Microsoft may spin-off Xbox into separate business or team-up with rivals claims report

Xbox could be spun out into a separate business according to a report, as Microsoft hints at other ominous changes to come.

Following the Xbox Games Showcase earlier this month, it’s clear some big shake-ups are underway within Microsoft’s gaming division. 

Xbox has pivoted back to exclusive games (albeit in a very muddled way) and, following a frank blog post from CEO Asha Sharma about the company’s declining revenue, the company is reportedly on the brink of more layoffs and potential studio closures. According to game designer Chris Avellone, even studios with ‘steady releases’ are no longer safe. 

Additionally, we’ve heard how the ongoing memory shortage has led to a drastic rethink around Xbox’s approach to its next console, currently codenamed Project Helix.

By all accounts, Xbox’s future is in a state of flux, to the point where Microsoft is seemingly considering spinning off the gaming business into its own subsidiary. 

According to an Information report, Microsoft hasn’t ruled out restructuring its Xbox division into a ‘wholly-owned subsidiary’ or creating a joint venture with other partners, although the company doesn’t have any ‘imminent’ plans to do so. 

‘Microsoft doesn’t have any imminent restructuring plans, but those options are on the table,’ sources told the publication. ‘[Microsoft CEO] Satya Nadella and [chief financial officer] Amy Hood haven’t ruled out restructuring Xbox’s relationship to Microsoft at some point in the future if doing so would make Xbox a more successful business, the people said.’

If Xbox were to become a subsidiary, it would be a more autonomous company in terms of budgets and the business’ overall direction, but Microsoft would ultimately still have control over it. Both LinkedIn and GitHub are currently Microsoft-owned subsidiaries. 

Additionally, it’s claimed Microsoft CEO Satya Nadella and chief financial officer Amy Hood have green-lit Sharma’s plan to spend more on top-tier games in the coming fiscal year, starting in July. However, details of an exact budget are unclear. 

As part of this, it’s claimed that Xbox ‘will move faster’ on developing new games in its biggest franchises, with a focus on Halo, Fallout, and The Elder Scrolls. It’s said the latter two, both developed by Bethesda, are a particular focus for Sharma.

Despite the success of the Fallout TV show, there hasn’t been a major new Fallout game since 2018’s Fallout 76, and no single-player game since 2015. Similarly, despite announcing The Elder Scrolls 6 over eight years ago, the sequel is still in development (and seemingly still a few years off). 

At this point, it’s unclear if these franchises can even turn the tide for Xbox, or what Microsoft will do to fast-track them. However, recent comments from Nadella do provide some insight into why Microsoft is perhaps considering the idea of spinning off Xbox into a separate venture. 

Speaking at The New York Times Hard Fork event on June 10, Nadella explained how, following years of investment into Xbox, Microsoft needs to turn it into 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.

‘I think one of the things that Asha, who has just taken over Xbox, put out is that we’ve invested a lot. No one can accuse Microsoft of not having invested for the last 25 years. And now we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment.’

He added: ‘The challenge we have is we’ve not been monetising that entertainment. In fact, if anything, we’ve been subsidising that entertainment. In fact, there’s more monetisation of Xbox games happening on YouTube than at Microsoft.

‘And so that doesn’t mean we go do things that are unnatural. We want us to do what is really our job, which is to build great games, build great hardware, but we’ve got to do it in an economically sustainable way.’

Nadella doesn’t offer any specific solutions to Xbox’s problems (he perhaps doesn’t have any yet) but with potential layoffs, restructurings, and pivots on Project Helix all seemingly in contention, it’s clear everything is up in the air for Microsoft’s gaming division. 

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