The bigger issue is that console manufacturer revenue is highly cyclical. This is hard to see in e.g. Xbox and Sony since they are both part of a larger conglomerate, but really obvious for nintendo.
You generally have a cycle of - "Launch": high marketing costs, low/negative HW margins - "Mid-cycle": lowering manufacturing costs, large game sales, high margin DLCs - "end-of-cycle": falling HW sales, fewer exclusives (-> preparation for next gen), fewer consumers (-> waiting for next gen). Here you usually have maximum profits since you don't subsidize HW and marketing is minimal (platforms are already locked in)
Generally you have to establish a big userbase during the mid-cycle such that you can levarage it during the late-cycle to be able to afford next-gen. Xbox has the big issue that their mid-cycle was catastrophic, which means they now don't have the console base to get into the next generation: If they have 3% margin _right now_ in the end-of-cycle where marketing and development costs are at their lowest, this does not bode well for the overall health of the business.
Oy vey maybe this kind of money grubbery is not good for our society.
No, it's a signal from the market that the product being sold is not wanted by the market.
They've mismanaged all their IP pursuing that yummy subscription revenue. Turns out gamers really don't like to buy subscriptions. As a poster downthread pointed out, the games that are not always-on and subscription-based are doing fine. It's the recent AAA model of subscription that is bleeding money.
Doesn't matter how big the revenue is if the market is not interested at the price you are selling.
I mean, by your logic, if I sell a dollar for 64c, and do $5b revenue, that's an indication that the market does indeed want the product, but not an indication that the market wants the product at the price you need to sell at to stay in business.
* firing people * making services worse * sacrificing their own future
Whether it actually does involve those things is effectively arbitrary, because the consideration of the "bad sign" is also arbitrary. If there is no objective value judgement of their operation there is no objective value judgement in their streamlining either, so all bets are off.
no percentage no good
"complex consideration"
This is all normal and justifiable. Where is the logic that corporations need to preserve dysfunctional parts of their operations?
I'll counter by saying that pruning off failing things is not only good, it's the core of capitalism. Creative destruction, as Schumpeter called it. You get efficiency by hunting down and eliminating inefficiency, redeploying the resources elsewhere.
It's quite serious that you see "being good" as something inferior to "the core of capitalism".
Also, the core of capitalism is making money for private individuals, nothing more, nothing less. Whether that's done with or without "failing things", is really beside the point.
What private individuals choose to do with their capital, chase infinite growth and profit or sit on it, is up to them. This is as opposed to say, state ownership of capital.
People confuse the stock market with capitalism. You don't need a stock market for capitalism to function. Publicly traded companies in the United States are legally bound to maximize profit (Dodge vs. Ford Motor Co.)
Plants do this. What’s it got to do with capitalism?
So errors abound, and have to be subsequently corrected. This correction process is as natural to capitalism as breathing is to you being alive. Without it, things would rapidly grind to a halt. We see this in sclerotic centrally planned economies where errors persist for much longer.
Obviously both statements are gross oversimplifications. But I could not help myself and let that slide just like that.
If you're offering even 25 year 75% LTV mortgages at such a low interest rate it's $1.07 future money you're going bankrupt. And these days people are taking 30 year, 95% LTV or even asking for 40 year 100% LTV which is fully batshit.
This level of greed is also relatively new, and was pretty well managed by previous (30~ years ago?) administrations. There's an obvious direct correlation between the rapid growth in wealth of the top 1%, businesses becoming increasingly anti-consumer, degrading quality of life amongst the average person, etc. It isn't something inherent to capitalism, it's something inherent to unmanaged 'trickle down economics' capitalism and societies built on individualism above all else.
to me, it is really a signal that the cost of production is high - ala, they're inefficient, rather than the market not wanting the product.
Players purchased roughly $6.8 billion worth of the Roblox in-game currency Robux in 2025, a massive 55% year-over-year increase.
Making terrible decisions, such as investing in distractions for your company and consumers, and then letting your workforce pay the tab.. is the thing that is not great for society.
Who is the "we" here? Because the profit margin not being high enough is certainly not a problem for consumers. The only people who should care about that are the company's shareholders and "shareholders" certainly isn't synonymous with "society".
But the point is locking up money in a 3% margin business doesn’t impress investors.
So you either need to improve the margin with lower costs or higher price (or both). Or bail from the market entirely and put your money in something that makes more money.
I think people often forget that in a society we rely on companies making and serving things. They make our food and our medicine and build our homes and make our games. It's a good thing when their finances are healthy. It's a bad thing when they form monopolies and rent-seek.
This is madness and it doesn't make any sense besides the one case where you pursue a monopoly.
All of this has nothing to do with the consumer of the product besides the fact that he'll get a worse and worse product while simultaneously being forced to pay more and more. Enshitification is aresult of this "healthy" business culture.
Many of those developers may not have the job elsewhere, or job paying much less. They now have the experience working in a proper software engineering environment.
https://home.treasury.gov/resource-center/data-chart-center/...
But doesn't that make situation even worse? They likely would be 100B+ market cap/total asset value if spun off into independent company, but not able to generate even 1B in annual profit? Activision Blizzard managed 1.5B income/20% margin by themselves before being bought by Xbox -- and somehow whole of Xbox now earns less?
3% is pretty close to 0% which is very close to -1%. Think of it as a 3% margin for error.
- Investors bail - You run out of cash
However the owners are still going to be mad because their cash is down and they will demand changes to fix that.
Not to mention a company with thin margins is going to have a hell of a time raising money through debt.
So for example, if I can make twice as much money as a software developer as I can as a musician, that is strong evidence that my doing the former kind of work will benefit society about twice as much as my doing the latter kind of work.
We should expect more from our elite professors. Nir Eyal should've known better than to make a career out of studying how deliberately to addict users. But we should also expect our professors, politicians and policymakers to understand the basics of our economic system and to understand when a proposed change to our society sounds good or feels good, but has severe adverse effects on economic efficiency that outweigh the societal benefits. Those aren't the only proposed changes we should avoid, but they form an important class of them.
That was true historically but is no longer the case. Even last gen manufacturing costs didn't go down as much as they used to. This current gen they actually increased multiple times.
Consoles losing physical media and not allowing 3rd party app stores, or gasp, the ability to run user programs is going to kill the consoles. Expensive and marginal future utility.
They actually tried this a few months back when Game Pass Ultimate went from $20/m to $30/m. I cancelled my sub and went to essential. Then Asha backtracks and reduces it to $22/m and people are like wow, she will save Xbox. No, it just shows me they probably saw so much churn, especially from long-time subs, that they backtracked.
> 150M at 5B revenue is not great
- A company which has undertaken a concerted, long-term effort to consolidate the industry under its umbrella (something they themselves call out as a problem in this post), reducing consumer choice
- A company which has captured a significant chunk of the console market. They're one of the big three (alongside Sony and Nintendo), and have been since the early 2000s, arguably, for crying out loud.
At a certain size (typically as measured by market capture) the expectation for growth needs to be reality checked. This is still $150M of pure gravy every single year. Sure, this is going to a corporation, but that's more money than most people could possibly dream of earning in ten lifetimes.
Every year. For a company that's already putting money towards opex in the form of developing new games and new content for existing ones, for a ridiculously broad portfolio.
To be clear: it is Microsoft's and Xbox's prerogative to pursue more profit, but I reserve the right to call this out as absurd under the circumstances.
If you want to make the argument that Xbox has suffered from a lack of focus in the past decade (... or even longer), or that there's been mismanagement (I would say since around the time 343 got created), then those are fair arguments, though I don't think those are justifications, on their own, for cutting thousands in headcount.
Allowing this org to balloon to fourteen levels of management on any vertical is a joke. Allowing the absorption of so much of the game dev industry and still being unhappy with $150M in annual profit after being such an active participant in the oligolpolization of console gaming is just a bit unserious.
That actually seems... tiny? Xbox is nearly 17,000 employees. That's like $8k in profit per employee. That's worse than big box retailers and like 1/100th of what is common in big tech and (to the letter's point) far worse than their biggest competitor.
Like sure at least you can say they aren't losing money, but Nadella can't be looking at that after just spending 75 billion on Activision Blizzard and be happy with it as the status quo.
EDIT: BTW these numbers you quoted from OP are quarterly, not annual
The issue is rate of return. They are evidently spending $4.85bn on Xbox per year. The US federal interest rate is 3.5% so if you just put that money in US bonds you would get about $175M per year of much purer simpler gravy.
Richard: "Okay. Well, that's a gain of $200 million over 20 years. Um, 16.66 repeating. That's less than 1% return. Inflation is, like, 1.7. I think CDs are 2%. So that's less than a CD."
If I had 1.2 billion dollars I wouldn't care what investment strategy I had. I've got enough to spend $30k a day for 100 years. At any age, that'll do.
It sounds like a nice problem to have, but it appears to be very stressful from what I can tell. (I'd still like to have it, and like most I think that I personally wouldn't get that far over my head)
Two things, stand out to me though.
1. how you frame it might help with how you spend it. Which is to say that when shopping for a mansion "I've got 1.2 billion" likely leads to a different outcome than "I have 30k per day. I'll have to save up for it."
2. once chasing money is not a major thing in your life, what do you do for meaning?
sounds like there is a win-win in there somewhere. I wonder what that would look like.
for real though, what are we talking about here? 30k a day is not enough because ... habits? plus, it's incredibly hard to spend that much. that's exactly why, after a certain point, it's basically impossible to get rid of wealth.
I'm not arguing your idea that there is a point where you no longer can find anything to spend money on. However that point is different for different wealthy people and I don't know and you don't likely don't know either where your limit is or my limit would be. It would not surprise me if I personally had the money and decided to buy a yacht and then later sold it when I realized that while it sounds good I wasn't actually using it. But I don't know. Maybe if I had the money to afford a nice yacht I would use it all the time. Similar for those mansions. Would I live in a mansion or would I buy one first test symbol and then realize I didn't actually care and downgrade? I know someone who has made a lot of money remodeling the mansions of rich people who have decided downsize. For them downsize includes a master bedroom that is bigger than my entire house. And there were other bedrooms in that mansion, but it is still a down size.
I can't argue the point as well as educated economists can. I'd like to point you to Gabriel Zucman, for instance. What really got me in the end is this: he proposes a 2% wealth tax. It's not a number out of thin air, he actually reasons very well how he got there. You know how much the average billionaire wealth increased over the last years, annually? It's 6%. So it's not even suggesting "you need to have less". It's suggesting "you should accumulate more a little slower than before".
Also, sorry, I really can't emphasise with people who got so used to having a yacht that they cannot imagine life without one anymore. It's peak consumerism, individualism, capitalism. My take is that we need to rethink _some_ things.
And if Russ is blowing $100M a year on lifestyle and still has those numbers then he’s winning at life.
What a take. Of a character that is, albeit incredibly entertaining to watch, not displayed in a good light at all.
Alternatively, he's everything that's wrong with the system. He's certainly not generating any value to society.
But yeah, in a purely individualistic take, he's certainly winning at life. While making everyone else's a bit worse.
Value that is created but not captured (e.g. the value of consumers enjoying games and consoles above and beyond the price that those consumers paid) is typically not considered when making business decisions.
You're neglecting to consider that any time they acquire a studio or have a flop or two -- poof goes that $150M and probably more. It's not a risk-free venture. Entertainment is all about hits, and misses hurt.
Would you put up $5K to win $150 on a hypothetical roulette wheel that hits 90% of the time? The math's not perfect obviously but Xbox is a somewhat similar situation. Microsoft is putting up nearly $5B a year to make $150M. They'd be better off stuffing the $5B into bonds or something. There is a point where the returns aren't high enough to justify the expenses when risk is taken into consideration.
As said elsewhere in the thread:
> You’re saying that they should take the money people pay to buy Xboxes and put it in T-bills instead of delivering Xboxes?
So they could do that and invest the income they still get into bonds, and then that would be where the returns come from.
They don't want to do that obviously, hence why Xbox needs reform.
Wherever it comes from now! They're spending about $4.85B to bring in $5B.
Older forms of media understand this. WB loses money and its still really valuable because people see the potential of Batman, Harry Potter etc.
IP studios are really valuable because they can drive attention to your platforms. Try starting a premium streaming service or a console without IP. But you can't manage it like tech. It's not going to grow all the time and returns are uncertain.
MSFT could be in the XBox as a platform business. They could have a few in house studios to prime the platform pump. Once it started being a content business they got lost.
There are studios that routinely put out games that people love. For example, my wife and I will happily pre-order the next co-op game from Hazelight Studios. FromSoftware, Ghost Ship Games, and others fall into the same boat for many people.
The difference, in my opinion, is that games from these studios don't focus on creating an "always on" service, microtransactions, day-1 DLC, MRR, etc. Those things that blight games made by corporate studios are evidence of corporate executives putting their thumb on the scale.
There's only so much you can do, as a developer, to polish a turd.
I wish devs would stop trying to make every game an uber-game. They need all the monetization because they've already blown the budget before work even started.
Nintendo figured this out. When will the other big players?
I'm curious what you mean by this. It seems like gamers have never been more vocal and there have never been more avenues (social media, short form video platforms, etc.) for them to voice their opinions than we have now.
How exactly do you know that developers have never been more disconnected from their audience? And how would that be relevant to declining AAA game quality when it's the responsibility of management and leadership to ensure the quality of the final product?
This is a trope that's more than a few years out of date. Silicon Valley is run by Mark Zuckerberg, Peter Thiel, Marc Andreessen, Elon Musk, and many other executives who are completely devoted to the current administration; even Tim Cook bent the knee and donated $1 million to Trump's inauguration.
And what does "far left" mean in this context? Is it the abolition of private property and the creation of a communist utopia? Or are we talking about basic equal rights and a slightly more progressive tax system?
Without a bit more clarity, comments like yours come off as being uninformed at best, ignorant at worst.
I’d be curious what you think the changes in dev culture are. I have worked for or with a lot of these studios and to me they have different cultures. But I could be missing the forest for the trees. MSFT has one culture that imo lacks a creative vision.
There is absolutely no reason to be in sync with Sony on their console release date. They could have effectively released consoles bit more frequently. But they choose not to do so. Their acquisition has been questionable - Activision/Blizzard.
At the end of the day, the employee pay the price for bad management decision which they keep on making.
It’s possible stadium sized esports wasn’t directly profitable or was break-even, but seems like it could have had the potential to catapult the idea into the mainstream when there are 7 figure prize pots, and the games are accurate to anyone with equipment.
There’s definitely some Blizzard DNA in the characters and lore. I like to think it’s as close to what StarCraft Ghost could have even been.
sure Rivals is strong competition but remember time where Marvel Rivals didn't exist, OW is already dying by then
If you played enough overwatch, you'd know that it was messed up from when Jeff started doing his silent fireplace streaming.
This was a silent protest by Jeff.
Nintendo get a pass because Switch is a very different console, closer to Game Boy.
That's exactly when the prototype development kits come out of small scale testing (maybe tens of units, all incredibly expensive bespoke units, probably hand soldered and assembled), production ramped up a little and the evaluation kits are produced and distributed to first party studios and large third party studios, with thousands of consoles produced with the expectation that their lifespan is likely only going to be 3-6 months. These are then extensively tested by developers, both to see what needs to be done to get their launch titles actually working on the machine, but often very serious hardware bugs are found in this period that may require fixes to the chips themselves or software workarounds that affect performance. For some of the recent console launches there have been 2 or 3 rounds of evaluation kits in a year, and the previous evaluation kits are effectively bricked.
After the evaluation kits seem to have converged on a final product, the development kits are produced to ideally match the final version of the evaluation kits, but again these are tested before production is ramped up because some things do change (most trivially the case, even if the board is fine). At this point tens of thousands of dev kits are produced, each different enough to retail kits (more memory, maybe extra ports, etc), usually at least 6 months to a year before console launch so studios can make a final push on the launch day or first quarter titles, and in the background the same evaluation process for retail kits (usually just stripped down from the development kits, but usually different cases etc) starts, and eventually a final design for the retail product is produced that's good enough for manufacture.
This time is definitely not just when the console manufacturers kick back and rake in their profits, this is when they're already spending big on the final push to get to the point where they even have a new console to start a new cycle with.
Separate to the console manufacturing side, the years before release are when big money is spent getting studios on board to produce launch titles, because without those, the console will be dead on arrival.
TLDR: revenues at the end of the console cycle aren't funding the next generation, because it's probably already been in development since the launch of the current console, rather those end-of-cycle revenues are hopefully paying off the gamble they took funding development for the current generation.
and yet everybody - including Microsoft - is in a big rush to sell us AI services, which could look an awful lot like a historical utility business. 3% will be a dream return in that scenario!
Also, I doubt anyone was referring to electricity as a commodity in the early days before the industry developed standards.
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.
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.
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
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...
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.
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".
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.
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.
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.
This is not even considering they basically bought all the PR issues that came with Blizzard.
Instead, they paid way over the odds for IPs that seem past their prime.
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.
Sometimes, adults minding the financial shop focuses creativity.
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.
Past performance is no guarantee of future success.
One reason is that from the public eyes they kept their names and independence from Microsoft/XBox branding.
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.
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.
> 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.
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.
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).
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.
Or they play some indie game like Among Us and not some big studio expensive game.
They're getting below the rate of return of treasuries. That's abysmal.
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.
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.
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.
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.
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.
Only people without GamePass subscription and no desire to get it for even a month or two would buy the game on Steam.
So the majority of people?
I jest, but I honestly don't know anyone who consults the GamePass offerings before making a decision on whether or not to buy a game. It's Steam or pirate.
https://www.bloomberg.com/news/articles/2025-10-23/microsoft...
Gamepass is quite literally the most anti-steam strategy ever. It's a massive loss leading (or rather, low margin leading) service relying on a pseudo-rental service to provide value. Steam got to where it is by keeping all its costs lean and developing a service around taking a cut from premium digital goods.
>From other child comments many studios they bought probably were below average.
In revenue, maybe. That's the fault of Microsoft in two fronts. One for purchasing game studios who always operated at low margins, and two for directing them to focus on quality over budget. Double Fine and Ninja Theory aren't studios you buy with an expectation of 30% ROI in 6 years (ignoring the pandemic in the middle of that). Let alone when you explicitly tell them not to worry about finances.
On an artistic level, Hellblade was an insutry darling and about as close as you can get to an "oscar-bait" of a game. It's something you buy for prestige. Double Fine is a very seasoned indie studio who delivered several cult classics. You buy that for a brand that gives you variety from the current "online FPS juggernaut". Those strategies changed dramatically over the decade.
Gamepass as a subscription to make sure you always have something to play, that has a lot of old games or indie games and other games that have no commercial value makes sense to me. The back catalog for any of the current consoles is plenty deep with games that have lost their ability to move units independently but still have a lot of value and can also give that perception of value. Such a plan is picking up pennies, but it's a lot of pennies.
I've never understood putting your new releases out on gamepass and bragging about that as your primary value proposition. Many new games are, say, 20-30 hour experiences, assuming you play them from start to finish once. One does not need to spend too much time with "this % of other players got this achievement" to see how many players tend to drop off of a game even that long. So if you put your new game that you would have sold for $60-80 dollars to me directly and it translates to three weeks of engagement on your $15-ish/month (depending on level) subscription, it's hard to see how that is an economic win. Put that game on Gamepass in a year or two, sure, that can make sense, but on release? And that not as a mistake, but a deliberate strategy? I can not fathom the mindset that leads to that.
As a deal for customers it seems to have been pretty good but I've never understood how Microsoft expected to make money on that plan. The streaming-video proposition of making a high-budget release to keep your subscribers makes quite a bit more sense, you could never have counted on getting $70 out of a customer for those anyhow, and even that economic proposition I think has proved more complicated than the streaming companies expected. The Gamepass model has just seemed insane.
I expect it to move to more like what I described at the beginning. As a way to turn a lot of old and hard-to-monetize content into a subscription stream it's brilliant. As a way of releasing new AAA titles it's crazy. Movie studios played with that model and I don't think they liked it at all.
I think that's what I thought it would be, too. XboX has a really good track record of backwards compatibility. I can (and do, occasionally) play 360 games on my series X.
A model where people can buy the latest games, can not only keep them but play them forever on future consoles, and can have access to an increasingly vast back catalogue of older games, seems like a huge win. And maybe each full price new game gets them a bit of a discount on their next month's game pass, to make it slightly better value than the playstation equivalent full priced game.
But they didn't seem to want to do anything like that.
By this I meant via a subscription.
I _think_ the thinking is that not everyone is going to buy more than a couple full priced new releases per year (in general). $80 or whatever is just too much for most people to drop on a game they "might" like. On the other hand, most people would have few reservations being perpetually subscribed to a service that lets them play every new game "for free" (so long as they keep rolling in on a monthly basis). Theoretically, the subscription money would exceed what they'd normally collect from the average person buying the usual 2 or 3 full priced games per year.
Where I think it breaks down is quite a number of gamers are hopelessly addicted to playing all the latest games, all day every day. MS is surely losing money when those guys substitute buying physical games for a subscription.
I don't entirely understand... well... from a rational perspective anyhow, of course companies are not entirely rational... why it didn't become clear that this was a silly idea and not working. It's easy to make Gamepass stop cannibalizing your main game sales. You don't need a big announcement, you don't need to advertise your plans. You don't need a huge internal political fight. You just... stop. You just stop putting your brand new AAA games on your cheap subscription service plan. You don't even have to remove the old ones, they turn into your old AAA games naturally in the fullness of time. Nobody has to lose face. It's easy. It's like falling off a log.
Compare that to my nephews who have a lot of time for gaming, but they’re always fighting to scrounge up the money for another month of Nintendo online or Xbox online and go without it for at least half the year
If anything, it should be easier to make cool new features when you own the hardware side of the platform experience too, but no, it's Steam that has stuff like remote play together, not PSN or Xbox.
I love the Steam Deck because it feels like a consumer electronics device: it has the reliability of Linux but not the sweat. The Steam Deck is the only device I've seen that works 100% perfectly with Airpods, for instance, including Apple devices.
I was at Best Buy the other day and saw an ASUS device that looked pretty cool until I picked it up and saw a Windows desktop with fonts not scaled appropriately for the size of the device. Like, wazzup? Steam Big Picture turns my big Windows machine at home into a game console and does the same for my Mac Mini. How is it you can have the back of frickin' Microsoft and not be able to do the same?
Not to say that Steam isn't packed with features that are valuable to many gamers, but just having a great selection of games that "just work" and knowing I can enjoy my investment on the devices I have now and devices I get in the future is worth a lot.
For example, I used the example of remote play together, which is very neat and a lot of people love it, but I personally don't use it.
On the other hand, I make extensive use of Steam's gifting feature, including its ability to handle multiple gifts to multiple people in a single transaction, and to schedule exactly when those gifts will land. And this is something that the other major stores don't seem to support at all, a big advantage for Steam for me, but I'm sure there's many people who don't care at all about gifting.
As you already said, Azure is awful and only in second place behind AWS because of how much worse Google Cloud Platform is. Windows is back to sucking again, this time so hard that I'm seriously considering learning Linux and/or switching to macOS on my home system, & playing games on SteamOS instead. I almost never use Microsoft Office anymore, outside of household budgeting spreadsheets that I could easily work with LibreOffice instead.
I expect Azure is in second place because Windows-only shops use it because of the Official Microsoft Active Directory integration (which might be called Entra now?).
For basic "Create a VM, attach disks and networking, and use it as a computer." tasks, it is my professional experience that Azure is the worst of the Big Three US "cloud" providers by far. Their "control plane" is flaky and unreliable, so it's something that you'll probably only notice if you create, destroy, or modify VMs a lot. [0]
If you have a support contract, Azure makes it much easier to talk to a human than GCP does, but I never encountered an issue that they were able to solve. "File a ticket, but don't expect support to be able to help because they won't understand the problem, and it will eventually go away." was the lesson I eventually learned.
[0] And the word on the street is that a huge chunk of Github's reliability problems are caused because of the move from AWS to Azure. Having used all three pretty extensively, I believe the rumors.
Oh weird, mine have always made weird clicks and dropped audio here and there and shit like that when using them with my Deck.
They don’t do that when I use them with my Franken-PC bazzite machine. Instead, that one disconnects my BT mouse a couple times an hour and sometimes seems to stop processing BT keyboard input and “queue up” my presses instead, to be processed at random intervals over the next minute or so. Both of which are fun when playing games.
Well it turned mine into a 2000s linux/wine debugfest flashback when I wanted to play GTA IV: Ballad of Gay Tony... Also don't get me started on having to keep the poweroff button pushed on the xbox controller for mouse emulation for games not having controller support in the menus. It is far from the polished experience you had, but possibly I just held it wrong.
They really should make a choice between xbox as separate platform and xbox as windows pc. I has been like 10 years where they were kept advertising it as some kind of single ecosystem, while it was not
But the purchasing experience is top notch and they even have a generous refund policy. It's just lightyears ahead of the competition.
The biggest problem however is network effects. Most people simply don't want to juggle multiple stores and the communities attached to them.
People would likely juggle the use of two stores if the value proposition was great enough. But it isn't, which is why Steam dominates and all their competitors operate in comparatively tiny fiefdoms.
Microsoft killed it
With the money being spent on AAA titles these days, they are not going to make any money without increasing the price of Game Pass majorly. The big price bump they quickly backtracked on was an attempt to make Game Pass somewhere closer to being profitable.
Also this is part of why I'm really worried about how weak the concept of game ownership is getting.
See also how anyone buying GTA6 near launch will be unable to resell it.
Lamepass should have been much closer to "buy a new release, get a month of gamepass games for free" or something.
The friend I played the game with did the same. Honestly, if they didn't include Forza 6 in Game Pass we both would've purchased it full price.
but that's not happen in reality, people forgot to cancel
You can tell the PS5 was designed to be a digital-first system by the disc drive slapped on the side like a tumour hanging off the otherwise symmetrical body.
How can you say that? No credible reporting has proven that there ever will be a version of GTA 6 on a disc. The physical versions that are announced will all consist of a one-time code.
Edit: Also the average level in the real world is a lot more than 1%. 1% is like just the trans portion.
Of course, it's not like you couldn't have done a google search yourself, if you really cared.
I hate this timeline. We can’t even talk about fucking corporate margins without some chud shoehorning some of this shit in.
People also don't respect how WILDLY influential GamerGate as been. There's good arguments to be made that Trump and his shitty White House would never have come to pass if not for moot re-enabling political discussions on 4chan at the behest of some combo of Epstein and Bannon, explicitly to stoke reactionary rage at anything "gay" in games.
Like don't get me wrong it's deeply stupid and perhaps respect is the wrong word, but it's crazy how much those old events are shaping current culture war nonsense.
For Xbox being what it is today, which is mostly about the subscription and not the hardware console or the exclusives, you have to compound their acquisition frenzy of 2018-2020 or so, which totals about 75 billion+.
They didn't want the developers nor the catalog. What Microsoft wanted is to change the economics and dynamics of the entire games industry, to make it Netflix-like (play what's in the catalog today, pay monthly even if you don't play anything) vs. what Steam offers (purchase once, own "forever", even if it's de-listed).
But that didn't play out. Optimistic estimates put total revenue for Xbox since then in the 20B ballpark. At a ~5% margin (as other commenters have pointed out) the profit is about 1B dollars.
It means that after almost a decade, the entirety of Xbox is in the red for about 74 billion dollars, which is 74 billion away from breaking even.
Steam still dominates PC gaming. Xbox consoles can't be more irrelevant today.
This isn't about over-hiring or AI. It was a bet at the executive level that went horribly wrong. They can still do things like selling IPs at a bargain to compensate, but still. Horribly wrong.
Note: Microsoft doesn't publish hard factual data so the numbers above are somewhat speculative (e.g. "analysts data")
Both exist. I would say single player games tend to content in the range of 10+ hours. Think First Light, Ghost of Yotei in recent years.
Competitive and multiplayer games will tend more towards what you are thinking. CSGO, FIFA, and of course many others.
But I feel like even that doesn’t really capture the full range of everything.
A company that sells consoles complaining about not having enough games after 25 years in business and acquiring most popular game studios is hilarious.
They keep cutting game studios, killing games and then set ambitious profit margins. At some point you have to question, do the people in charge understand their own business at all?
They just gutted bungee and basically killed Destiny 2, not because the game won’t sell, but because it won’t generate the profits they unrealistically set.
While Bungie had historically been tied to Xbox / Microsoft during the Halo era, Bungie spun out to be its own company in 2007, and then was bought by Sony in 2022. It was Sony, not Microsoft, driving the most recent layoffs at Bungie.
Never ending growth and profits just seem to ruin everything
Another way to think about risk is opportunity cost. What other investments would give me the same return?
And the bad plays are management-related, so they’re firing a bunch of people…
I saw this coming from day one. The instant they did Netflix for Games, it was going to gut their margins. And then the inevitable pullback, either holding new games for months or raising the price, was going to kill the value proposition.
They said "This will make us a mint" and celebrated the victory years too early.
But paid online games you need to be subbed yes.
3% profit should be totally fine for any business. The planet is cooked, I think we can live with the shareholders making a bit less.
Myself and 2 of my friends stopped our subscriptions the day that happened and never went back. I know it’s anecdotal but I’m happy to see others did the same.
How are they still doing 5 billions in revenue per quarter? Are Xbox and games still sold? In my area they seem to have disappeared from the physical stores alley. I realized that a few weeks ago there were Playstation and Nintendo products in the video game area but no Xbox anything.
Mix that with the increasingly higher concentration of wealth, and things are just going to get worse.
The whole point of a market-based economy is to allocate resources to making things people actually want. How does the market figure out what people want more of? Well, profit margin. If someone is making a lot of profit selling something, that is a really good sign that people want more of that thing. Other people see the high profit margin, and move to get into that business. More of that thing is created, and people's demand is satisfied.
The high profit margin is the signal (and the incentive) to get more of that thing.
In other words "Compulsively chasing only the highest margins" can be rephrased as "investing in things that people want more of"
That's news to the ALDI brothers and Henry Ford. Capitalism used to be about the exact opposite. We moved from low volume - high margin, extractive feudal-like economics to consumer capitalism, high volume low margin. You create wealth by churning out commodities at low margins that the average worker could buy.
The tech industry is trying to exactly reverse this, as Varoufakis appropriately points out, by returning to techno-feudalism where you're not a consumer but a sort of platform serf. High volume commodity markets is exactly what these people try to eliminate to return to a kind of direct resource extraction.
Look, I am not saying there aren't horrible flaws with capitalism. There are a ton, and we should, as a society, work to mitigate them.
I just don't think the solution to the problem is for us to ask capitalists to not seek the highest margin. This is not a problem that is fixed by people just being more moral.
We fix this problem through public policy.
People see a 3% return and think, "Well, they aren't losing money so there is no reason they can't just keep doing business as usual." What this idea is missing is that the investors in a company aren't choosing between "keep my money in this company" and "sit on the cash", they are choosing between "keep my money in this company" and "invest my money somewhere else"
In other words, you aren't just looking at direct returns on an investment, you also have to think of the OPPORTUNITY COST of the investment. By keeping their money invested in a business making 3% returns, they can't invest that money somewhere else.
It's this competition that leads to prosperity, the alternative is central planning which leads to poverty.
I wonder how are they taking in 5 billion per quarter when their latest console barely outsold the first Xbox. I doubt it was making a bit less than 5 billion per quarter with quotes like "Ultimately, Microsoft lost an accumulative total of $4 billion from the Xbox, only managing to turn a profit at the end of 2004." on wikipedia.
So how are two consoles with roughly the same sales numbers so far apart in revenue?
https://wccftech.com/xbox-layoffs-gut-id-obsidian-zenimax-on...
Yikes, I bought every Xbox console and plenty of day-1 releases, but skipped the last gen when it became clear that the platform isn’t about gamers anymore.
Triple-As are also getting tiresome, so I think plenty of people are happy to get a cheaper title on Steam that feels like better value.
I tend to agree about the lackluster AAA industry, but I don't think that's the gamers 'fault' for wanting indie games, more private equity and the share market environment forcing developers to generate slop as opposed to good titles. It's a sad way that the broader economy is going in that regard.
Spencer's strategy for Xbox was very 2010 coded: rely on the billion/trillion dollar company to undercut the competition and gather market share and leverage. Classic embrace, extend, extinguish. That's why they bought a bunch of arthouse studios who don't immediately make money, invested hard in a subscription service that was wildly unprofitable (a strategy that even TV services couldn't make profitable, mind you), and focus on moving software more than hardware.
That strategy shifted dramatically between rising interest rates, a cooling consumer market, business uncertainties, and companies simply wanted to throw any excess fat into the AI rat race. So those art house studios were removed, Gamepass needs to enshittify pre-maturely,production needs to slow from a variety of offerings to the usual safe and sure releases. And of course, the biggest expense needs to be trimmed down on: because no one is stopping them from doing it in the US.
The number will still go up, but in different ways. They aren't doing this because they are in the red, they are doing it because they want all the money instead of a lot of it.
If we talked about costs as much as we talk about revenue (which carries roughly the same amount of information) people would judge theses reports very differently.
> Sharma posted in 2026 that she had recently begun playing video games under the gamertag AMRAHSAHSA to "learn and understand" the games industry
Imagine running the Xbox division and only just now picking up a controller.
The other part of me though says that, no, it is in fact pretty possible that she hasn't played any video games of note, other than Wii Sports that one time. And even if she has played games casually, is it really too much to ask to have the person leading the Xbox brand be someone who can press the X button on their controller and not be confused by that?
A 'Gamer' would have found that more difficult to do.
But with companies on the stock exchange, Good business practice often comes at the expense of market perception -> share price. And when that happens, there is a lot of pressure on the Board -> CEO to ensure gains are being shown immediately.
So my comment isn't to suggest that a Gamer could be a good person to run the business with good business nous, it's that their experience in the industry would most likely lead them to make decisions that are Good but need a longer horizon, vs immediate impact to satisfy the shareholders.
It happens with any company, and we're starting to see this happen with Apple as well. As their main product lines have started to taper off in growth, they have needed to do things to offset that, often making decisions that are contrary to what Apple would usually stand for or would not have considered, say, 15 years ago.
So my comment isn't to suggest that a Gamer could be a good person to run the business with good business nous, it's that their experience in the industry would most likely lead them to make decisions that are Good but need a longer horizon, vs immediate impact to satisfy the shareholders.
It happens with any company, and we're starting to see this happen with Apple as well. As their main product lines have started to taper off in growth, they have needed to do things to offset that, often making decisions that are contrary to what Apple would usually stand for or would not have considered, say, 15 years ago.
At least they didn't create a fake profile for her the way Elon Musk made one.
I think the "glass cliff" is going to claim another victim.
IMO Phil was very clearly pushed out by “AI will cut costs talk”. No one makes huge investments into acquiring companies and then suddenly retires (after running the division successfully for decades) and none of his underlings were promoted into the role, they all left when he did.
Was definitely time for major change at XBOX. Is this the right direction? I have no idea.
The rebrand to ‘XBOX’ is a good example of how they’re already out of ideas
At a roughly 3% profit, they are barely breaking even and have no money to invest in staying current. It's not a sustainable business.
I don't usually take HN audience seriously when talking about economics