What do studio closures mean for Xbox strategy? | Opinion

The news that Xbox was going to buy Bethesda caught me by surprise. And not just because of the sheer size of the $7.5bn acquisition.

It surprised me because it hadn’t matched what Xbox had been telling us. I’d interviewed Xbox senior management several times over the proceeding 18 months, and when it came to acquisitions, they were talking about the need for games that would appeal to PC players, and gamers in countries like Southeast Asia, Japan, Europe, South America and so on.

Bethesda is a primarily Western-focused games company best-known for RPGs and shooters. Xbox already had Halo and Gears of War and Fable, and just acquired RPG specialists Obsidian. Bethesda didn’t seem to fit the remit.

But, of course, the opportunity to own IP like Fallout, Elder Scrolls and Doom was probably an opportunity Microsoft couldn’t pass up. Fable is wonderful, but it’s not exactly Skyrim.

Yet this is why I was so fearful of the mass consolidation that was taking place in the games industry just a few years ago. When you’re spending $7.5 billion on Bethesda, the bulk of that cost is because of Bethesda Game Studios and its major RPG franchises. It isn’t because of Dishonored or The Evil Within. I took a bit of a kicking from Xbox fans on social media when I admitted I wasn’t a fan of Microsoft’s bid to buy Activision. But it wasn’t because I felt the deal would somehow destroy PlayStation, but rather because the bulk of that $69 billion was for Call of Duty and Candy Crush, and not Crash Bandicoot or Tony Hawk’s Pro Skater. So what might become of them?

"Microsoft's gamble hasn’t paid off, and it’s the teams that are paying the price"

It's not just Microsoft, to be clear. All acquisitions of a certain size inevitably come with things the buyer has no need for. When EA acquired Codemasters, it was to get hold of the lucrative F1 series and not because of the Dirt or Grid franchises. Even recently, when Take-Two bought Gearbox, that was mostly to protect its interest in the Borderlands IP, and not because of its indie publishing business.

And when the going gets tough, when things don’t go entirely as expected – an inevitability in any industry, let alone games – it’s the teams and people behind those games who are most likely to find themselves out of work.

The games industry is going through a tough period of slow growth, driven mostly by the macroeconomic environment, but also a series of issues unique to our business. We’ve been speaking at length about them all year. Most companies are having to react to that reality, and the Xbox senior management team will be making these moves not just to please shareholders, but also to protect the rest of its teams.

The announced studio closures were all developers that simply hadn’t delivered in one way or another. Tango Gameworks feels particularly surprising considering its last game, Hi-Fi Rush, was arguably the one game Xbox released last year that didn’t disappoint. But it didn’t light up the charts, and it followed the disappointing Ghostwire Tokyo in 2022, plus the departure of founder Shinji Mikami. Tango Gameworks may have given Xbox the Japanese studio it craved, but I’d argue it wasn’t making the sort of Japanese-centric games that Phil Spencer and his team were after.

So why buy it in the first place? I do have some sympathy towards the companies that over-spent during the pandemic. Ultimately, you’re beholden to the market you operate within. If your competitors are raising salaries, then you better do the same, or you’ll lose your best staff. If your rival is investing in their franchise, you better do the same, or risk getting left behind. If your long-term development partner has put up the sale sign, you better make an offer, or you’ll risk losing them. A lot of the expansion that happened in games in recent years wasn’t entirely driven by the desire for growth, but the need to keep up.

Yet that’s not true of Microsoft. Microsoft (along with the likes of Embracer and Tencent) were the ones that lit the touch paper that sparked this period of mass consolidation. It hoovered up these studios on the expectation that its Game Pass business would take off and its console business would compete more strongly with PlayStation. That hasn’t come to pass. Its gamble hasn’t paid off, and it’s the teams that are paying the price.

What I had hoped (and still hope) was that Microsoft’s pivot to increased third-party publishing would be a real boost to the wider industry. I have a half-finished opinion piece on my desktop on why Xbox might just be the most exciting games publisher operating today. Whereas the likes of EA, Ubisoft, Take-Two and so on are scaling back riskier projects to focus on established franchises, Xbox seems to be doing a bit of everything. It has a slate that includes major AAA productions and riskier indie-sized efforts. It’s working on classic brands, licensed IP, new IP… and it sounds like a lot of those will be releasing across all platforms.

"Microsoft were one of the companies that lit the touch paper that sparked this period of mass consolidation"

At a time when the AAA publishing business has never been more conservative, Xbox looked to be advocating for a riskier, more ambitious and progressive approach that could reach new fans across mobile, PC, Nintendo, PlayStation as well as Xbox and its various services.

Maybe it still is going to deliver that. But then I read Matt Booty’s email to staff yesterday, which stated that these studio closures are “grounded in prioritising high-impact titles and further investing in Bethesda’s portfolio of blockbuster games and beloved worlds.” That doesn’t fill me with confidence around the prospect of many new concepts coming out of Bethesda in the years to come.

For years, Microsoft has been talking about finding the next billion gamers. It was promising a future filled with different games, reaching different audiences, through different channels and with new ways of paying for it all. With every passing announcement, I grow concerned that it’s giving up on that dream.

I hope not.