Editor's Opinion: Xbox's strategy is hard to understand right now

From calibrating the success criteria for individual Xbox titles, to distribution via Game Pass and multiplatform, Magnus is confused and frustrated.

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Summer 2018, Xbox E3 Briefing, Halo Infinite. It was a confident presentation, with Phil Spencer taking the stage to reveal that five new studios were joining the Xbox lineup. The Initiative, Undead Labs, Ninja Theory, Playground Games, and Compulsion Games. 'These five new teams will have the resources to take bigger risks for you,' he said. Ouch, that hurts today.

That same autumn during XO18, Microsoft bought more, and soon it became clear that these studios would be part of a renewed focus on first-party gaming for Microsoft, that Xbox would be a leader in the core platform flagships that have given our industry and consumers so much.

I was on board then, I really was, I bought what Phil Spencer was selling. First and foremost, they had focused on single studios that up to that point had been in the habit of pitching ideas to publishers, which then either materialised or didn't. This can be a risky reality in itself, especially for studios with many employees, so at the time it could easily seem that Microsoft was giving studios like Ninja Theory, Obsidian, Compulsion and many others a financially solid foundation that allowed them to focus quite directly on creative output. That's how he presented it to us, by the way. No, Microsoft didn't 'save' these studios, nothing like that, but the one positive aspect of studio purchases from platform giants is that being a first-party studio can often be a safer existence. Or, that's how it used to be.

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The strategy remained the same for many years after the fateful 2018. Not only had Xbox expanded their own lineup of studios, they also bought Bethesda, all with the aim of making Game Pass the next big thing. Even there, I was on board. Games are expensive, not just to make, but to buy, and while subscriptions can get out of hand, it was hard to argue against the fact that at the time it took about four to six months of usage to make up for playing just one game at new price. It seemed like a good deal to us then, and in principle it still is.

Small studios get the resources and security of coming under the Xbox umbrella, and the Game Pass model was presented at the time as a distribution model that directly allowed these studios to take more creative risks, and it would even be cheaper for us to play them? What's not to like?

Well, here we are, and Microsoft has not only laid off thousands of employees at various Xbox studios, but has now closed Tango Gameworks and Arkane Austin, the former's latest game, Hi-Fi Rush, being described as a perfect Game Pass game by Microsoft itself. So what just happened there?

Editor's Opinion: Xbox's strategy is hard to understand right now
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Perhaps it's worth pointing out that the driving force behind this model has been Game Pass, and although Microsoft recently reported 34 million active subscribers and their success was almost directly copied by Sony via PlayStation Plus Extra, subscriptions have not grown as Microsoft had hoped. All analyses point to sluggish, or almost non-existent, growth, and it seems that there are now doubts as to whether this gamble can really pay off. According to Tom Warren at The Verge, among others, they're not even sure if Call of Duty should call Game Pass home, which was one of the key reasons they paid $69 billion for Activision Blizzard. The point is that if Game Pass had continued to experience explosive growth, it probably wouldn't be here today, but that's not the case. Growth has stagnated. And if there's one thing capitalist reality cannot tolerate, it's stagnant growth, even if the level at which growth has stagnated is quite high.

Analysts and industry experts have pointed to Game Pass as a bit of a paradox in this slightly different reality. Because if Game Pass isn't growing fast enough, while eating a significant portion of each first-party game's profit potential by being part of the subscription from the start, where does that leave these studios? How is Senua's Saga: Hellblade II's success criteria calibrated if it neither attracts many new subscribers nor sells much because it can be accessed via the same subscription? The same goes for Indiana Jones and the Great Circle and Avowed, and if Hi-Fi Rush's solid performance on Game Pass and solid reception among fans and critics wasn't enough to save the studio, who can feel safe?

Then there's Activision Blizzard. Yes, investors expect some sort of ROI now, and the Call of Duty series (and potentially a number of Blizzard IPs) should provide that. But how does it work if the Call of Duty series comes on Game Pass? Can it ensure growth, or has Microsoft just given away their only sure-fire golden goose? Not only that, but it seems that the Call of Duty series has been a crucial factor in the aforementioned recalibration of the success criteria for each title. In a pre-Activision Blizzard Xbox reality, Hi-Fi Rush was a success on the service, but in a post-Activision Blizzard Xbox reality, it's a disappointment. It's no longer about each game adding to a dynamic reality where subscribers are enticed by the breadth of first-party titles on the service - it's about each game being an individual success, but that's not how Game Pass works. How the heck is Hellblade supposed to deliver satisfactory results within this framework?

In the midst of all this, there's also Microsoft's ever-changing and slightly frustrating attempts to explain away why Tango and Arkane Austin had to go. Matt Booty told all Bethesda employees the day after the closures that they needed 'smaller games', games that could bring them prestige and awards. Didn't Hi-Fi Rush fit that description pretty well? Do you think that answer smells a bit fishy? Then try Xbox President Sarah Bond's almost comical attempt to explain what's going on in this interview with Bloomberg:

There's a lot we don't know, there's a lot going on behind the curtain that we don't see or hear, which is why an industry commentary like this will always stumble a bit. But even with that in mind, the central strategy that helped justify these many studio purchases seems to have completely fallen apart, as has the confidence in Spencer's leadership position. Is the way forward multiplatform? Yes, Xbox should forget about selling hardware, but they are currently preparing another console generation. Are these studios going to 'take bigger risks', or are they going to make commercial titles that can perform on their own, and if so, how do you draw up these success parameters? Should Game Pass be the distribution model even if the growth rate is slower than hoped? The questions are piling up and the strategy seems vague. It's a shame, because I think they really had something going here.

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