Brad Hilderbrand, who used to work as the Senior Public Relations Manager for Microsoft, has shared his views on the recent studio closures in the Xbox division. While we’re sure PR doesn’t know the financial situation exactly, they do know quite a bit due to providing wording and direction for the company. If anything, this is a really close look at what’s wrong from someone who is likely in the know.
In a post on LinkedIn, Hilderbrand suggests that the main reasons behind these closures are:
- The company’s subscription service, Game Pass.
- The significant costs associated with the acquisition of Activision Blizzard.
Hilderbrand states that, even though Game Pass is a popular service, its model can cause games on the platform to have lower-than-expected initial sales. He argues that many players will test games through their Game Pass subscription rather than buy them outright. While Microsoft does compensate developers based on Game Pass performance, Hilderbrand believes that, together with slowing subscriber growth, this revenue model often fails to cover the increasingly high costs of game development.
I wasn’t aware that Microsoft wanted any of its subscribers to buy the games on Game Pass. To be honest, buying any game on that service would never cross my mind because it’s free to get right there. I’ve tried out many games that I ended up loving because of Game Pass, but since I’ve played them, I’m not going to buy them. I think most subscribers believe they’ve paid just by paying for the service.
He also mentions the release of Redfall. Redfall, a much-awaited game, launched to a poor reception. This probably led to lower sales and less attention, even though it was available on Game Pass. He said that this proved that even games with a lot of excitement around them can disappoint when they’re on Game Pass. This is unfair because the game was bad, and word of mouth spread pretty quickly. It would have been a better point if the game was good.
Then, we have the change in direction for the company.
“But, all that wouldn’t have mattered even 3 or 4 years ago because back then Xbox was basically a rounding error on Microsoft’s books. The division made some money, but more importantly, it didn’t cost that much and other parts of the business easily covered the gap. Then Xbox went on a buying spree and spent a lot of money on Bethesda, but orders of magnitude more on Activision. Now, the Eye of Sauron has turned, and Xbox is expected to start making that $70B back, or at least cut expenses to the bone (and then some) while they try.”
Brad Hilderberg
This basically meant that Microsoft’s recent purchase of Activision Blizzard has changed the company’s priorities, focusing more on making a profit. As a result, Xbox has come under increased scrutiny, with pressure to either increase profits or make significant cost reductions.
The core of Hilderbrand’s analysis focuses on the conflict between Game Pass and traditional sales models. He believes recent big game releases designed to drive Game Pass subscriptions, such as Redfall and Starfield, have not led to significant growth. With no immediate alternatives in sight, Microsoft is grappling with a dilemma involving Call of Duty. By adding it to Game Pass from day one, substantial sales revenue could be lost, but not doing so could alienate subscribers who are used to accessing new releases through the service.
A real catch-22.
Hilderbrand ends by saying that big studios with mega-franchises should stay safe, while smaller studios might feel the impact of the cost-cutting measures. Even if they make great games, these smaller studios could have trouble making enough money to show they should keep existing in Microsoft’s current financial situation.
All of this really feels like a broken NDA, so we may see the post go down eventually. Still, it does a good job of making all this make sense. If I were Microsoft, I’d regret that Activision deal right now.
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