The head of Xbox admitted why there are so many layoffs in the video game industry

video game industry 2023 has seen one of its best and worst years. Releases such as Baldur’s Gate 3, Marvel’s Spider-Man 2 or The Legend of Zelda: Tears of the Kingdom were overshadowed thousands of layoffs and studio closures. The situation is far from improving in 2024, and the head of Xbox has detailed why they are going through this crisis.

In an interview with PolygonPhil Spencer shared his analysis of the industry situation. This was announced by the director of Microsoft Game Studios. increased development costs and lack of growth in the console market They are to blame for what is happening. Additionally, the exclusive games business model poses additional risk for studios as it limits overall revenue.

“Mathematics for [crear] the game has definitely changed,” Spencer said, adding that development could top $300 million. The most obvious example is Spider-Man Marvel 2$315 million PlayStation game. and it has already exceeded 10 million units. Although it is one of the best-selling games, Sony’s ROI is around 35%.

The situation is different from the situation when publisher He set sales and profit targets to establish a budget that was only a fraction of the cost of producing a video game. Now Companies should consider different distribution channels and services. low dEmanda, for example Game Pass, PlayStation Plus. Games compete for exposure, and sometimes they have to be offered at discounts for several weeks after their release, otherwise it will be difficult to sell more units.

Why is there no innovation and studios are laying off so many employees?

One of the constant criticisms from users is that lack of innovation in video games. Studios like Ubisoft or EA rework the familiar formula every year, leaving indie games as the only alternative to experimentation. According to Phil Spencer, Development costs are forcing studios to rely on their established franchises.

“If you’re a publisher, you know that’s a pretty big number in a world where there are a lot of video games already in the works,” the Microsoft Gaming chief said. “How are you going to organize this? Are you willing to take on the responsibility of new intellectual property when the risk of profit is so high? I think it’s affecting the creativity of this industry and I don’t like it.”

Xbox tried to change this dynamic with more modest developments than PlayStation blockbusters. Games like Sea of ​​Thieves or Grounded costs only a fraction of the development cost Spider-Man 2 and brought in a million dollars in revenue. Now the company plans to bring them to PS5 and Nintendo Switch to accelerate their growth.

But with everything, and with the change in mentality, and with the strategy of ending exclusives, Xbox has also suffered from an onslaught of layoffs. Following the completion of the purchase of Activision Blizzard, Microsoft announced an 8% workforce reduction, equivalent to 1,900 employees. This seriously affected Blizzard and forced studios like Toys for Bob to go independent.

According to Phil Spencer, the reason associated with lack of growth.

Although the prospects seem bleak, Spencer believes the video game industry can grow. New generations are accustomed to playing on mobile phones and are not burdened by the disadvantages of a traditional player, such as exclusives.. Xbox targets Gen Z to grow the brand, and the key to achieving this goal will be offering a portable console.