Xbox once pledged to “Power Your Dreams.” These days, it just wants to keep the power on, meaning the lights at its headquarters in Redmond, Washington.
On Monday, new Xbox CEO Asha Sharma announced “the most significant restructuring in Xbox history”, including the loss of 3,200 jobs (1,600 today) and four studios: Compulsion Games (We are happy little, South of Midnight), Double Fine Productions (a guard, PsychoNuts), Ninja Theory (DMC: Devil May Cry, Hellblade: Senua’s Sacrifice(and undead laboratories)state of decay).
The Xbox division, owned by the powerful Microsoft, was so pumped with investment that it nearly exploded. Sharma’s unenviable task is to trim the fat before this whole thing blows up. You’ll spend the next year doing just that.
“Our business today is not healthy. We operate on margins 3 to 10 times lower than similar platform and publishing companies,” Sharma wrote, in part, in a memo to employees. “We should reset the Xbox.”
Xbox has faced more than a few ups and downs since the Xbox 360 gave way to the Xbox One. Joost Van Dreunen, a professor of video games at New York University’s Stern School of Business, has counted 15 acquisitions over the past 13 years. The most prominent of these – and the most expensive at $69 billion – was… Call of duty-Maker Activision Blizzard, which bloated the balance sheet like Augustus Gloop.
“When you start building an empire of this size, you lose track of the different provinces and components,” Van Dreunen said. Hollywood Reporter.
First, quality control was sacrificed, both in terms of software and market research. Then the innovation died. As it turns out, the sum of the parts was much better than the whole.
“It is neither possible nor desirable to own every great independent studio,” Sharma wrote. “We’ve also learned that we’re not the best home for every type of studio; in a typical year, we lose 64 cents for every dollar we invest.”
Xbox has played the grow-or-die game that we’ve seen do a lot of damage to the film and TV ecosystems in the streaming era. She chose to “grow” at all costs, and because of those costs she almost died anyway. It’s a cautionary tale in the industry of cautionary tales.
In the 1970s and early 1980s, before the advent of the Nintendo Entertainment System (NES) and with all due respect to Mattel’s Intellivision, Atari had the entire home video game console market cornered. Greed, arrogance, and Steven Spielberg’s blockbuster movie destroyed Atari and almost destroyed the home video game industry forever.
ET extraterrestrial Atari set the box office on fire in the summer of 1982. Atari wanted to repeat the success on the Atari 2600 console for the holiday season that same year, and made two critical mistakes: 1) it gave the developers only five weeks (!) to create and complete the game, and 2) it pre-ordered 12 million cartridges – there were 10 million Atari 2600 homes at the time.
The game was terrible, and Atari (at least) ended up burying hundreds of thousands of unsold cartridges in the New Mexico desert. Symbolism has never been like this before.
When subscription services become so popular — again: thanks Netflix! – In a mad rush to stock up on its Game Pass library, Xbox built a collection of small and medium-sized games that didn’t add any value. Revenue and margins were ignored in terms of volume, as Xbox became a “bureaucratic mess,” as Van Dreunen puts it. Sharma’s words pretty much read themselves.
“Today, in some parts of the company, work passes through as many as 14 layers of management,” she wrote. “We will reduce management layers to no more than 5, and where possible, 3.”
Xbox, like the broader entertainment ecosystem (including its direct competitors at Sony and Nintendo), has also been hit by a hurricane of macroeconomic factors. Van Dreunen said the AI was “hugely revealing” about the Xbox THR. Trump’s tariffs, his war in Iran, shortages of hardware components due to the data center boom, and Japanese yen currency exchange rates have decimated any available margins, forcing Xbox in particular to raise the prices of its hardware — several times over. (Sharma has canceled some Game Pass subscription prices.)
The higher prices, especially those of the older Xbox Series
“They forget that they are still part of the market,” Van Dreunen said.
This particular market is merciless.
“History is full of companies that confuse longevity with determinism,” Sharma closed her email by vowing: “We won’t be one of them.”
As an Xbox gamer (and myself), Van Dreunen is “optimistic” that Sharma can get these things right.
“As a gaming company, Xbox still has a lot of advantages,” he says. (It might as well Minecraft -Expect Sharma to rely more on this franchise, which, in reverse-at It produced a blockbuster film last year.)
The transformation may or may not occur the way Microsoft 1 described above. Van Dreunen says he can definitely see a future in which the Xbox ix is completely divested from Microsoft.
“It starts with the partial divestments we see today,” he said. “It is very painful, very sad for a lot of people,” [but] Any change at this point is preferable to continuing on this path as we watch this thing slowly sink.
