[mjr00]

> - The make around 5 billion in revenue per quarter - The problem according to them is profit margin - around 150-160 million

> So first of all, they are big! Secondly they are not at a loss. They just have a "thin, non-growing margin". So to fix all this they are trimming down, so they can "return to growth" (which I think is ridiculous).

How is that profit margin distributed though? King (Candy Crush etc) and Mojang (Minecraft) are specifically called out as money-makers, it's possible that they're carrying the majority of profits while everything else is a dud:

> We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested.

As an example, Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.

[tracker1]

On the margins, that's crazy thin for the size of the org... One bad quarter could turn from a few million in profits to hundreds of millions in losses. It's too close, and there's no way to build/store funds for any kind of storm at that level.

Now, I think the vast majority of the pain is more than self-inflicted... I think actual business, marketing and focus need to start taking priority over idealistic political PoV. Let the games target their natural audiences and have the broadest appeal... at a certain point, trying to gain 1% of audience means alienating 25% or more.

[ethbr1]

This is the industry in general though, and why you see so many historical AAA studios go bankrupt after one bad game.

The problem was that if you kept a studio small and lean, you were often at the mercy of predatory publishers who controlled the distribution channels (pre-network, physical media).

So most studios tried to vertically and horizontally integrate into conglomerates: own their own publishing + have a diversified enough pipeline of games that one flop wouldn't take down the entire works.

Unfortunately, that works at Activision (pre-Blizzard) and EA (00s) scale, but not Microsoft scale (where you essentially own a large chunk of all studios).

This was a reckoning long in coming, as MS XBOX leadership, after some initially brilliant ideas, got high on their own supply and forgot they couldn't endlessly acquire more studio with their parents' cash.

Tbh, they probably should have lured away one of Berkshire Hathaway's acquisition people and put them in a go / no-go decision role.

It's the acquisition price, product, and financials that make something a good deal or not, but XBOX spent the last 10 years valuing potential acquisitions on intangibles (synergy, strategy, if we don't they will, etc).

[foepys]

Billion USD grocery chains operate on 2-3% margins just fine...

[adithyareddy]

If you're a grocery chain you know exactly how much an item costs and exactly how much you sell it for. You also simply order more or less stock of the item depending on how it's selling.

If you're a video game company, you invest millions of dollars in a project up front, for years, and you don't know until after release whether you:

- Make back all the money you spent plus a healthy profit on top.

- Just break even, but you lost the opportunity cost of all the other things that money could have been spent on with better utility.

- Your game flops and you wasted all the money you spent developing it.

It's also highly uneven. Extremely likely that King (Candy Crush) and Mojang (Minecraft) are making a ton of money, and everything else is a money pit where you pour in millions of dollars and you don't even make your money back.

[breezybottom]

Food prices can change significantly depending on natural disasters, diseases, supply chain issues. There's more uncertainty than you acknowledge.

[rvba]

People have to eat. They dont need to play games, especially bad games.

Or they play some indie game like Among Us and not some big studio expensive game.

[tracker1]

The stores themselves aren't losing money if there's a natural disaster.. the farm does, the distributor likely does.. but not the store. The store just raises prices against future inventory pricing, often ahead of the inventory itself.

[jayGlow]

food demand is pretty inelastic their margins are low but they're fairly consistent. modern games can have budgets of a few hundred million dollars with absolutely no guarantee of sales. at those margins 1 failed triple ai have could wipe out several years of profits.

[tracker1]

Yeah, because video games are as essential to the home as groceries.

[breezybottom]

Groceries are important, but the choice of store isn't.

[peder]

Everyone in this thread thinking they know what's best for other people's money.

They're getting below the rate of return of treasuries. That's abysmal.

[johnnyanmac]

>Double Fine (one of the studios being chopped) has released 2 games since 2021, Keeper (191 peak player count on steam) and Kiln (163 peak players); these would be flops even for a normal indie game, for a studio getting Microsoft salaries those are enormous flops.

Hard to really say. Kiln and Keeper can easily be made up for by the sales of Psychonauts 2. I'm sure an indie Double Fine would not have been able to make those kinds of games.

This takes me back to Pertinent, another small game from a reputable studio, had its main writer saying that "this kind of game would not be possible without Gamepass". Which I 100% believe. Microsoft definitely didn't buy Double Fine trying to make the next Fortnite, but that arthouse strategy clearly isn't a factor these days.

[asdaqopqkq]

DF basically got paid to goof off an a very expensive city. MS basically bankrolled their hangout and chill lifestyle. Day to day was basically them having mildly interesting discussions about their personal lives and easily solvable creative/ technical stuff that went round and round.

[johnnyanmac]

Double Fine has been an indie studio for longer than Xbox has been invested in games. And as far as I know they've been situated on San Francisco for that entire time. They didn't just bumble into a trillionaire company and lounge on the job security.

Those kinds of statements show a misunderstanding of both the studio and how the games industry works. Any one of those engineers could have gotten into a FAANG the traditional way and doubled, if not tripled, their salary on arguably less involved problems than what they go through creating a real time game.

Its also likely why Schafer chose to take the studio back rather than go the route of finding a new publisher to work under. He still wants to work on games for a little longer rather than get a last paycheck and retire early.

[account42]

Psychonauts 2 was funded we-got-kickstarter-at-home and already well into development before MS acquired DF. If anything this exemplifies that DF did not function under MS if they couldn't replicate that post-acquisition.

[johnnyanmac]

Ehh, Microsoft still got to reap the profits of it.

And yes, no one expects a brand new IP to have the same odds of success as a old IP that's become a cult classic. DF's strategy and directions were not to make the most profitable, safe release because that's not why you buy a studio like DF.

[orpheansodality]

did you mean Pentiment, led by Josh Sawyer at Obsidian?

[johnnyanmac]

Yes, apologies for the misspelling. Very likely another game that wouldn't "succeed" in a traditional release, but would potentially get people into a subscription service.

Despite that loss leading strategy, Obsidian has had quite a few other releases that did to make up for that side project. So the studio would overall be in the green despite that.

[Sander_Marechal]

I loved Pentiment, but it was soooo much reading.

[egypturnash]

Keeper needs an optimization pass so badly. Once I finished the first zone the framerate dropped to the floor on my Steam Deck. Presumably it runs okay on the current XBox, but it sure feels like Double Fine's attention has moved on and will never return.

Absolutely drop-dead gorgeous but I don't think I am going to ever finish it until I get a Deck 3/4 in like 5-7 years.

[alexp2021]

Really 191 players or 191k players?

[mjr00]

No missing "k", really just 191 players. https://steamdb.info/app/3043580/

[dom96]

Could this be due to the games being available on Game Pass? Why would anyone buy them on Steam if they can play them on Game Pass for "free"?

[tonyhart7]

by this logic, no one would buy E33 at steam because its day one gamepass title

[pie_flavor]

You can easily compare to the figures for other games that are also on GamePass. Another Crab's Treasure, for example, had 4.7k Steam players on launch, of a similar nicheness stratum.

[Schiendelman]

You've got that backwards. It's free and STILL has no players.

[jfim]

Would they be counted as active players on steam if they're being played on game pass though?

[Schiendelman]

The split is usually not a multiple. There are people with computers, and people with xboxes. If there are that few people on steam, there are probably a similar number on Xbox. Not 10x or 100x, and at least 100X would be what you need for that game to be worth further investment.

[aranelsurion]

They wouldn’t.

Only people without GamePass subscription and no desire to get it for even a month or two would buy the game on Steam.