Microsoft dashes game developer dreams

Microsoft for years has been an active acquirer of gaming companies, including small independent ones. But that may be changing.

Driving the news: The tech giant on Monday announced a giant restructuring of its Xbox unit, including thousands of job cuts and the divestiture of five gaming studios.

• Two of the studios (Ninja Theory and Undead Labs) have undisclosed buyers, while two others (Double Fine and Compulsion Games) will be spun out to their founders.
• A process to divest the fifth studio, France's Arkane, is just beginning.

What they're saying: "Our business today is not healthy ... We must reset Xbox," group CEO Asha Sharma wrote in a memo. "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 [on small/mid-sized studios]."

Catch up quick: Shortly after becoming Microsoft CEO in 2014, Satya Nadella joined a Fortune conference in Aspen where he talked excitedly about the company's growth opportunities in gaming. Not just hardware, but the games themselves.

• His first big swing was on Mojang Studios, the Swedish maker of Minecraft. That was followed by a $7.5 billion acquisition of ZeniMax in 2021 — which included Arkane — and then its $63 billion buy of Activision Blizzard in 2023.
• Meanwhile, former Xbox boss Phil Spencer complemented those deals with a spate of smaller acquisitions.

Look ahead: Sharma's memo argued that the moves are more about reorganization than retreat, with Game File's Stephen Totilo reporting that there could be additional investment in the Minecraft platform.

• At the same time, however, it's hard to see her breaking out the M&A checkbook any time soon.

The bottom line: Microsoft just dashed the dreams of gaming developers, and their VC backers.