Xbox is 3% profitable, but the line must forever grow, so this is "in bad shape". Their business model of choice - Game Pass - maintains a steady subscriber base in the 30 million range and remains the way a majority of players obtain access to the latest Xbox Studios games, but that is not enough.
Therefore, Microsoft had no choice but to fire thousands of people this week. The cuts were said to be optimizing complexity by cutting layers of management down from 15 to 3-5. The legal filings however list roles that sound far more like the game developers down in the trenches, making the games we love.
If Xbox were actively losing money and cuts were needed to stay solvent, a hasty downsizing would be understandable. Seeing as the goal is actually to increase profits from an existing 3% to a targeted 30% and “bring back Xbox”, this seems like an odd way to go about it. Fewer games means fewer sales and presumably fewer Game Pass subscriptions. Unless, I suppose, one were under the impression that productivity would remain the same despite a 20% reduction in staff and a severe hit to the morale of those that remain as they wonder if they will be next.
Some of the affected studios will have a chance to spin off and go independent or find new ownership, putting their fate somewhat outside of Microsoft’s hands and into the market where the performance of their next games will likely decide whether the company can survive.
Many of the layoffs have hit developers at studios producing a steady pace of critically acclaimed, immensely popular, and best-selling games in the exact franchises Xbox claims will be a focus going forward - studios like iD Software and Obsidian Entertainment, that have made games like Doom: The Dark Ages and Avowed.
It is through the lens of these supposed “commercial failures” which supposedly justified the cuts at their respective studios, that the pattern becomes clear: while Game Pass is working for the players, Game Pass math is choking out Xbox Studios.
PlayTracker estimates Doom: The Dark Ages at over 7.5M players across all platforms: 1.4M on Steam, 600K on PlayStation, and a whooping 5.5M on Xbox, a vast majority of which will have been through Game Pass.
These are not poor numbers, and yet, iD Software has suffered debilitating layoffs that have cut what appears to be a majority of their staff. Much has been said about what a cultural loss that is given the studio's incredible history, but even looking at it from a purely financial perspective causes confusion.
The raw sales volume from Steam and PlayStation alone goes a good way towards recouping the cost of the ~200 developers making this game for the past few years. The millions of players on Game Pass, some of which would have undoubtedly purchased the game otherwise, paint what should reasonably be a picture of smashing success. So why isn’t it?
That’s where the Game Pass math comes in: the only remaining variable in this formula is how much money Xbox considers a game to have made when it is played on Game Pass. Jason Schreier, gaming’s own corpo whisperer, says it is based on engagement hours which is unfavorable to linear singleplayer games.
For a game like Doom: The Dark Ages to be unprofitable after 2M in sales and despite a tight development cycle, the calculated Game Pass income must be a pittance. Getting rid of the talent that made it based on this Game Pass math is misguided and will ultimately hurt Xbox.
