[chrisfosterelli]

With due fairness, these are two different sets of leaders and two different strategies.

A lot of the strategy you outlined -- buying all these studios, replicating netflix, giving away day one games, raising game pass -- was a strategy put in place by Phil Spencer. Phil pushed for this investment with the promise it would pay off later for MS. He's talked publicly about having to convince Nadella to put up ungodly amounts of cash for these investments and about how the bar for expected return was very very high. It seems like it clearly hasn't worked out to Microsoft's expectations or they've lost patience for waiting, and Phil has now "retired to spend more time with his family" (i.e. been fired).

Now Asha is here and presumably has a mandate to fix this and get back the profit margins that were expected from xbox. Sarah Bond, the xbox president, has resigned, and with this letter it seems the previous Xbox COO is out too. There is clearly a huge shift in Xbox leadership happening and it shouldn't be surprising that Asha -- who is known as a business-driven executive and not a 'gamer' -- is going to be reverting a lot of previous strategy decisions.

My 2c is that Phil's strategy made sense on paper, but I don't think they were able to manage this many studios in practice: nearly all the studios they bought have failed to produce the number of games expected on time or on budget. It also turned out that overly cheap gamepass would cannibalize their business and overly expensive gamepass turned away subscribers. I think the netflix model isn't something you can speedrun and execution of it turned out to be very hard and expensive. Maybe it would've worked out with more time but it seems Nadella didn't think so anymore.

[jrmg]

I never understood the esteem Phil Spencer was held in, seemingly both by fans and industry insiders. I never understood Phil’s strategy.

Buy a plethora of studios. Pay an order of magnitude over the odds for the big ones - just to be sure you get them! ‘Rescue’ smaller ones of questionable financial value - as part of Xbox they’d somehow be successful enough to justify the price paid. Heavily manage the studio heads - but, uh, also give them total creative freedom - and allow them to make niche games. Sell hardware at a loss - but also make the games available on all platforms. Don’t allow any software that takes advantage of your most powerful hardware, because it also has to run on the other, less powerful console you are also selling. Also, the future is streaming! But, uh, maybe not!

Not just the strategy, but almost every aspect of the ‘strategy’, was incoherent - as current management is very close to outright saying.

[Schnitz]

> I never understood the esteem Phil Spencer was held in

He headed things during the Xbox 360 era, which was a golden era of gaming, one of the best console generations and also peak Xbox.

Just look at this video to get an idea of how high the density of great games was at that time: https://youtu.be/w5u8jyPIrIY?is=NsTee0620BmmVbcB

[jrmg]

I’ll admit to being ‘out of gaming’ for that era (I’m a pandemic gaming-returner), but I wasn’t aware of that. Was his reach bigger than his official title?

Wikipedia doesn’t show him in an ‘overall leader’ role until 2014, a year into the relatively disastrous Xbox One era.

https://en.wikipedia.org/wiki/Phil_Spencer_(business_executi...

[Schnitz]

He was very visible, giving interviews to the mainstream press and presenting games on stage at E3 as early as 2010. I'd also argue that while he wasn't the top dog of all things Xbox from 2009 to 2013, Head of Microsoft Studios is still a pretty big deal and arguably the quality of games matters more than the hardware. Also keep in mind that he rolled back a lot of the - from the perspective of the core gaming audience - disastrous Xbox One launch (TV focus, Kinect bundle) after taking over. There's an argument to be made that Xbox the console wouldn't have survived this long without him. That said, he caught a lot more flak in recent years and IMHO deservedly so.

[davidgnz]

> Buy a plethora of studios

IIRC Xbox had been criticized for quite a while at that point for having very few exclusive/first-party games worth buying an Xbox for. I always assumed this move was to try and fix that problem.

[jrmg]

The (an?) incoherency with that is that this was happening at the same time as the ‘everything’s an Xbox’ strategy that saw them produce games for other platforms too.

[pjmlp]

That was a side effect from ABK acquisition, they bought studios that traditionally were cross platform, the year long acquisition discussion always promised not to touch them in that regard.

So you end up with this schizophrenic way that XBox became more of a publisher than a console brand, with a leadership used to cross platform (Sarah Bond), thus ‘everything’s an Xbox’ pivot for the "curve must always go up".

[khurs]

Concerns about competition regulators stopping the acquisition? so they said for next x years we guarantee won't be exclusive?

[dd8601fn]

Having to promise to make titles available on Playstation to satisfy regulators kinda blows that strategy up.

[AlexandrB]

> Buy a plethora of studios.

To be fair to Phil Spencer, this was the strategy across the industry right after COVID. Remember the shopping spree Embracer Group went on between 2020 and 2022? I think we were in an e-sports & live service bubble that has now popped.

[pjmlp]

Yeah, but most of them weren't platform owners, thus did not had the issue of exclusives vs cross-platform.

[khurs]

Wasn't it a strategy to have exclusives on xBox and take games away from Playstation?

[pie_flavor]

Which games of their output were Xbox exclusive? They were basically transitioning into a publishing house with no real hardware impact. In fact what did Phil in finally was trying to sabotage the hardware brand itself with the 'This is an Xbox' campaign. I said out loud when I saw the first ad, 'Phil will get shitcanned for this.'

[pandaman]

Acquiring a game studio only makes sense if you see a way to make it grow either by providing capital or better management. E.g. Activision acquired Treyarch in 2001 for $20M, which was probably 4-5x of its annual profit at the time. Seeing that very few people played (or even heard of) Die By The Sword or Draconus you could imagine that there was still a room to grow so there was a good chance you break even on your investment even sooner than 5 years and start making profit for yourself. Treyarch, who did not need to do the sports games contracts anymore and could hire more people, proceeded to making Spiderman and, later, CoD. I believe Spiderman alone made way more than $20M spent in the acquisition.

Buying Activision for 20x of its annual profit, on the other hand, makes zero sense. ABK was not lacking capital, had the same MBA management Microsoft has and did not have much room to grow, Blizzard alone had 5K employees. Their IPs had long time since plateaued or had been in decline already. What was Microsoft plan to increase profit? Switch everyone to Teams? Put more people to work on CoD and release 2-3 CoDs per year, hoping they all will sell as well as the annual CoD? The more realistic path to return of the investment could come from increasing Xbox's share of the market by making their newly acquired IPs Xbox exclusive. But they did not do even that.

[weakened_malloc]

> What was Microsoft plan to increase profit?

IMO, at the time, it was to buy ABK and make CoD an Xbox exclusive. That clearly didn't play out when everyone screamed about it being (rightly!) anticompetitive, and so they had to resign themselves to accepting that day 1 gamepass exclusive was going to be their way to get people to switch over from PS. That also didn't work.

The 'K' part of ABK was also probably going to be their way to drive mobile into Xbox as well with their 'everything is an Xbox' push at the time.

[pandaman]

Even if they had made it exclusive, $70B is too much for this. CoD sales would fall - not everyone buying it would go out and buy an Xbox, Xbox hardware sales would raise. Let's be optimistic and say every CoD player (including ones who already bought Xbox ) goes out and buys another Xbox and then buys 2 xboxes in the next generation. So it's ~20M more Xboxes sold. To break even on this investment in 10 years MS has to make ~$2400 from each console sold over lifetime ($68B - 10*$2B annual profit = $48B over 20M extra units). Of course, if each sold Xbox made that much money they would not sell them for $400, they'd pay you to get one.

[isqueiros]

I already thought the deal was bad to begin with, but if you look at the numbers like this it feels even more catastrophically bad, damn.

This is not even considering they basically bought all the PR issues that came with Blizzard.

[venzaspa]

CoD is just one title though, the deal included WoW and Candy Crush and the rest of the Activision IP.

[pandaman]

Yes. How many consoles would WoW and Candy Crash move?

[schnitzelstoat]

Yeah, they could have spent the money on founding new studios. With that sheer amount of money you could pretty much poach any talent you wanted too, but it wouldn't be as obviously anticompetitive.

Instead, they paid way over the odds for IPs that seem past their prime.

[pandaman]

IMHO, there is no room for a 70B investment in games at this time. The industry is mature and won't be growing any time soon, at least in the West. There had been a rush of investors founding new studios and propping old ones in the past decade but the vast majority of those had already been wiped out. And all of those were probably just a fraction of what Microsoft had spent just in this acquisition.

Another crazy deal like this is the EA's buyout, I wonder if it will come through or the investors will eventually realize that they are not going to see their money ever again.

[sikim]

Phil and the likes were too hands-off on these studios post-acquisition. They got too complacent enjoying steady paychecks over years of delays while working on their niche games that only highlight their artistic vision over generally fun gameplay. That's where they failed. The Activision/Blizzard acquisition and GamePass fumble were just a nail on the coffin

[chrisfosterelli]

Yes, I agree. I empathize with Phil in spirit on it. He's a real gamer and tried to create a space for the developers to do their own thing and create what they want. But it doesn't seem to have been great business.

[Gareth321]

I remember the glowing praise at the time for the policy of being hands off and allowing studios to cook. Gamers all over the world were very happy about that approach. Unfortunately it looks like many studios do in fact require hands-on management to make tough calls and keep things moving. I'll remember this next time studios complain about management interference.

[account42]

We already saw this during the Kickstarter era where all the temporarily confused AAA studios sold themselves as having been held back by unreasonable publishers all this time only to produce the most bland and still unfinished games now that they were funded directly by fans.

[ethbr1]

Also, Chris Roberts should never be allowed to manage anything bigger than a shoebox.

Sometimes, adults minding the financial shop focuses creativity.

[bluGill]

You need two different types of management. You need the creative type who understands what customers want and ensures that is what you deliver. You need the financial type that understands profit margins.

If the company lacks either, or either gets too much power they are in trouble. Creative types will spend too much money on things that are nice but won't deliver enough value and so the company goes bankrupt. Financial types don't understand what customers want and optimize away all the expensive creative value the customers buy.

Note that the above applies to every type of company. Exactly what "creative" means is different for different industries, and some need it more than other (how much innovation do you need in soap?...). It always applies though so you need to ensure you get both types in leadership positions even though they don't like or understand each other.

[asdaqopqkq]

This. DoubleFine is the prime example. Basically they got paid to goof off in a very expensive city. Adult daycare.

[krige]

Yeah, cool, but right now they're axing idsoft, which was anything but "artistic vision over fun gameplay". What they did also pretty much kills idtech as a viable engine.

[airstrike]

It's also really hard to buy studios and hope to catch future lightning in the proverbial bottle.

Past performance is no guarantee of future success.

[pjmlp]

Now with all these layoffs, most likely the numbers will change, but how many are aware that Microsoft actually owns a big chunck of well known studios?

One reason is that from the public eyes they kept their names and independence from Microsoft/XBox branding.

[jsemrau]

Over the last 8 years

Undead Labs has shipped nothing Compulsion shipped South of Midnight topping at ~1600 players on Steam Ninja Theory has shipped Bleeding Edge and Hellblade 2 and Double Fine shipped Keeper and Kiln.

It's a net positive that these studios and this culture is gone. I am sure that food was amazing.

[Yokolos]

It's on the publisher and owner to guide studios in a direction that makes money. That's literally their purpose. If these studios aren't releasing anything and they aren't making money, that's on Microsoft. So things aren't better if these studios are gone. The same people who managed this mess for ten years are still there. If you're not going to do anything to ensure these studios actually do what you need them to, I don't understand what the point was of acquisitions.

[mrandish]

> Phil's strategy made sense on paper

It was a risky bet that became even higher risk when MSFT spent ~$80 billion dollars rolling up game studios near the peak of the historic COVID gaming bubble. They bet it would greatly increase Game Pass sub growth. Instead, Game Pass sub growth slowed down. At the time I thought it was a reasonable plan - but not at the prices MSFT was paying for content. Then the DRAM drought killed hardware sales to gamers forcing the issue.

[ghaff]

I needed a new DVD player and I pretty much splurged on an Xbox. But I haven't really used it for gaming.

[ethbr1]

I remember that was my calculus in the PS2 era. At one point near launch, they weren't much more expensive than a dedicated DVD player.

[bluGill]

They were the cheapest DVD player you could buy for a while, and they were also the most available DVD player. That changed fairly quick, but at launch they were your best value. (though dedicated DVD players generally had better controls)

[schnitzelstoat]

It's good for emulation too and it'll run GTA6, so I'll get mine out of storage.

[Forgeties79]

I certainly enjoyed gaming their rewards system for years on a series S. $300 for the box, maybe spent $40 over roughly 4 years for gamepass. It was nice while it lasted!

[chrisfosterelli]

I totally agree. Being able to buy three-year cards for gold and then convert them to GP for $1 was an absolutely killer deal in terms of bang-for-buck. I stopped renewing once they closed that 'loop-hole' personally, I only play a few games a year (and usually ones that are on sale) so full price game pass just never made any financial sense for me. I already spend less than that per month and play whatever I want.

[rob74]

So, Phil gets a golden parachute, and all the studios that got bough up because of him will be "set free" if they're lucky and disbanded if they're not. Yay for capitalism...

[trashface]

Asha sounds like the kind of person you bring in to shut down a division cleanly. "Headshot!" as we gamers might say.