Why Xbox is Closing Beloved Game Studios Like Tango

The recent wave of layoffs and studio closures at Microsoft has left the gaming community in shock. In May 2024, Xbox executives announced the shutdown of several critically acclaimed development teams, signaling a massive and troubling shift in the company’s long-term strategy.

The Studios Caught in the Crossfire

On May 7, 2024, Matt Booty, the Head of Xbox Game Studios, sent an internal email announcing the closure of four teams under the Bethesda umbrella. The list of casualties included some of the most respected names in the industry.

• Tango Gameworks: The Tokyo-based studio founded by Resident Evil creator Shinji Mikami. They developed The Evil Within, Ghostwire: Tokyo, and the 2023 surprise hit Hi-Fi Rush.
• Arkane Austin: The Texas branch of Arkane Studios responsible for the 2017 masterpiece Prey and the highly anticipated, but poorly received, 2023 multiplayer shooter Redfall.
• Alpha Dog Games: A mobile game developer known for Mighty Doom.
• Roundhouse Games: A support studio that Microsoft absorbed into ZeniMax Online Studios to work on The Elder Scrolls Online.

The closure of Tango Gameworks was particularly confusing for fans. Just months earlier, Xbox executives publicly praised Hi-Fi Rush. The game won a BAFTA for its animation and took home the Best Audio Design award at The Game Awards. Despite delivering a highly rated, award-winning exclusive, Tango Gameworks was still shuttered.

The Crushing Weight of Mega-Acquisitions

To understand why Microsoft is closing successful studios, you have to look at their spending habits over the last few years. Xbox has spent an unprecedented amount of money buying up publishers to bolster its Xbox Game Pass subscription service.

In 2021, Microsoft finalized its purchase of ZeniMax Media, the parent company of Bethesda, for $7.5 billion. Then, in October 2023, the company completed the largest acquisition in video game history by buying Activision Blizzard for a staggering $68.7 billion.

Spending roughly $76 billion requires massive, rapid returns. Microsoft is no longer just competing with Sony and Nintendo. The Xbox division now has to answer to Microsoft’s top executives and shareholders, proving that these massive investments will generate immense profit. Maintaining smaller studios with niche audiences simply does not align with the pressure to recoup $76 billion.

The Stagnation of Xbox Game Pass

For years, the core of the Xbox strategy was Game Pass. The pitch was simple: pay a monthly fee and get access to hundreds of games, including all first-party Xbox games on the day they launch. To make this work, Microsoft needed a constant stream of new, diverse content.

However, growth has slowed drastically. In February 2024, Xbox announced Game Pass had reached 34 million subscribers. While that sounds impressive, it falls far short of the aggressive growth targets the company set for itself during the pandemic boom. Xbox CEO Phil Spencer has openly admitted that console growth has largely flatlined.

Because Game Pass subscriptions are no longer growing at an exponential rate, the strategy of funding a massive variety of games no longer works. Xbox cannot afford to spend $50 million developing a game like Hi-Fi Rush if it does not drive a massive wave of new hardware sales or new Game Pass subscriptions.

A Pivot to Guaranteed Blockbusters

In his email to staff, Matt Booty cited a “reprioritization of titles and resources” as the reason for the closures. In simple terms, this means Microsoft is putting all of its chips on guaranteed, massive franchises.

Instead of funding multiple smaller projects, Xbox is shifting its remaining developers to work on mega-franchises. The company needs massive hits to survive the current financial pressure.

• Call of Duty: Now that Microsoft owns Activision, Call of Duty is their biggest cash cow.
• Fallout: Following the massive success of the Amazon Prime television show, Microsoft is heavily prioritizing the Fallout franchise.
• The Elder Scrolls: Bethesda is currently developing The Elder Scrolls VI, a game that needs thousands of developers to finish.

By closing Arkane Austin and Tango Gameworks, Microsoft freed up salaries and resources to funnel into these massive blockbuster projects. The days of Xbox funding experimental, medium-budget games are largely over.

The High Cost of Failure

While Tango Gameworks produced a hit, Arkane Austin serves as an example of how unforgiving the modern gaming industry has become. Arkane Austin spent years developing Redfall, a vampire-themed cooperative shooter.

When Redfall launched in May 2023, it was riddled with technical bugs and received terrible reviews. It failed to attract a player base. In the current economic climate, video games take over five years and tens of millions of dollars to make. When a massive project like Redfall fails, the financial hole is too deep for Microsoft to justify giving the studio another five years to try again.

What This Means for Gamers

The message Microsoft sent with these closures is clear. Critical acclaim and awards are no longer enough to keep a studio open. A game must generate massive revenue, drive millions of subscriptions, or be part of a globally recognized franchise.

For gamers, this signals a future with less variety. You can expect more Call of Duty, more Fallout, and more Halo. But the smaller, highly creative, and risky games that add flavor to the Xbox ecosystem will be far less common.

Frequently Asked Questions

Why did Microsoft close Tango Gameworks after Hi-Fi Rush was successful? While Hi-Fi Rush was a critical success and loved by players, it did not generate the massive revenue or the massive surge in Game Pass subscriptions that Microsoft currently requires. Xbox leadership decided to close the studio to reallocate those funds toward larger, more established franchises.

Will Microsoft close more Xbox game studios? It is highly possible. The video game industry is currently experiencing a massive wave of consolidation and layoffs. If a studio does not produce a game that meets Microsoft’s incredibly high financial targets, it is at risk of closure.

What happens to the employees of the closed studios? Some employees from the shuttered studios were relocated to other teams within Bethesda or ZeniMax Online Studios to work on different projects. However, the vast majority of the staff at Tango Gameworks and Arkane Austin lost their jobs.