Xbox Announces "Reset" Plans, Will Cut Jobs and Exit Studios

Xbox has unveiled the next step of CEO Asha Sharma's big "reset" of the struggling platform, single-handedly confirming weeks of rumours and speculation of job cuts, cost increases, and the cutting loose of studios under its umbrella.

In a memo sent to staff and published on the official Xbox Wire blog, the first-party has given more insight into Microsoft's struggling gaming arm, with margins "between 3-10x lower" than competitors, and an expensive entry into the generation that has not been able to capture the market share they wanted. The company has said this and the ongoing component crisis has led to Xbox being in the situation it has found itself in.

The first-party has said it will cut 3,200 jobs this financial year, with approximately half of them starting today. Four studios under Xbox's control will be either returned to independence or sold off to new owners, while a fifth is under the microscope. We've reported on the majority of these studios over the past couple of weeks as we've covered Sharma's big "reset".

Studios Compulsion Games and Double Fine Productions will be returned to independence, with Microsoft handing over the keys to management, and granting them their IP, back-catalog of games, and a "runway" to support ongoing production of their upcoming games.

Ninja Theory and Undead Labs will also be leaving the Xbox portfolio, however these two will be sold off to new owners, with the funding required to release games like Senua and State of Decay 3.

Arkane Studios — which was only recently added to the rumour list of studios under scrutiny by Xbox — has been named in Sharma's post, with the French studio beginning to explore its "strategic options" with the country's "Works Council". The studio was working on Marvel's Blade, and the future of that title is as yet unknown.

Industry reporter Stephen Totilo mentioned on his "Game File" that the future of Blade will be contingent on whether the studio remains standing following the consultation process. Totilo reports that Xbox has as of yet been unable to work through Arkane's future given the relatively stronger worker protection and local laws in France.

Every studio mentioned has been under the spotlight recently, as rumours of the studios being either closed or sold off have swirled over the past few weeks.

Other studios will also be impacted, with studios like Activision, Blizzard, Bethesda and ZeniMax, King, Mojang, and the broader Xbox Game Studios arm mentioned as being impacted by job cuts and “shifting investment” as the company aims to find higher priority projects across the portfolio.

In the memo, Sharma clarifies that none of the first-party titles they’ve publicly announced will be cancelled as part of the reset.

"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." -- Xbox CEO Asha Sharma, Internal Xbox Memo [published via Xbox Wire]

In non-closure news, a new Chief Operating Officer role is being created in Xbox's leadership team, with full responsibility for the balance sheet across hardware, software, and the platform itself. Sharma's memo also mentioned a need to reduce bureaucracy at the company, with up to 14 layers of management being flattened to an ideal range of between 3 and 5. Mojang and King, two of the biggest drivers of engagement within the Xbox umbrella, will now directly report to Sharma.

The Boardroom Read: Killing Them Softly With Their Games

While Asha Sharma's strategy is increasingly becoming more clear: balancing the books in an increasingly cost-hungry market, today's announcement raises questions about what this reduced content output will mean for its Game Pass offering, and perhaps more importantly: does Xbox plan to stick by its subscription service in the long-term?

Just last week Eurogamer reported that Xbox is seemingly pressing pause on third-party Game Pass deals. While this could just be the result of a new CEO wanting to understand where the money was going before committing to new funding, through the lens of this "reset" we start to wonder if Xbox is planning to move away from a broad-strokes content offering, to focus more on its core offerings.

While most of the rumours swirling before today's announcement seemed to be more about hard "cuts", it was clear that Xbox had to be careful about how delicately it handled some of these studios, particularly when we realise the company is still trying to court people back to Xbox, with messaging lately being more about trying to bring its positioning back to basics, with references to classic Xbox being peppered by the company since Sharma took over.

The decision to quietly hand two of the five impacted studios — Compulsion Games and Double Fine Productions — back to management, along with their original IP and some 'runway,' can be looked at two ways: Firstly, it's a gentler, warmer way to hand over the studios and keep them going. Particularly for a studio like Double Fine, that's important, especially from an optics angle. Perhaps a darker way to look at it, however, is that it also absolves Microsoft of responsibility should the relinquished studios eventually fail to secure further funding or find success on their own. Remember: there's a reason why Microsoft has likely parted ways with all of these studios.

It's good to see that none of the studios leaving Xbox thus far have been flat-out shut. That's not to say people won't lose their jobs: Microsoft is already cutting 1,600 jobs today, with another 1,600 to come over the next twelve months. And even with the studios spared full closure, funding will be tight; independent development is hard and expensive, and even the newly-bought studios may find their new owners looking to restructure and cut jobs to secure a return on investment as they continue to develop games like Senua and State of Decay 3.

All eyes are on Arkane and France's industrial laws to see what comes out of the restructuring abroad. Could this be a five-for-five unclosed divestment situation? These things might take a few months to work out, so we'll have to wait and see.