Xbox's Dilemma: The Cost of Creative Freedom and Studio Closures

Xbox used to be a sanctuary for game developers to confidently embark on risky projects, birthing innovative and captivating titles. It was envisioned as a stronghold capable of nurturing such ventures. Xbox stood as a distinct entity in the market. However, after the events of Tuesday night, Microsoft's message was clear: Xbox remains part of one of the world's wealthiest conglomerates, and that translates to prioritizing revenue and profit.

Among the studios shuttered or absorbed, cases like Arkane Austin or Alpha Dog Studios are easily understood due to Redfall's debacle or the ineffective performance of Mighty Doom in the mobile market. The merger of Roundhouse Games into ZeniMax Online Studios didn't raise much concern. Only one name sparked controversy: Tango Gameworks.

So, what's the deal with Tango that led to Xbox's studio closure, prompting speculations of an impending downfall?

Xbox has never held a strong foothold in Japan, and owning a game studio there means it's not a walk in the park. The acquisition of Bethesda four years ago inadvertently handed Xbox a Japanese studio, and it was no ordinary studio. It was founded by the legendary game developer Shinji Mikami. Even its closure last year raised many questions as the studio had released perhaps Xbox's most revered exclusive game since Forza Horizon 5: Hi-Fi Rush. A game both creatively refreshing and enthralling, rarely seen in the gaming world.

Yet, perhaps Hi-Fi Rush's existence underscored Xbox's lingering weakness. Whether the decision to close studios came directly from Phil Spencer, CEO of Microsoft Gaming, is unclear. However, it's essential to note that Microsoft's CEO, Satya Nadella, is determined to maximize revenue and profit through swift transformations.

Nadella differs from his predecessor, Steve Ballmer, by striving for diverse revenue streams, not solely relying on traditional sources like Windows or Office. Now, not only Windows or Office dominate but newer ventures like Cloud Computing, LinkedIn, AI, and recently, Xbox, have also stepped up, becoming Microsoft's third-largest revenue stream. For someone averse to stagnation and possessing high patience, it's evident that the fate of studios like Tango is merely a matter of time.

Tango Gameworks has long struggled to generate substantial revenue, let alone profit. This was evident even before Microsoft acquired Bethesda. As a Japanese-style AAA game studio, Tango wasn't necessarily a big spender, but ZeniMax was also not a major AAA publisher like Activision or EA. ZeniMax struggled to generate revenue from 2015 to 2020, indicating financial difficulties and the looming threat of bankruptcy.

Recognizing the opportunity to acquire ZeniMax (Bethesda) at a low price and prevent PlayStation from securing exclusive games like Deathloop, Ghostwire: Tokyo, and Starfield, Microsoft swiftly moved in. However, after four years, it became clear that what Microsoft needed from Bethesda were the profitable IP franchises like Fallout, Elder Scrolls, and DOOM, rather than the talent behind them. Clearly, titles like Evil Within or Rage didn't fit into this category.

From the outset, it's apparent that studios like Tango didn't benefit Xbox in the long run. So, one might question why Xbox acquired them only to shut them down, akin to EA's practices in the past.

We're not privy to Xbox's financial reports detailing the performance and revenue generation capabilities of these studios. However, it's reasonable to conclude that even without Microsoft's acquisition, Tango would have struggled to survive. As mentioned earlier, ZeniMax was financially unstable and couldn't sustain its subsidiary studios. It's like a struggling sports team in debt, sinking and in need of a new owner to clear its debts.

Does Tango Gameworks signal a dark future for Xbox after its closure? In reality, Microsoft is a business entity, not a charity. Closing down studios is a necessary step if they fail to generate revenue. While Hi-Fi Rush was a great game, success in creativity doesn't always translate to financial success. There are many great games in the market that fail to attract enough players. Tango Gameworks seemed to be burning through Xbox's money without delivering sufficient ROI. Shareholders' tolerance for this likely played a role in accepting their fate.

Looking back, even before the existence of Hi-Fi Rush, Tango was a niche studio. Evil Within never surpassed the shadow of Resident Evil, and its sequel struggled in both revenue and quality. While there's no official lifetime sales figure for Evil Within 2, street numbers suggest it didn't even reach 1 million copies sold across multiple platforms.

It's highly likely that Tango operates more as a passion-driven studio rather than a commercially viable venture, posing a significant challenge for Microsoft to sustain. Even with titles like Ghostwire: Tokyo, Tango may face similar challenges as with Evil Within.

However, Tango also serves as evidence that no studio under Xbox is safe anymore. Looking at other studios like Ninja Theory, with Hellblade 2 set to release in just two weeks after six years of development, it's clear that it may not achieve significant sales due to its niche genre. Despite potential critical acclaim, will it bring in revenue for Xbox? Unlikely. Even if Hellblade 2 receives critical acclaim, there's no guarantee that Ninja Theory will be secure.

Xbox's intention to close down studios is no longer a question; they set this precedent from the third week onwards. While game development is an art, it's also a business, and Microsoft may view studios burning through their funds without delivering returns as unsustainable. This could lead to closures to uphold shareholder interests.

Xbox is in a difficult position, and according to business principles, anything not performing well should be cut. However, games hold spiritual value, and people are hesitant to prioritize money over everything else. Xbox may have shot itself in the foot by diminishing fan trust, especially with their crucial summer showcase approaching. They might be in a precarious financial situation, and the best course of action could be to announce bad news promptly and await positive developments to mitigate backlash.

In the end, Xbox has shown the price of freedom, and now they must pay a steep cost. At Xbox, it's no longer only about franchises like Halo, Gears, or Forza, but rather about new projects like Grounded, Pentiment, and Hi-Fi Rush—games that are niche and uniquely different. Phil Spencer once said, "When a studio like Rare wants to make Sea Of Thieves, or a team like Obsidian wants to make Grounded, or Tango wants to make Hi-Fi, I want all of them to have a platform as creative as Xbox to push their talents to the highest level." Phil's statement indicates that they don't want to emulate PlayStation's focus on AAA blockbuster shooters for the past 20 years. Phil kept his words to protect the creation of highbrow or artistic games, but such an approach doesn't align with Microsoft's profit-driven business philosophy. So, what's the price here? It's when art must coexist with economic considerations. Clearly, business executives will have to make the toughest decisions, as the cost of freedom has never been low..