Xbox Likely Sees Studio Closures as ‘Eggs Broken to Make Omelet’ Situation; An Impressive Showcase Could Mostly Eclipse Anger, Says Analyst

The news that Microsoft's Xbox division shuttered three studios and folded a fourth into ZeniMax Online is still ringing throughout the entire games industry at a time when layoffs and studio closures are almost a weekly certainty.

To try and make sense of the shocking announcement, we reached out to our good friends at MIDiA Research. Games Industry Analyst Rhys Elliott kindly answered a few questions, pointing out that the new Xbox vision centered on big IPs required 'breaking a few eggs to make an omelet'. He also reckons an impressive Xbox Games Showcase in June could mostly eclipse fans' anger.

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Despite the overall Xbox business going up, Microsoft is still axing even respected developers who have made award-winning games. Why do you think that is the case? Should Xbox fans be worried about reduced investment in gaming?

While it’s true that gaming revenue was up +51% and Xbox content/services revenue was up +62% in calendar Q1, these gains mostly came from Microsoft’s Activision Blizzard acquisition. The inorganic acquisition growth actually offset a -5 % drop in gaming revenue, as well as flat Xbox content/services growth for Xbox.

As for the layoff news, there are a few angles to look at it. Xbox was acquiring a bunch of studios during the growth phase of Xbox Game Pass on console and when money was cheap. The days of cheap money are over. Profitability, stability, and efficiency are now in vogue, and interest rates have skyrocketed. Consolidation and cost-savings are the name of the game for big-tech companies now – from Meta and Amazon to Google and Microsoft. This is part of the reason Xbox chose to shutter respected studios that made award-winning games.

What’s more, Game Pass has clearly left its growth phase on console. Content from other studios and the recent Activision Blizzard acquisition – chiefly Call of Duty and Blizzard games – gives Xbox