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February 1, 2024
4 Min Read
Image via Microsoft.
At a Glance
- Last week Microsoft laid off nearly 2,000 employees across Xbox Game Studios with hardly any explanation.
- One week later, the company financials reflected incredible growth. So why the need for drastic cuts?
The worst-case scenario for Microsoft's purchase of Activision Blizzard finally came to pass. Microsoft bought the company for a cool $68.7 billion. It promised regulators the acquisition was good for the market and competition. Then it slashed 1,900 jobs in its Gaming division.
Why? Microsoft Gaming boss Phil Spencer told employees in an internal memo that the cuts were made as part of "an execution plan with a sustainable cost structure that will support the whole of our growing business." ("Execution plan" was a poor choice of words here.) The only other details he shared were that the company had "set priorities, identified areas of overlap, and ensured that we’re all aligned on the best opportunities for growth."
Surely dismissing almost 2,000 employees would be a move Microsoft would make if it was facing dire financial straits. Nope! Its second-quarter financial results showed year-over-year growth in revenue and profits.
This is the part of the story where the business analysts opine that reducing costs in Microsoft Gaming was necessary to maintain those excellent numbers in the year ahead. But here's the thing: no one knows what the costs were.
Microsoft's long habit of hiding key financial numbers for Xbox and its game studios has finally reached a breaking point. Employees and investors both deserve to know how the business is truly doing, and it's time for leadership to offer real transparency.
A brief history of Microsoft's hidden game financials
For years, our coverage of Microsoft's financials has had to grapple with the company's bundling of the game divisions under "More Personal Computing." It lives in there with sales of Windows products, search advertising revenue, and Surface revenue.
That obfuscation has spread to other relevant metrics as the game business has diversified over the years. How many Xbox Game Pass users are there? We don't know. How much revenue are Microsoft Flight Simulator and Halo Infinite bringing in? We don't know. How many Xbox Series X|S consoles has the company sold? We just don't know.
In fact, we only know something about the sales of those consoles thanks to leaked documents from the FTC trial to halt its purchase of Activision Blizzard. Thanks to someone forgetting to click "please keep this file confidential," we know 75 percent of Xbox owners have the disc-less, lower-priced Series S console, not the more expensive Series X console with the disc drive.
Our most recent clues about the division's performance are that hardware sales increased 3 percent year-over-year in the second quarter and that "gaming revenue" increased 49 percent to $7.11 billion (greatly driven by the addition of Activision Blizzard's revenue streams to its lake of money).
Image via 343 Industries/Microsoft.
Compare that to 2011, when we could confidently report that the Entertainment and Devices division of Microsoft raked in $225 million in profit off of $1.94 billion in revenue during the first 3 months of the year. That division included sales of the now-deceased Windows Phone, so it's not all game-related revenue, but we had enough detail to report Microsoft sold 2.4 million units of the ill-fated Kinect device, meaning over 10 million units had been sold life-to-date.
You can also compare these results to those from other game publishers. Companies like Take-Two, Sega, and pre-acquisition Activision Blizzard all made information on sales numbers, subscriptions, and in-app spending part of their financial reports.
The lack of context on profits here is key. To understand why 1,900 people had to lose their jobs, we need to know what the costs of employing them were and understand how they could impact potential future profit. With enough details the press, employees, and investors could assemble a picture on whether Microsoft was spending too much or too little money on video games and ask how it could improve performance.
I'll even advocate for MBA-brained execs and investors the devil for a moment. We know that Microsoft-owned game studios and Activision Blizzard have had a slew of production problems driven by inadequate leadership at different studios (the most inadequate leader himself, Bobby Kotick, escaped this mess with a $15 million golden parachute).
The company may in fact need some shakeups that would result in cut jobs—but the first to be out the door should be the aforementioned MBA-brained executives overinvesting in esports, not the workers bringing games like Overwatch 2 to life.
But for now, we have nothing but anger to help us along. Microsoft may be happy with that status quo for now, but make enough of your rank-and-file angry and...well, we're probably going to find out soon, won't we?
About the Author(s)
Senior Editor, GameDeveloper.com
Bryant Francis is a writer, journalist, and narrative designer based in Boston, MA. He currently writes for Game Developer, a leading B2B publication for the video game industry. His credits include Proxy Studios' upcoming 4X strategy game Zephon and Amplitude Studio's 2017 game Endless Space 2.
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