Microsoft may be preparing to spin off its Xbox division into a separate business or partner with rivals, according to a new report. The news comes as the company hints at further significant changes within its gaming arm.
Xbox's Uncertain Future
Following the Xbox Games Showcase earlier this month, it is clear that major shake-ups are underway. Xbox has shifted back to exclusive games, albeit in a confusing manner, and after a frank blog post from CEO Asha Sharma about declining revenue, the company is reportedly on the verge of more layoffs and potential studio closures. Game designer Chris Avellone warned that even studios with steady releases are no longer safe.
Additionally, ongoing memory shortages have forced a drastic rethink of Xbox's next console, codenamed Project Helix. The future of Xbox appears uncertain, with Microsoft reportedly considering spinning off the gaming business into its own subsidiary.
Restructuring Options
According to a report from The Information, Microsoft has not ruled out restructuring Xbox into a wholly-owned subsidiary or creating a joint venture with other partners, though no imminent plans exist. Sources told the publication that CEO Satya Nadella and CFO Amy Hood have not ruled out restructuring Xbox's relationship with Microsoft if it would make the business more successful.
If Xbox became a subsidiary, it would operate with more autonomy regarding budgets and direction, but Microsoft would retain control. Both LinkedIn and GitHub currently operate as Microsoft-owned subsidiaries.
Focus on Key Franchises
It is also claimed that Nadella and Hood have approved Sharma's plan to increase spending on top-tier games in the coming fiscal year, starting in July, though exact budget details remain unclear. As part of this, Xbox will accelerate development of new games in its biggest franchises, particularly Halo, Fallout, and The Elder Scrolls. The latter two, developed by Bethesda, are a particular focus for Sharma.
Despite the success of the Fallout TV show, no major new Fallout game has been released since Fallout 76 in 2018, and no single-player game since Fallout 4 in 2015. Similarly, The Elder Scrolls 6, announced over eight years ago, remains in development and likely years away.
Monetization Challenges
Recent comments from Nadella provide insight into why Microsoft might consider spinning off Xbox. Speaking at The New York Times Hard Fork event on June 10, Nadella explained that after years of investment, Xbox needs to become a sustainable business.
"The challenge now for us is to think about how do you innovate both in hardware as well as in the games going forward in a world in an economically viable way," Nadella said. He added that Xbox has invested heavily for 25 years but must now turn that into a sustainable business that delivers entertainment. "The challenge we have is we've not been monetising that entertainment. In fact, if anything, we've been subsidising that entertainment. There's more monetisation of Xbox games happening on YouTube than at Microsoft."
Nadella did not offer specific solutions, but with potential layoffs, restructurings, and changes to Project Helix, everything is up in the air for Microsoft's gaming division.
