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.