Xbox Is Dismantling Its Future To Rebuild a Past It Can Never Recapture

It is an old story - told to me nearly a decade ago by those who lived it - but it bears repeating now. Fallout was invented only because its paymasters weren’t paying attention. Developed in the bowels of Interplay during the publisher’s 90s heyday, the classic RPG benefited from a chaotic and noisy company atmosphere, in which developers divided themselves into cliques reminiscent of high school.

Fallout’s team was like the AV club on the periphery - given a vague mandate to start a project based on a tabletop ruleset. Lead producer and programmer Tim Cain would send out emails saying, “I’m in Conference Room Two with a pizza,” and those who wanted to come on their own time could, to spin up ideas.

The Fallout team quickly rejected high fantasy. They considered concepts for time travel and generation ships, and in a way, the setting they ultimately landed on folded in aspects of both those premises. A post-apocalyptic world that was rooted in both the culture and futurism of the 1950s; where a minority of humanity was preserved in vaults, while the rest muddled through an irradiated wasteland as best they could.

Fallout was never properly pitched to Interplay’s superiors. The publisher was distracted by shinier prospects: sports games, an online division, and a newly won Dungeons & Dragons license. While nobody was watching, the Fallout team instilled its game with a pervading moral greyness, and a commitment to mapping the consequences of player actions. It simulated drug addiction, and blowing up NPCs with dynamite. It introduced a faction of militant hoarders called the Brotherhood of Steel. The resulting RPG was decidedly odd - and only once it became an unexpected hit did Interplay start to consider Fallout a hot property.

There is no chance that a series like Fallout could be kickstarted at Xbox today. Yes, CEO Asha Sharma is evidently interested in continuing the blockbuster franchise that Fallout has become; a recent Bloomberg report suggested that Obsidian’s upcoming sequel to Avowed had been cancelled in favour of another Fallout. But whatever Xbox’s next Fallout might have been - the oddity in the corner that thrives without oversight and unexpectedly becomes beloved - will have died on July 6, when Sharma announced “the most significant restructure in Xbox history”.

Over what is sure to be a painful and fearful year for Xbox employees, 3,200 people are set to leave the company. 1,600 have already lost their jobs, and four studios have been shown the door. Double Fine and Compulsion will return to independent status; Ninja Theory and Undead Labs have found new homes. A fifth studio, Arkane Lyon, is likely to be handed off to a new owner too. The alternative, too grim to contemplate, is that Lyon will go the same way as its Austin counterpart, cut down like the Sycamore Gap tree.

The reasoning behind both the acquisition and departure of these studios is fairly clear. For a long time, under previous CEO Phil Spencer, the prevailing Xbox strategy was to fuel Game Pass with the widest possible variety of irresistible games. During this push to make Xbox a subscription company, even something as marvellously esoteric as Obsidian’s Pentiment had its place - signalling that Game Pass was home to both bombastic shooters and monkish murder investigations.

But Game Pass hasn’t quite worked out, and Xbox’s priorities once again resemble those of a traditional big-budget publisher. “It is neither possible nor desirable to own every great independent studio,” Sharma said. “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.”

Nobody expects Xbox to steer unprofitable studios through the games industry’s most dramatic downturn in decades (though let’s be honest, it absolutely could, were Microsoft not hell bent on shovelling billions into its AI furnace and chasing never-ending growth for shareholders). Still: Sharma has made an overcorrection. The funding of developers like Double Fine and Arkane has not been a favour nor a subsidy, but an investment in the new ideas that Xbox desperately needs.

These studios have proven themselves to be dizzingly creative. In its history, Double Fine has only made two sequels - Costume Quest 2 and Psychonauts 2 - amid a wildly original catalogue that includes a sentient lighthouse simulator, a body-swapping Metroidvania, an XCOM-style riff on feudal genealogy, and precisely one RTS tribute to heavy metal album art.

Arkane Lyon, meanwhile, is widely acknowledged as one of the medium’s leaders in dense, engrossing world design. That’s evident to anyone who’s played Dishonored, Deathloop, or Dark Messiah of Might and Magic. Arkane’s worldbuilding has combined industrial Victoriana and bohemian witch covens; subarctic fishing villages and immortal party people. These unlikely mashups haven’t felt jarring in their juxtaposition, but instead grounded and believable. Much the way Fallout was, when Cain’s team married Atomic Age kitsch to wasteland horror.

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Not all of Double Fine or Arkane’s games have been breakout hits. In fact, most haven’t. But if Xbox wants to future-proof its output, to find the Fallouts of tomorrow, it needs to incubate strange new ideas. To take the relatively inexpensive risks which, over the long run, can produce behemoth franchises.

Instead, it appears to be doubling down on series that are more than two decades old. Few would disagree that Halo’s best days are behind it; the very existence of Halo: Campaign Evolved is tacit acknowledgement of that fact. Gears of War: E-Day looks like chunky, old-fashioned fun - but the novelty of having straightforward cover shooters back in the age of live-service will not hold forever. The original creators of these games have long since moved on, and their successors are beholden to old formulae. Eventually, these ancient husks will disintegrate into dust, and Xbox will be left with nothing new to turn to.

“We are shifting from a planning model primarily centered on what’s next for each independent studio to one that focuses on our strongest franchises,” Bethesda head of studio Jill Braff wrote in a recent email to staff. “From there, we’ll align the right talent, technology, and resources across the organisation to deliver on those priorities.” It’s a statement that provides a glimpse into Microsoft’s new mindset: a return to the dying days of the Xbox 360, driven by top-down mandates, and intended to ensure the company’s hardware is backed up by killer apps.

Even by its own stated goals, however, Xbox seems to be setting itself up to fail. Inarguably, one of Bethesda’s strongest franchises is The Elder Scrolls. Yet in the wake of Sharma’s layoffs, “as much as half” of the team behind The Elder Scrolls Online is gone. What’s more, over 50 employees at Bethesda Game Studios have been let go, an outcome that will have a “substantial and cascading effect” on the making of The Elder Scrolls 6, according to multiple employees at the studio.

Meanwhile, id Software has been so dramatically drained of talent that one laid-off worker told GamesBeat they were “not convinced there is a viable way forward”. If Xbox is to double down on venerable series like Doom and Quake, you would imagine it might need the help of the developers who have successfully reinvented Doom on three separate occasions since the millennium. Are these the acts of somebody throwing resources behind sure bets?

Sharma’s talk of streamlining, simplifying and flattening Xbox’s organisation more closely resembles the startup mentality of Silicon Valley - a worldview that values mobility over stability. It echoes Elon Musk, whose typical approach is to yank wires out of the machine, and discover afterwards whether any of them were essential. It’s not a way of thinking that necessarily belongs in the big-budget game business.

Listen to developers, and they’ll tell you that great games are built by teams with a shared shorthand and institutional knowledge that can only be fostered over long years in each others’ company. Every time an outfit like id Software or Bethesda Game Studios is wracked by layoffs, that bond is damaged, and the scars show in subsequent projects.

If Obsidian is now beginning work on its first Fallout game in a decade and a half, it does so at a disadvantage - minus a quarter of its staff. The studio has long produced great work under dire circumstances, and I’m sure will do so again. Over the course of its fraught history, uncertainty and instability has sadly been the norm rather than the exception.

But as for the franchises that will follow Fallout? The ones that will ensure Xbox can survive for another two decades, and sell its consoles far into the future? It’s unclear where they’ll come from. The incubation chambers are broken, and nothing new grows.

Jeremy Peel is a freelance journalist and friend to anyone who will look at photos of his dogs.