The recent news of Microsoft’s decision to shutter Hi-Fi Rush studio Tango and Prey’s Arkane Austin has sent shockwaves through the gaming industry. This move is part of a wider cost-cutting initiative, with more cuts expected to follow. ZeniMax studios are reportedly the main target of these measures. Sources familiar with the company’s plans revealed that Xbox offered voluntary severance to producers, quality assurance testers, and other staff at ZeniMax. During a meeting with ZeniMax staff, Xbox president Matt Booty likened the situation to spreading peanut butter too thin on bread, indicating that the studios had been understaffed and overworked. This led to the closures of Tango, Arkane Austin, Mighty Dog, and Roundhouse.
The decision to close down these studios seems to stem from a desire to free up resources and streamline operations. Jill Braff, head of ZeniMax, expressed concerns about supporting nine studios worldwide with a lean central team. Xbox’s acquisition of ZeniMax for $7.5 billion in 2020 set the stage for these cost-cutting measures. The massive Activision Blizzard acquisition by Microsoft has also heightened scrutiny on the Xbox division. The recent closures and voluntary severance offers indicate a strategic realignment aimed at optimizing resource allocation and focusing on core priorities.
One of the primary factors driving these cost-cutting measures could be the stagnation in Game Pass growth. Analysts have noted that Game Pass spending peaked between late 2019 and early 2021 but has since plateaued. US consumers still prefer purchasing games and add-on content or engaging with free-to-play models. This shift in consumer behavior has forced Xbox to reassess its approach to game development and publishing. The Game Pass model, designed to support smaller, riskier projects, may no longer align with the current market trends.
With Game Pass growth slowing down, Xbox appears to be less inclined to take risks on innovative and creative projects. The closures of Tango and Arkane Austin, known for their unique and immersive games, reflect a shift towards a more conservative strategy. The success of Hi-Fi Rush and Redfall was not enough to justify the ongoing operational costs. Phil Spencer, head of Xbox, is now faced with the challenge of rebuilding the company’s reputation and portfolio in the wake of these closures and restructurings.
The recent cost-cutting measures at ZeniMax studios signal a broader shift in Microsoft’s gaming division. The focus on optimizing resource allocation, streamlining operations, and responding to market trends has led to the closure of several prominent studios. While these decisions may be necessary for long-term sustainability, they also raise questions about the future of innovation and risk-taking in the gaming industry. Microsoft must find a balance between profitability and creativity to maintain its position in the highly competitive market.
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