Microsoft Shakes Up Xbox Division, Closes Renowned Studios in Major Cost-Cutting Move

Microsoft Corp MSFT initiated the unplanned closure of several video-game studios within its Xbox division as part of an ongoing broad cost-cutting strategy.

According to sources familiar with the plans, this week, Xbox offered voluntary severance agreements to producers, quality assurance testers, and other staff at ZeniMax, which Microsoft acquired in 2020 for $7.5 billion. Additional cuts are likely across the Xbox organization, Bloomberg reports.

Employees were surprised by Tuesday’s abrupt closure of three Xbox subsidiaries and the absorption of a fourth. 

Among those closed was Tokyo-based Tango Gameworks, known for the acclaimed action game Hi-Fi Rush, which was pitching a sequel.

Xbox president Matt Booty praised Hi-Fi Rush during a town hall meeting on Wednesday. 

Booty mentioned that the company’s studios had been stretched too thin and that the closures aimed to reallocate resources.

Booty clarified that Arkane Austin, the developer behind Prey’s shutdown, was unrelated to the poor performance of its recent multiplayer game, Redfall. Before closing, Arkane had planned to pitch a new single-player game in the Dishonored series, Bloomberg writes.

Jill Braff, head of ZeniMax studios, expressed hope that the reorganization would enable a greater focus on fewer projects, given the challenge of supporting nine studios worldwide with a lean central team.

Microsoft’s gaming division has grown significantly through acquisitions, including ZeniMax and Activision Blizzard, which have been worth over $76 billion combined. 

The gaming sector has recently experienced extensive layoffs, with significant companies like Sony Group Corp SONY, Electronic Arts Inc EA, and Microsoft reducing their workforces and shuttering subsidiaries.

In February, Microsoft cut 1,900 jobs, mainly at Activision Blizzard.

The acquisition of Activision Blizzard has increased scrutiny on the Xbox division from Microsoft’s leadership. 

Last week, Take-Two Interactive Software Inc TTWO announced it would close two subsidiaries, Roll7 and Intercept Games, as part of widespread layoffs, affecting about 70 jobs. The company earlier shared plans to cut 5% of its workforce, impacting approximately 600 employees.

Concurrently, Walt Disney Co DIS and Netflix Inc NFLX have reinvigorated their focus on gaming. Disney invested $1.5 billion in Epic Games, the creator of Fortnite, in February. Netflix expanded its gaming library to 86 titles in 2023 and plans to add 90 more titles in 2024.

Price Action: MSFT shares are trading lower by 0.03% at $410.40 premarket at last check Thursday. 

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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