Xbox is Turning its Back on Xbox Game Studios

Only three studios remain at the flagship studio group; Xbox's own publisher is on the way out

The most eye-catching thing about Xbox's latest layoffs and the consolidation of its studios is the dramatic change coming to Halo. The game series that started it all for Xbox is being rebooted under Activision, and Halo Studios is being gutted — all but closed, really. Sixteen years after Bungie left for good, the attempt to build a non-Bungie studio to make Halo games begins anew. Second time lucky, I guess.

But there's more going on here than just a new home for Halo. On Tuesday, Microsoft announced a confusion of other moves in the name of "operating fewer business units, aligning groups that already work closely together, and focusing our publishing expertise."

Rare and World's Edge (which collaborates with outside studios on the Age of Empires strategy games) go to Activision. Obsidian Entertainment goes to Bethesda — I assume not to be swallowed into the developer Bethesda Game Studios, but to join the family of studios under the banner of publisher Bethesda Softworks, alongside the likes of MachineGames and Id Software. Microsoft Casual Games goes to Candy Crush maker King, which used to be part of Activision but is now its own unit. Playground Games and Turn 10 are being merged.

These moves might appear unrelated, but they have a common theme. Or rather, a common direction of travel. You'll notice that, with the exception of Playground and Turn 10's merger, they all involve developers leaving the Xbox Game Studios group.

Xbox Game Studios is now vastly diminished. This year, the group has lost Minecraft maker Mojang (which is carved out and now reports directly to Xbox CEO Asha Sharma), Halo Studios, Rare, Obsidian, World's Edge, Microsoft Casual Games, Turn 10 (effectively), Compulsion, Double Fine, Ninja Theory, and Undead Labs.

Believe it or not, only three out of 15 studios remain: The Coalition, which makes Gears of War; inXile, currently working on Clockwork Revolution; and the combined Playground/Turn 10, whatever that ends up being called.

Alongside this decimated studio roster, you would expect Xbox Game Studios' management and publishing functions to also suffer severe cutbacks. Indeed, studios boss Matt Booty mentioned "the XGS management and central functions layer" as a focus of today's layoffs, alongside Halo Studios.

I don't think today's moves (Halo aside) are a referendum on the performance of individual game studios. That was what the last round of cuts and the divestment of Double Fine, Ninja Theory and the others was about. To me, this restructuring looks targeted at Xbox's publishing operations.

Xbox owns three big, traditional game publishers: Xbox Game Studios, Bethesda Softworks, and Activision Blizzard. In fact, this is more like four, since Activision and Blizzard each have their own publishing apparatus. That means four marketing teams, four PR departments, four of everything. I figure that Sharma looked at this setup and saw some brutal efficiencies to be made.

Activision in particular is being loaded up with new studios to look after because, as a publisher, it doesn't have a whole lot to do. It has the monster that is Call of Duty, of course, but aside from that, it just noodles around with a few retro franchises like Tony Hawk's and Spyro the Dragon. Activision's management and publishing departments will have to sing a bit harder for their supper now. Blizzard and Bethesda each have three, four, or more big franchises of their own to juggle, so they're busy enough.

Xbox Game Studios is the odd one out, without a distinctive identity and without a clear mission in a post-Phil Spencer world, where owning all the games and flooding Game Pass with them is no longer a goal. Nor does it have any big franchises that are doing as well as Call of Duty, Fallout, or Warcraft — or any that are as saleable to film and TV studios (a focus of Sharma's). It's Xbox Game Studios that doesn't have a reason to exist any more.

What next for Xbox Game Studios? Well, it still has a high-profile external partner, in the form of Kojima Productions. It's notable that of the three studios that remain, The Coalition and inXile are working on Xbox console exclusives (Gears of War: E-Day and Clockwork Revolution). Playground is committed to releasing Fable and Forza Horizon 6 on PS5, but that might not be true next time around. Maybe there's a future for XGS as a smaller outfit focused on serving the Xbox audience with exclusive games.

Or maybe there isn't. The harsh truth is that Activision, Blizzard, Bethesda, Mojang, and King all make extremely successful games. Xbox Game Studios — with the possible exception of Forza — does not. I don't think Xbox wants to be three big publishers anymore, and there's an obvious candidate for the chop: itself.