One of the big questions emerging from Asha Sharma’s appointment as Xbox CEO earlier this year, and the subsequent layoffs and restructuring that have occurred in recent days, revolves around the long-term future of Microsoft’s gaming business. Will Microsoft sell off Xbox? Are the changes that started this week laying the groundwork for a sale?
A recent report claimed Sharma wanted to speed up development on new The Elder Scrolls, Fallout, and Halo games as part of the company reset. Details on the potential shakeup came from The Information (via Reuters), which said that Microsoft hadn’t ruled out turning the Xbox brand into a wholly-owned subsidiary. It’s said the move could result in Xbox being operated as a joint venture with other partners or even potentially sold.
Sharma’s Xbox reset has since become clearer. 1,600 staff were let go on Monday, with another 1,600 staff to go before the end of the current financial year (this has left Xbox staff who have survived this week’s cull facing an anxious wait to find out if they, too, will be cut over the coming months). Four studios have left Xbox, with another set to be sold or shut down. Projects have been canceled. Bloomberg’s Jason Schreier has said that Avowed and The Outer Worlds developer Obsidian Entertainment has laid off a quarter of its staff and Avowed 2 was canceled. Obsidian has now been put to work on a new Fallout game. Doom developer id Software was gutted. Staff at Bethesda Game Studios have expressed concern about The Elder Scrolls 6 following cuts there, too.
Some believe this reset and the cuts that have come with it are part of a strategy to make Xbox easier to sell. But The Verge reports that Xbox in its entirety may be too expensive to be bought outright by any one company. Consider that Microsoft bought Activision Blizzard for an eye-watering $69 billion. Given Xbox’s huge payroll, studio setup, and hardware business, it would likely cost a company hundreds of billions of dollars to acquire.
More likely, analysts suggest, is that big companies may pick off parts of Xbox as Microsoft continues to look to trim the business. As The Verge notes, Microsoft has already done this with Hellblade developer Ninja Theory and State of Decay developer Undead Labs, both of which were sold to unnamed buyers. Psychonauts developer Double Fine and South of Midnight developer Compulsion, meanwhile, have gone it alone, taking their back catalogue and franchises with them. Microsoft also intends to sell Arkane Lyon, developer of Marvel’s Blade, although how this will work remains unclear.
Yoshio Osaki, president and CEO of market research firm IDG Intelligence, told The Verge that it’s possible that “individual studios, IPs, and teams are sold or spun off piecemeal.”
Then there’s the question of, who would buy Xbox when Xbox itself admits its business is not healthy? Xbox ended the financial year with a 3% accountability margin (assumed to be profit margin), down year-over-year. Excluding Activision Blizzard King, over the past five years Microsoft spent over $20 billion on ongoing investments in what Sharma called its content, platform, and hardware “subsidy,” but annual revenue has declined nearly half a billion during that time.
“We are operating at margins that are 3-10x lower than comparable platform and publishing businesses,” Sharma said in a blog post announcing the layoffs. “We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”
Meanwhile, Microsoft has increased the price of Xbox consoles. Microsoft blamed this on console storage and memory prices, which have increased by more than 2.5x, and it expects another doubling by the fall of 2027. “The entire consumer electronics industry is struggling with the current components crisis, but the effects are particularly hard on consoles,” Microsoft said when it announced the price rises. “… the industry is facing the most severe hardware crisis in its history,” Sharma added in the Xbox “Reset” memo.
Xbox Games Series Tier List
Xbox Games Series Tier List
For now, Sharma’s reset plan continues. There are big questions about the future of Game Pass and how it might evolve over time. Microsoft is reportedly set to release more of its big games as Xbox console exclusives. But even if Microsoft can entice gamers into buying one of its console, will it be able to make enough to satisfy demand, and will people be able to afford one? Some suspect Project Helix, the next-generation Xbox, will launch priced north of $1,000 — without a disc drive. Is Microsoft bracing itself for console sales to fall off a cliff?
Wesley is Director, News at IGN. Find him on Twitter at @wyp100. You can reach Wesley at [email protected] or confidentially at [email protected].
