
It comes across to me as a really honest letter. At least they are talking about spinning out studios instead of shutting them down, I think that plays better than previous announcements. (e.g. make a hit game like Hi-Fi Rush and get shut down!)
Compulsively chasing only the highest margins has been toxic for the country as a whole.
Different eras of Xbox, and tech as a whole.
Spencer's strategy for Xbox was very 2010 coded: rely on the billion/trillion dollar company to undercut the competition and gather market share and leverage. Classic embrace, extend, extinguish. That's why they bought a bunch of arthouse studios who don't immediately make money, invested hard in a subscription service that was wildly unprofitable (a strategy that even TV services couldn't make profitable, mind you), and focus on moving software more than hardware.
That strategy shifted dramatically between rising interest rates, a cooling consumer market, business uncertainties, and companies simply wanted to throw any excess fat into the AI rat race. So those art house studios were removed, Gamepass needs to enshittify pre-maturely,production needs to slow from a variety of offerings to the usual safe and sure releases. And of course, the biggest expense needs to be trimmed down on: because no one is stopping them from doing it in the US.
The number will still go up, but in different ways. They aren't doing this because they are in the red, they are doing it because they want all the money instead of a lot of it.
Well this is the new Xbox boss, Aska Sharma trying to course correct her own actions after pushing out Phil Spencer (and team). Phil had a deep understanding of the game world about profit margins and how the Xbox is essentially a stake in keeping Microsoft in the minds of consumers, a place in the home. Aska has a shallow understanding and sees only the financials and wanted to increase profits. Now she is burning it all down to try and “reset” and replace people with LLMs to increase profit margins. I imagine she will be pushed out herself end of year or next Spring (2027) once her naïve plan back fires.
Just out of curiosity, I checked her Wikipedia page and this caught my eye:
> Sharma posted in 2026 that she had recently begun playing video games under the gamertag AMRAHSAHSA to "learn and understand" the games industry
Imagine running the Xbox division and only just now picking up a controller.
Are you conflating Asha Sharma with Satya Nadella? Asha just joined Xbox, she had no role in any prior decision making.
Asha came from the AI division of Microsoft, she didn’t pop out of nowhere. She is strongly tied to the Microsoft LLM plays.
IMO Phil was very clearly pushed out by “AI will cut costs talk”. No one makes huge investments into acquiring companies and then suddenly retires (after running the division successfully for decades) and none of his underlings were promoted into the role, they all left when he did.
I think Phil was pushed out by the complete failure of his strategic vision when confronted with reality. He had a vision of growth and prestige, and money would follow. I loved his vision in its grandiose and lofty goals, but he completely failed to capture any of the "how to make it happen". It stays a fantasy.
Don’t know why this is being downvoted because it’s absolutely on the money. She’s a very green exec that is doing the classic “change everything to make it look like I’m doing something” while also not really achieving anything.
The rebrand to ‘XBOX’ is a good example of how they’re already out of ideas
It was pretty rich seeing armchair video game industry analysts act like the new CEO was gonna usher in a new age for Microsoft's gaming division because she got to announce the updated logo and some games that would have obviously been in development long before she became CEO.
Microsoft is never going to figure out gaming. It's more art than engineering and they can barely manage the engineering with all the intervention from marketing and HR in their products.
To me it's mostly unfortunate that this has left PlayStation with no direct competition because they've noticed and leaned into the not-giving-a-shit attitude after they had such a great console generation with the PS4. It's kinda crazy that we're already almost due for a new console generation and there's very little appetite for new consoles after this generation where it feels like it barely got started. And between graphics almost certainly at the point of diminishing returns, and hardware prices like they are right now, I can't imagine there's a market to sell something more capable than current gen consoles. The industry is in a very strange state.
To me, the graphics abilities have been there for a decade... what we need are better games and gameplay. More fun games without gotcha, pay to win, loot box efforts. Too much effort is going for dazzling graphics at the expense of overall gameplay. How many people are still playing CoD, WoW and so many other games from over a decade ago? How many refreshes of Final Fantasy have we seen?
The graphics can only carry you so far. There's indy adventure games with SNES level graphics that have millions of daily users.
Also dazzling graphics has been mostly visual instead of experiential, that is, with the advances in GPU capabilities, we do get beautiful effects, but the intractability with the said infra is seems to be stagnant (and in some cases regressed)
The way things interact in the game world peaked around mid 2000s, just in time when CPUs started to not follow moors law.
As of now, interactive environments are still almost as good as half life 2 from 2004. Gaming is all about the feel of it, which also includes the visual component.
I think graphics peaked ~2015. But interaction still leaves a lot to be desired; we still have slipping and characters who can't walk stairs in AAA games to this day. Making characters more physically grounded and present seems like the obvious thing to improve to me.
This is something audiences are clearly desperate for today. I think it's obvious when looking at the huge success of Helldivers, Bodycam, Ready Or Not, Arc Raiders, (none of which are particularly innovative) players appreciate high quality, tactile and grounded world interaction.
This is where Nintendo is at. It’s hilarious how much fun me and my kids are having playing games like Animal Crossing, Super Smash Bros, Mario Party, Pokemon Pokopia, and the surprise smash hit has been Tomodachi Life: Living the Dream. My kids make all the neighbors and have them get married and laugh about it and it’s just such a goofy concept. The graphics are good enough that you no longer notice there’s graphics, just the art.
Switch 2 is a fantastic console with an astonishingly fun first party library, and Nintendo just over there doing their own thing like they’ve always done.
Nintendo are basically the only people who held out against in game spending, for which I salute them.
I spent a few years in and around the industry and there was so much insanity around the need for in game monetization that it just made things much worse.
And because the game studios didn't care about it, none of the money stuff worked, making executives even more upset.
All to catch some vision of F2P money which is an entirely different business that these companies couldn't possibly support.
It's very sad for the industry overall (this particular decision is MS killing stuff off because the margins aren't good enough to funnel more cash into GPU gods).
Nintendp dabbled briefly with it. But they know their audience and very much did not want to risk any PR hit by associating too closely with the typical gacha/lootbox model. They saw the Roblox/Fortnite smoke long before most of the industry and turned off very quickly.
But there's one specific statistic to why Nintendo can keep doing what it does in a way no one else can: 98% retention rate. You get into Nintendo and you basically never leave. Even for Japan, that's well above the 70% retention rate you'd expect. Keeping that kind of institutional knowledge for an entire career makes them really good at what they do, and the unfortunate decades of Japan's economy meant they were less tempted by amassing huge loans or risks on experimental stuff.
Maybe they didn't become trillionaires, but it means they amassed a huge war chest and can weather storms that US companies are currently in the middle of.
There's a lot I don't like about Nintendo, but the one thing I admire about them is they understand that fancy cinematic graphics aren't what make a great game.
Tomodachi Life sounds like The Sims but with rounded corners.
The pandemic and scalpers really destroyed peoples apetite for the "new thing" when this generation came out, and with that boost missing studios saw little point in going exclusive perpetuating the vicious cycle, it's just in the past few years that there's really been exclusives for this generation that didn't also support older consoles.
And even then, already the PS4/XbOne generation added stratification making it more "PC-like" with the XbOne-X having heftier hardware (not to mention it being PC-like compared to PS1/PS2/PS3/Xbox360), that then continued with the Xbox-series-X and Xbox-series-S.
Consoles aren't specialized hardware for "magic experiences" and everyone knows this, it's just another "device" that happens to be connected to a TV with a controller where people are gatekeeping software availability.
Microsoft also didn't do themselves any favor with that naming scheme. In the current generation (I think?), you have: - Xbox X - Xbox S - Xbox Series X - Xbox Series S
Compared to: - PlayStation 5 - PlayStation 5 Pro
or: - Nintendo Switch - Nintendo Switch OLED - Nintendo Switch Lite
Anyone who's literate in English (and knows that OLED means "nicer screen") can immediately rank the PlayStations and Switches into "good, better, best". But with the Xbox, how is anyone supposed to know which one is which? Is the Series version better or worse? Is it a whole new generation, with whatever backwards-compatability implications that a new generation brings? I need a chart and I probably still won't be able to tell you if you ask me in a month.
Slight correction. Last generation was the Xbox One (already a confusing name because some people thought that was referring to the original first Xbox)
A few years into the generation they updated the Xbox One, putting it into a smaller form factor called the Xbox One S, and at the same time released a spec bump model called the Xbox One X. I don't believe any of these are still available for purchase.
The new generation has the smaller/lower-powered Xbox Series S, and the higher-specced Xbox Series X. Leaving the overall generation with seemingly no name, other than "Xbox Series" I guess?
But yes, the names are terrible because S and X both refer to consoles from last gen and current gen.
As an anecdote of how bad the naming is, I own one of these, but couldn’t tell you which one.
This is absolutely correct, I game on Xbox pretty much every day or every other day, I have been with Xbox since 360 or whatever the first one was called. I am still constantly confused by the naming. There also was another revision to the top of the line Xbox series X and the Xbox series X digital edition. I can’t imagine someone looking at the naming scheme pre-release and saying yes, let’s go with that.
I had the sinking feeling from the start, that a total stranger was brought in to do a butcher's job.
> And between graphics almost certainly at the point of diminishing returns, and hardware prices like they are right now, I can't imagine there's a market to sell something more capable than current gen consoles.
I haven't bought a console since the Xbox360 and Wii. But I have a friend who still games pretty heavily and is low income. He can not afford the latest PS5 and is still on a PS4. We were talking the other day and he said "I love consoles because they are simpler and cheaper than a PC but now I can't afford either. The graphics aren't getting much better so what am I paying for? What happened to $400-$500 consoles? Remember when consoles were 200-300?" Of course those last few prices were 90/00's but I agree, the cost of a new console is quite insane for not much gain.
> Of course those last few prices were 90/00's
Two years ago, you could get an XBOX/Switch for 300, or a PS/Steam Deck for 400. Granted, the PS and XBOX were digital only. But now the cheapest XBOX is 500, the Switch 2 will soon also be 500, the PS5 starts at 600, and the Steam Deck is 789. Things have been going up slowly, but the last year has been absolutely killer.
I read that when they designed the Xbox Series S and X they knew it was going to be difficult to lower prices down the road because wafer costs were increasing every year. Which is why they launched with 2 models from the get go, one cheaper than the other. And even so they were losing between 100 and 200 dollars per console.
Now things are even worse with the RAM and SSD components crisis. The Series S has now the price of the Series X when it launched.
$200 in 1985 (NES launch price/date), adjusted for inflation is just shy of $600 in 2026. RAM and GPU prices are really hurting the consoles right now, but compared to inflation benchmarks up until about 2020 they were considerably below inflation.
Don't forget gifting of translucent Xbox.
When she was announced it was broadly assumed that she was being brought in to kill the division.
But then she did some minor, pandering actions and suddenly everyone was "oh boy! A new era of xbox!" Only it was all a ruse to ensure people didn't jump ship too quickly and make the bleeding too heavy. They want people to keep pumping money into a platform heading to the graveyard.
> Only it was all a ruse to ensure people didn't jump ship too quickly and make the bleeding too heavy
You go when we tell you to go! Not before!
> We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes.
This is the new trendy management style - a few executive owners and then everyone else are expendable ICs, with almost no movement opportunity upwards. Only those on the Peter Thiel list or the equivilent among your private equity owners will be considered for key executive positions.
Yes, but only because the bar is so low. "We can't commodotize innovation" is not an especially subtle insight, and pretty much everyone other than executives at companies like this understand it without having to spend billions to try it out.
I have no idea why they didn’t realize that earlier, or if there is any insider dealing involved, from my cynical thoughts.
> I have no idea why they didn’t realize that earlier
14 layers of management :-P
...more like
> We can't afford it, and it's a bad investment anyway
>> We can't afford it
But they've already spent the money. They spent about 70 billion on activision blizzard. That was and still is an outrageous amount of money that will take fever to break even let alone turn a profit.
> They spent about 70 billion on activision blizzard
A cynic might say they spent most of that for King, which continues to be profitable. The rest of Activision Blizzard just came along for the ride
Call of Duty absolutely prints money, fwiw. King are weird because they basically have been doing the same game in different skins for like 15 years now.
Just because they already spent the money yesterday, it does not follow that the best decision today is to just carry on as if was still the correct decision. Yes they cannot get that 70B back, but if they have to choose between:
1. a long dragged out distraction over decades trying to make it work
2. a painful but quick 40B write down and the ability to refocus the company on better projects tomorrow
.. then they are, quite rightly imo, going to pick #2. In fact I would assume this going to be the next announcment.
They can't afford to buy every other successful studio, which means that their anticompetitive moat has to be competitive. Otherwise, they could have made the whole thing profitable the usual Microsoft (monopolist) way.
They bought a content competitor, now they get to "reset" their vision for it. Mission successful.
At some point, the games industry decided it wanted to be interactive Hollywood, and the consequences are entirely predictable. Meanwhile, Nintendo just quietly shipped 3.8 million units of Tomodachi Life in two weeks, and 4 million of Pokopia in five. They're making actual games. Sony's obsession with prestige cinematic bloat, like Xbox, has also put them in a slow-motion death spiral that's going to become painfully obvious in a few years.
My kids begged for me to buy Tomodachi Life and Pokemon Pokopia and they’ve been absolute smash hits in the house. Pokemon got me hooked for a month or two until I mostly beat it, and the kids play Tomodachi Life every day and have funny little stories to tell. So many modern games just aren’t fun, it doesn’t matter what the graphics look like if the game is boring.
To some extent - but you can't get away with Hollywood Accounting Practices in the same way.
Also one must consider the likes of Hideo Kojima who can sell ~7 million copies of a new IP that is effectively a cinematic Walking Simulator as an Auteur acrimoniously splitting from the traditional studio system.
Clair Obscur: Expedition 33 also shipped over 5.4 million copies as a AA, in what is also arguably an interactive cinematic on-rails RPG.
Nah, expedition has enough of a game in it. Parry mechanic is pretty addictive, and gameplay is kinda fun. Exploration, too, is strictly gaming aspect, not cinematic.
God of war is plainly movie on rails compared to E33
A walking simulator that has you fighting between multiple dimensions and is one of the best looking games of its generation.
I'll personally take spirals, ups and downs of the whole industry over Nintendo selling yet another Mario, Zelda and Pokemon for 40 years straight.
That is encouraging, but my stock portfolio paints a different picture. Nintendo is unfortunately doing terribly this year. I still believe in their core mission, even if some of their litigiousness and anti consumer practices have put me off
Nintendo is also a Japanese company and japanese stocks aren't doing great due to their economy and the weak yen. Also, stock price does not correlate with good games or a healthy business.
[delayed]
Things are not that black and white.
Nintendo also shipped Metroid Prime 4, with massive delays and unsatisfied customers, following the same "interactive Hollywood" philosophy which disappointed Metroid fans.
Same thing goes for Star Fox, a remake of a remake of a remake, with poor visual and dialogue choices.
And meanwhile, the same silent push for digital-only, forced upgrades and the like...
> Nintendo also shipped Metroid Prime 4, with massive delays and unsatisfied customers, following the same "interactive Hollywood" philosophy which disappointed Metroid fans.
I'm not convinced that Metroid at least really is a great data point for "Nintendo is ruining things in-house". From Wikipedia[1]:
> Nintendo announced Metroid Prime 4 with a teaser trailer during the Nintendo Direct presentation at E3 2017, and announced that Retro Studios, who developed the previous main Prime games, would not be involved.[15][16] In February 2018, Eurogamer reported that Prime 4 was being developed by Bandai Namco Studios in Japan and Singapore.
> In January 2019, the Nintendo EPD manager Shinya Takahashi announced that development had restarted under Retro with Tanabe remaining as producer. Takahashi said the previous studio had not met Nintendo's standards and that the decision to restart was not taken lightly.[21] Shortly after, Nintendo reevaluated Prime 4 after noticing changing attitudes towards open-world games, but maintained the direction as the development was already taking longer than planned. The team ignored new developments in action and shooting games to prioritize the adventure elements.
There's a perspective where this is almost the exact opposite of the problem being discussed about Microsoft. They chose to let it get developed externally, suffered delays, and by the time they moved it back in-house, the ecosystem had moved from under them. They probably could have chosen to rethink everything and delay it further, but they also arguably could have avoided having to make that call by keeping it in-house and letting the studio who made the previous entries work on it from the start and landing it in time that the original vision still fit what people wanted.
[1]: https://en.wikipedia.org/wiki/Metroid_Prime_4:_Beyond#Develo...
My point wasn't about Nintendo ruining things in-house rather than them following the exact same trends than Sony & Microsoft, only a few years late.
MP4 is what OP was talking about, an "interactive Hollywood" experience that betrays previous Metroids, adds discutable open-world design cues, and locks features behind $30 figures.
This isn't the first time Nintendo has outsourced a disappointing Metroid game, if Other M is any indication. Remains to be seen if this is part of a larger trend for that company.
I’ll concede that Metroid Prime 4 has been sitting on my shelf.
But Star Fox? Phenomenal. Such a fun game. Luckily I have the pro controller so I could map A to the back paddle or else my poor old tendons couldn’t handle the rapid fire shooting required at the high levels, but I’ve had an absolute BLAST playing the remake.
I'm curious about the Star Fox comment. Tell me if I got this wrong:
A remake (1) of a remake (2) of a remake (3)
(1) A remake (Switch 2 Starfox, a remake of StarFox 64)
(2) StarFox 64 (A remake of Super Nintendo's StarFox)
(3) ??? I don't know what the 3rd level of remake you mention is, but I'm curious!
Star fox zero is in there somewhere
Star Fox (SNES), Star Fox 2 (SNES mini), Star Fox 64, Star Fox 64 3D, Star Fox Zero and Star Fox (Switch 2), while having minor gameplay differences, are all retellings of the same in-game story (the eponymous Lylat Wars).
Moreover, Star Fox was kind of... programmed by teenagers. Miyamoto is credited as both the producer and designer, but both Cuthbert and Goddard were 18 or 19, and Wombell (artist and designer) was maybe in his mid-20s.
Star Fox's development is an incredibly wild story where British teenagers argued what the SNES could do with bespoke hardware, and they ended up being shipped out to produce it because Nintendo felt they couldn't ever do it themselves. It all started with Argonaut's demo of what would eventually be released in Japan as "X". Entirely software-based 3D, on the original Game Boy.
There's actually a very humble quote by Miyamoto where he learned that someone can't just get better as a function of age and experience, after he clearly realized that these teenagers could produce something no one else in Nintendo ever had a hope of. Perhaps it's why the franchise has done so little -- Nintendo's just not in a remotely similar headspace the Argonaut lads were.
-----
Fun videos on the subject:
"The Teenagers Who Taught Nintendo How to Make Star Fox" - People Make Games, https://www.youtube.com/watch?v=to4Ekb0kXiE
"The Making of Star Fox" - Strafefox, https://www.youtube.com/watch?v=GDhNT2Qv-Mo
Between 1 and 2 was the 3DS remake which added levels and cleaned up the story some. The Switch Starfox includes those parts, too, from what I've heard.
What I mean by "interactive Hollywood" is a game with a $200M+ budget that relies entirely on high-fidelity graphics and cinematic stories to differentiate itself, while offering almost zero new gameplay innovation.
Neither of your examples fit that description. Metroid Prime 4 wasn't chasing Hollywood cinematic design; it was a highly targeted attempt by producer Kensuke Tanabe to make a tight, isolated first-person exploration formula resonate (especially in Japan where it has consistently failed). Its goals are mechanical, not cinematic. Meanwhile, Star Fox is a classic arcade rail-shooter remake with modernized cutscenes, not a prestige movie-game. Early sales data shows it's actually working well, too, having just debuted at #1 on the physical charts in Japan and nearly doubling Star Fox Zero's launch week in the UK.
Ultimately, Nintendo operates like a Consumer Packaged Goods company. They treat their library of IPs like a diversified product portfolio rather than betting the farm on individual interactive movies. They use massive, high-margin, mechanics-first games like Tomodachi Life and Pokopia to generate enormous cash reserves. They then use those profits to subsidize legacy IPs like Metroid or Star Fox to keep core fans happy and feed their broader brand ecosystem. Because Nintendo spreads its risk across a wide spectrum of lower-budget games, they can easily absorb a minor product flop. Sony's interactive Hollywood model sinks $300M into a single basket, meaning one bad miss can completely wreck a studio.
This is incredibly sad for a lot of my friends who are finding themselves out of work despite delivering well received products.
But at the same time I appreciate the candor of Asha saying that the corporate management are to blame and letting studios go back to being independent where possible.
Phil Spencer really messed up. Everyone in the industry knew Microsoft were making bad calls trying to dig themselves a hole with gamepass and simultaneously digging a hole with their acquisition spree. I’m glad that Asha is laying this bare even though it sucks to be brought in as the hatchet person.
This is an example of the glass cliff and I’m hoping she can help right the ship. I think they need to split to a wholly owned subsidiary rather than be in Microsoft proper, and I expect that to be announced at the Q1 investor meetings.
Phil really dug their hole deep. Microsoft themselves encouraged it. It’s been a decade of sheer incompetence at the highest level so I’m hoping they can right this without taking out half the industry in their wake.
I disagree, it wasn’t Phil that dug a hole but Asha who pushed Phil out with no plan. Why is Asha finally revealing her plan years later if she was such a good fit? She came in trying to automate away peoples jobs with AI for the last year or so and that is obviously failing. It wasn’t Phil that invested the entire company’s well being on stochastic parrots.
She has done everything but focus on delivering games (product).
Just looking at Sharma’s history, she rejoined MS in 2024. Xbox was struggling long before that, so I don’t see how anyone can blame Sharma for the past 10 years…
Xbox has been profitable almost continuously since a few years into the Xbox 360. It's fascinating how "profitable but low margins" equates to "struggling" to so many.
Right? It seems intuitive that markets can eventually saturate, and that there's a floor for how low you can get costs, so growth can't be infinite. Maybe you could make an argument that you want to grow in scale with inflation so that your profit doesn't eventually become meaningless, but you don't need to "reset" your multi-billion dollar revenue business to achieve that; you can get that by just bumping prices in line with inflation every few years.
> It's fascinating how "profitable but low margins" equates to "struggling" to so many.
A high revenue but low margin business is a lost opportunity to invest that same revenue in a different area with better margins.
You can blame her for the last 10 years because she's CEO _now_. That's what you do. You blame the head of the organization for the organization's problems.
Ratio of consoles sold Xbox vs PS5 was 1:3 before that, after that it fell in the 1:10 territories (december 2025)
Using Phil as a scapegoat and Sharma as the savior is disingenuous.. and is honestly pretty consistent with how i view Microslop: opportunists, tasteless, and visionless executives, shareholders and fanboys
The fall of Xbox started before the launch of thier current gen:
- HW: they announced 2 SKUs, with polar opposite performance profiles
- SW: their system sellers got delayed to couple years
The reset needs to happen at the highest executive order, not at the lowest, workers implement whatever project was greenlit
People chose PS5/Switch over Xbox (it now sells 3x less than Switch 1, wich is a previous gen console), people see through the lies of the media
a) Asha didnt push Phil out.
b) She's been in the role for 4ish months, not years.
I can guarantee you Asha has been making this move for years.
Based on what? This just feels like baseless conjecture given she hasn’t been at Microsoft for that long.
For that kind of announcement, I found it surprisingly open and detailed (at least if everything in there is true).
Still, some points are telling.
> Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.
So the layoffs are not because they're operating at a loss and had to cut costs urgently. The margins are there, they aren't even thin, they're just not thick enough...
> In addition, Mojang and King will now report directly to me. These two studios have increasingly become platforms and are our largest by monthly active players. They bring critical geographic, demographic, and differentiation to XBOX.
Was a bit surprised that Minecraft got such a special status, but not at all surprised by King. All the studios getting nerfed, except the engagement maximizing mobile games...
Game Pass has caused a lot of direct sales losses to game developers in favor of Microsoft trying to find a Netflix-like cash cow for itself. The numbers never added up, but it is not a surprise everyone nodded and went along with it. I wonder what the career repercussions would be for speaking up - but it doesn’t matter because they are getting fired anyway.
Call of Duty alone lost $300 million: https://arstechnica.com/gaming/2026/04/microsofts-game-pass-...
I look forward to the source code leaks.
I was always very skeptical of the $300 million figure. It sounded like the same math that the movie industry used for pirating. If I was subscribed to Game Pass I might have downloaded CoD to see what it's about. That doesn't mean I would have paid full price for it.
Maybe MS paid the publisher full price for your "see what it is about"? Wouldn't be anything but Uber or Moviepass.
> Last year, Bloomberg reported that Microsoft estimated it had lost $300 million in direct sales of Call of Duty games due to the title’s inclusion in Game Pass, according to an anonymous employee.
Yeah, that's a bullshit number. It's like when people provide piracy counts as lost direct sales, a lot of people will download something for free, those same people won't always pay full price if they can't download it for free.
I downloaded a TON of games from Game Pass, played <1hr, and uninstalled. Without GP I would have just never bought the game.
Gamepass devalued games in my opinion. If you “train” your user base to get used to not buy games they will. It also did not help they were almost giving Gamepass away for nothing. You could chain multiple offers and get like 3 years or more of the best tier for the price of less than 2 games.
They never had the user base to sustain so many studios making AAA games under a subscription model.
“Resetting Xbox”
Gross and classless title. There was a time where people at least had the sense of shame to not do this kind of thing when firing people
They will just continue smash thru exactly what is killing them because they do not know how to reset. More micro transactions, Halo 14-39, games launching before they're ready, price increases, etc. All of that looks good on paper, so they will take no action against. The XBOX is hitting icebergs, and instead of slowing down, they will just call for more speed.
Microsoft laid off most of its Halo talent in a previous lay off cycle, stripping 343 Industries of most of its staff and rebooting it as Halo Studios as a shell to mostly outsource development to other companies in the way that Call of Duty was built on the game development equivalent of sweat shops. They've already shown that they don't have the guts to make Halo 14-39, they seem to be only doing yet another remake of Halos 1-3 and maybe Reach, this time in Unreal and with "AI" to help "upscale" everything. Just four Halo games endlessly remade until people forget why they were ever originally popular.
> We will deliver success through a flatter organization that is built around makers (individual contributors focused on building), player-coaches (leaders who remain deeply involved in the work while developing their teams), and directly responsible individuals (DRIs) who own key decisions and outcomes.
xbox-specific issues aside, this proposes an interesting view of the future of work.
I also notice the growing trend to have EM carry individual contributor duties, I thought it was mostly a consequence of using coding agents but perhaps it's not: the EM figure as we know might just be a consequence of the golden zirp times (do you remember the endless technical EM vs non-technical EM debates?)
Isn't this basically the same structure they currently use i.e. individual contributors, managers, and producers?
"And we will streamline how we work across our tools, with a cleaner code base, shared services, and 50% reduced vendor spend."
How will they achieve cleaner code, with fewer workers? Seems like a well-intentioned platitude.
That messaging is for investors. To a dev's ears, it's a meaningless thing to say.
It reminds me when Elon took over twitter and made a comment to the effect of "we need to rethink the entire tech stack from the ground up". Someone asked Elon what was wrong with the tech stack, and he called them a jackass.
Or... studio publishers may be encouraged to use a proprietary platform specific engine. Trying to dethrone UE5 would be silly. =3
I think some of these game studios got so content with Microsoft constantly paying that they forgot to make games that would actually sell.
South of Midnight took 7 years to make and cost $100 million to make... yet sold hardly any copies and I'm not even sure who they were trying to make it for.
Meanwhile you have studios like Sandfall and Warhorse pumping out games on a fraction of the budget that ship millions (and imho, make better games).
Compulsion Games was also a strange acquisition / team to decide to put $100M + 7 years of trust into. They had two games by that point, neither with amazing reviews.
There's no sourcing for that South of Midnight number. You should treat it as fictional.
Judging by the credits [1] it indeed looks very conservative.
1. https://www.mobygames.com/game/240054/south-of-midnight/cred...
Millions of people played South of Midnight even if sales didn't reflect it. Xbox Game Pass has done a lot to make Xbox sales figures hard to compare.
How many people would have played if it wasn't on Game Pass though? I doubt many.
Expedition 33 was on game pass and still sold 8 million copies.
At least from what I saw the game had a huge amount of hype leading up to its launch and the thing that kept people from buying it was just playing enough of it on Game Pass. For some players it was too short and everything they wanted to accomplish was easily done with Game Pass shortly after its launch. For other players like me we bounced off of its tone while playing it. The stop motion animated intro felt like a bait and switch going into its game play, and I had a bunch of uncomfortable feelings about cultural appropriation from a Montreal studio trying to capture a "deep South bayou" aesthetic and failing at some of the subtleties, from what I saw.
Expedition 33 was released across multiple platforms simultaneously.
SoM was an Xbox/PC/Game Pass exclusive for a year.
It's not a perfect comparison.
> I think some of these game studios got so content with Microsoft constantly paying that they forgot to make games that would actually sell.
I mean, if you're assuming that Microsoft had a fully hands-off approach to managing these companies after buying them, then sure. It's not clear to me that you can make a compelling claim about whether the issues were from the bottom or the top just by looking at the final outputs.
Plus there's plenty of evidence that Microsoft hasn't been hands off across that time period. At the very least we've seen them cancel a Rare game and layoff a bunch of Rare staff because of it, The Initiative shut down for not meeting game development goals, 343 Industries stripped apart for low results versus expectations with Halo Infinite and the "new" Halo Studios is basically just a shell and an outsourcing venture in direct line with ActiVision's old Call of Duty tactics.
Impacted non-studio dev here. It's a bloodbath like some of the leaks in the past few weeks have said. Many important platform/infra teams getting gutted, even in areas where there's supposedly a ton of future investment.
> We will reduce management layers to no more than 5, and where possible, 3.
This reads like something from The Office.
Michael begging Oscar to tell the shareholders how to save the company.
> It is neither possible nor desirable to own every great independent studio.
The sheer hubris. Yes, the monopoly is not desirable for gamers because the games end up all being the same MS-dictated corporate crap. Microsoft imploding is good for everybody in the long run and we can't wait for that day.
A bit of a tangent but I'm surprised with how many layoffs tech has had the last few years, we aren't seeing the laid off folks form new companies.
My son setup Gamepass a few years ago. It was the biggest rip off I've ever seen. So many things about Microsoft are out of kilter. I'm about to migrate my daughter away from a 3 year old Lenovo Yoga to a Macbook Air M5 - it's just too hard to administer, its now sluggish and the AI is completely in the way. She doesn't need it, and despite a few business practices of Apple I don't really like if I have to choose between them and Microsoft, then I choose Apple.
I was not like this as a teenager. I went through DOS, Windows 3.1x, Window 95, Windows 98, Windows 2000/XP and then all the way to Windows 7. I have completely changed my mind now, it's really only Apple I want to use. Everything about Apple is easier.
It a pity. So many good studios gutted, for the only reason "margins too thin"
>Today, in some parts of the company, work passes through as many as 14 layers of management.
Not even national security institutions operate like this
When I bought my XBox i spent half a day setting up an account and payments.
Good old times. The last time I tried to buy something on Xbox it fails miserable with multiple cryptic error messages - mostly around my credit card.
No problem though to biy the game on my mac via browser and then after a few more settings actually showed up on my xbox.
Xbox has an interesting opportunity going forward, that I expect they'll fumble.
Interest in physical media has actually been on the upswing, and, with Sony announcing their plans to abandon physical media, it feels like MS has a chance be the "good guys" like what Sony did to MS when MS threatened to ruin physical media prior to the Xbox One release.
However, I'm expecting Microsoft to simply follow Sony's path, because I think they are already going down a path that favors digital-only, and I also think they just don't care to distinguish themselves. It seems like Xbox's claim to fame for the past few years is "It has game pass, and it can play a lot of the same games PlayStation can."
> Interest in physical media has actually been on the upswing, and, with Sony announcing their plans to abandon physical media, it feels like MS has a chance be the "good guys" like what Sony did to MS when MS threatened to ruin physical media prior to the l One release.
Not only that, but RAM/GPU/SSD prices going up so much recently (which is especially jarring for SSDs, which for like a decade had been getting more affordable; I bought a 120 GB SATA SSD in 2012 for around $100, and I was able to buy a 1 TB m.2 one for around the same price a few years ago) is starting to equalize pricing for PC gaming. In 2022, the initial Steam Deck launched for just $400, and it continued to be offered at that price for a few years, which made it cheaper than the Switch 2 launch price.
I feel like if I were a console manufacturer, I would be trying to figure out a way to take advantage of that. Other than price (previously), the other obvious selling point of PC gaming is more control over your system, so there could be an opening to try to lure away wayward PC gamers with some changes that give them a bit more control on the console. I agree with you that I can't really imagine Microsoft doing this though.
Xbox is ahead of Sony on this path. Their studios often, if not most of the time, release physical games that require a full download to play.
I doubt that they will go back to where Sony are now.
> I doubt that they will go back to where Sony are now.
I agree. However, I do think they would get some positive attention (and some accompanying sales) if they were to backtrack and announce a console more like the 360.
It feels doable if they care to do it. Physical media should still be viable for holding all the game data for a while longer. Blurays can manage up to 128 GB, and I think the average game install size is ~60GB right now, giving most games some room to grow.
The biggest issue with a strategy like that is that they're, like you said, pushing digital-only hard already, and they're also trying to save money, so the idea of spending more money to make future consoles with disk drives, and to make disks, is unlikely to appeal to them.
It is a shame, though, because it seems like the Xbox 360 will have been widely viewed as peak Xbox until the end of Xbox.
Another issue is that Xbox game discs this generation are 50GB while on PlayStation 5 they are 100GB.
I think the reason for going with 50GB for games on the MS side was to remain compatible with the previous generation of consoles.
On one hand, the idea of using Microsoft’s crazy amounts of money to try to build a subscription gaming business feels like it should have been more successful than it has been. On the other, I think gaming has some distinct qualities vs TV/Movies/Music or other types of software that makes the idea seem way less appealing. Curious to see what the new direction looks like
Seriously, I cannot fathom why you would say this. Innumeracy? Narcissistic delusion? Stealth launch for a new industrial human cloning project?
There are approx ~3 billion "gamers" worldwide, why shouldn't Xbox set a goal of 1/3 of them using their platform?
Because approximately most of them exclusively play mobile games
"Let's go from 1 in 15 gamers to 1 in 3 gamers" sounds nice, probably gonna need employees for that!
You even felt the need to use quotes yourself.
Any details about the studio spin-outs? The rumors were that Double Fine etc. would be closed, but all we know now is that some of them are being sold to management and others are being sold to other investors. Nothing about any commensurate restructurings.
It's in the press release.
> Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options.
I'm hopeful (but maybe not optimistic) that Arkane gets out of this with the ability to do what they're really good at again.
Yeah, that is what I was referring to about the lack of detail on restructuring. I want to know if people are losing their jobs and/or titles are being cancelled as part of these sales.
Senua and State of Decay 3 are the only currently announced titles of the studios in question and it does say that those games will be completed by their studios under their new owner. It's still an interesting mystery who the new owner will be, though.
"role eliminations".. So people losing jobs then :/
I wonder about the future of inExile and clockwork revolution
Microsoft just never sorted out their exclusivity problem, tried to acquire their way to it, only to then be stymied by regulators, all the while having second-best hardware compared to the PS5.
I think the Xbox Series X will be my last Xbox after owning Xbox, Xbox 360, Xbox One, and the Xbox Series X. I was all-in on their platform and I even paid for Game Pass for many years.
But they kept increasing the cost of Game Pass with no new features, the platform has seemed stagnant, and honestly I can't tell you why my Series X is better than my Xbox One. Literally I don't see a difference. I'm sure there is one but as a user I really didn't feel like it was a big step up. I bought it because I had every other Xbox and it seemed like the next logical step.
That coupled with most games feeling like lootboxes wrapped in just enough of a game to justify calling it one, at higher and higher price points, all while trying to get more money after they've taken your $70/$80 for the base game. Oh wait, you bought the poor-person $70 version? You really need to the Ultra Collectors Edition Gold Special Release Version for $120. Oh also, make sure you are buying the season pass...
Meanwhile I buy games on my steam deck and/or from indie developers for a max of $30 and get way more gameplay/fun that the "AAA" games (which have largely sucked IMHO).
I'm over here playing Mass Effect 1-3, Skyrim, Fallout 4, and other games OVER A DECADE AGO. They are the only games not completely ruined by lootboxes, always-online BS, or trying to sell you a shell of a game with extras you have to buy [0]. I was excited for Starfield (Skyrim in space!!) but it was a complete bust. After spending, quite literally, 1000's of hours in Skyrim (and buying and rebuying the Anniversary/Special/Collector's edition enough times to be embarrassing) I could not get excited about Starfield and stopped playing after a few hours. The new Halo was meh, I played through it and the open world was somewhat cool but I guess they wanted to do seasons of new content and I have zero interest in that. Give me a solid single player game, that's all I want. I cancelled Game Pass after realizing I was paying an absurd amount of money to play a single game (Deep Rock Galactic).
I think I'll stick to my Steam Deck which I enjoy way more than my Series X.
[0] Yes, Skyrim/Fallout had expansion content but it's tame compared to most games today.
Related:
Microsoft cuts 4,800 Jobs, Half from Xbox division
https://news.ycombinator.com/item?id=48804401
Continuing the long trend of major tech companies making everything they touch worse.
"Management fucked up, and now you all get to pay for it. Have a nice day :)"
>we will help independent creators succeed by providing open development tools and audiences to realize their vision.
Bravo!
>Today, in some parts of the company, work passes through as many as 14 layers of management.
LMAO – reset approved.
"Today, in some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation, even as our player base and playtime have declined. "