Microsoft and Xbox layoffs down to three key reasons and could get even worse, thinks gaming expert

Microsoft's sweeping layoffs, including to its gaming division, can be put down to three key reasons and it could get even worse in the future, according to an expert.

A total of more than 9,000 workers could be cut from Microsoft, around four per cent of its global 228,000 workforce, and these cuts have already reportedly affected gaming studios, staff and projects.

The Initiative, a Microsoft studio behind the Perfect Dark reboot, is reported to be shut and that game cancelled, along with Everwild being scrapped too.

Further reports claim Forza Motorsport developers have been laid off or moved to the Forza Horizon team and ZeniMax Online Studios' next MMORPG, which develops The Elder Scrolls Online, has been cancelled too.

Around 200 workers are reported to have lost their jobs at Candy Crush developer King and independent studio Romero Games, co-founded by DOOM developer John Romero, has also claimed it has cut jobs because funding for its game was axed.

Further studios, staff and projects are understood to be affected.

George Osborn is the creator and editor of Video Games Industry Memo and the managing director of Half-Space Consulting with more than 15 years' experience in the industry, having also studied at the University of Cambridge.

Speaking to indy100, he said: "The Microsoft layoffs have been a head scratcher for people in the industry, especially the extensive nature of them, because yes, there are some problems in the business that need to be addressed but I also feel that some of the blood letting is excessive.

"I think there's a bit of a confidence crisis in the industry at the moment which is causing people to perhaps overcorrect and view things a little too pessimistically.

"There are hints as to why the recent layoffs have happened but I think it's more difficult than previous rounds. I think Microsoft got itself into an interesting position when it bought Activision Blizzard for $69bn.

"That's a huge amount of money, it's more than the cost of Instagram, Twitter and LinkedIn combined if you're talking about an acquisition total.

"That was clearly too high, it was inflated by the pandemic and even though they felt they were getting a good deal at the time, it was clearly too much. They were always going to have to make some of the functions of those businesses slimmer to fit together. When you merge companies of that size, you've got a load of duplicate roles and you have to work out how these things fit together."

  George Osborn is the creator and editor of Video Games Industry Memo

Osborn said a few different theories as to why such sweeping cuts are being made have emerged, including Microsoft pushing the use of artificial intelligence, the effect of Game Pass and not focusing on selling hardware as much anymore.

"Game Pass is proving successful in terms of having decent subscription numbers and large amounts of people playing things but it's not necessarily translating into massive revenue for each individual game releasing on it," he said.

"I think that's part of the reason Microsoft has been taking games off Game Pass and putting them on PlayStation, like the Indiana Jones game.

"Yes, Game Pass keeps people retained and keeps people in the ecosystem paying a little bit every month but it does mean you miss out on those bigger chunks of money.

"I think there's an element where a lot of the games that seem to have been cut, like Perfect Dark, feel like they should be more traditional AAA releases.

"There is a sneaking suspicion these cuts are also being driven by a wider push within the business to artificial intelligence.

"They want staff to be using AI tools and they want them to be using them more within their workflow and I feel that's the most likely explanation for the job cuts at King, the Candy Crush Saga developer.

"That company makes money hand over fist for the number of developers it's got, I can't see any reason why you're cutting staff there except for the reason you'd be able to make Candy Crush levels a bit more easy with the use of generative AI. It's a cost cutting measure there.

"Microsoft has a really big capital investment into AI and I think it is finding itself in a position, like a lot of businesses that have backed generative AI, is that it's costing a lot of money and not delivering much in return.

"Because the business is so heavily staked on it, it's got to find money from elsewhere.

"I think the game's business has been a victim of Microsoft's wider push into artificial intelligence and I think the cuts feel deeper than perhaps they should be, even if I also think the business probably is struggling to justify the valuation that was attached next to it once it acquired Activision Blizzard."

  Xbox has been massively affected by Microsoft's layoffs / Xbox

Osborn thinks Xbox's focus away from its own hardware sales could cause further layoffs later down the line.

He said: "I think the very strong move away from hardware might be the bigger issue because even though Xbox was relatively comfortably in third, there have been generations like the Xbox 360 where the consoles have sold well and actually, even though the way the business model for video games tends to work, which is you sell the console as cheaply as possible to sell as many games as you can, you were still able to make some money on selling an Xbox.

"Taking that out and reducing the size of your audience and reducing the amount of people who can pay for stuff, because if you've got fewer people with an Xbox, they're paying less for games, then add in the impact of Game Pass...

"You're not making money on a console, you're making less money on the games compared to the development costs that are being put in, there is that risk this could go deeper but it's difficult to tell.

"Unfortunately, I probably wouldn't be surprised to more pain down the line but my hope is this is coming towards an end. That's just a hope though, there's nothing evidenced on that I'm afraid."

In a statement shared with indy100 about the cuts, a Microsoft spokesperson said: "We continue to implement organisational and workforce changes that are necessary to position the company and teams for success in a dynamic marketplace."

Microsoft said it is making the layoffs to meet business demands, reduce layers, ensure there are fewer managers and allow employees to focus on more meaningful work.

Osborn'sVideo Games Industry Memo is sent out every Thursday and he's writing his debut non-fiction book called Power Play, a look at how video games are changing the world.

Elsewhere from indy100:

• The Elder Scrolls 6 new trailer in the works at Bethesda claims insider
• Xbox's first handheld console is already confusing gamers - and it's easy to see why

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