Is Xbox making the right decisions? Plus, how AI is (and isn’t) transforming

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In This Edition,

• Xbox’s latest changes

• Video game localization

• We return from Tokyo (podcast only)

Hello there!

I am back from travels in Japan. And I found the country a fascinating and nostalgic place. Final Fantasy and Zelda are the big brands. Games are still sold in shops. There are still huge venues filled with arcade cabinets. As someone over the age of 40, I loved it.

We’ll have more from Tokyo in future episodes. Today, however, I will be discussing the latest news coming out of Xbox. Plus, we dive into the world of video game localization.

You can listen or watch it all above. Alternatively, read on!

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Is Xbox making the right decisions?

Xbox has made a series of announcements this week in part two of its company ‘reset’.

Those changes are:

• Halo is now under Activision, which will build a new team to work on future projects. Existing in-market Halo titles will continue to be supported by the current Halo Studios team, which is now operating at a reduced capacity.

• Two deals to buy UK-based Ninja Theory have fallen through and the studio now faces closure.

• Undead Labs’ buyer fell through, too, and the studio is now going independent with an unnamed publisher handling State of Decay 3.

• UK developer Rare is now part of Activision.

• Age of Empire production house World’s Edge is also reporting to Activision.

• Grounded developer Obsidian will now report to Bethesda.

• Turn10 is merging with Playground Games. Playground uses Turn10’s Forza engine for its Forza Horizon and Fable games.

• There will be 268 job cuts in total, including a number of losses from the Xbox Game Studios central and leadership team.

• Xbox says it is three-quarters of the way through its planned cuts.

Let’s recap how we got here.

Earlier this year, Xbox leader Phil Spencer stepped down. He was replaced by a newbie to the video game world in Asha Sharma. Sharma made immediate changes, some of them minor like changing the Xbox branding, and some of them more significant, such as reducing the price of Game Pass and hiring a new leadership team, including chief strategy officer Matthew Ball and Helen Chiang at COO.

She has inherited a business that is in poor shape. Xbox had spent a lot of money buying studios in an effort to bolster its games portfolio, primarily to accelerate the Game Pass subscription business. It hasn’t worked. Game Pass hasn’t grown to the expected level, the games themselves haven’t connected, and Xbox’s console market share has reduced. As a result, profit margins are poor and growth is non-existent.

The company has come up with a plan that focuses on bigger bets and core franchises. It wants to grow the Xbox platform, and is making certain titles exclusive to the Xbox console to boost sales and engagement.

This new strategy requires the company to invest in certain areas. And it is investing. It’s just signed a big game from Hideo Kojima, and it’s building a new Halo team.

But it also requires cutting things that aren’t working and it doesn’t need, as well as streamlining operations. That includes removing five studios from its portfolio.

It’s divested of Double Fine (Psychonauts) Compulsion (South of Midnight) and Undead Labs (South of Midnight), which have all been returned to independence. At one point, Undead Labs was being acquired by UK developer Splash Damage (Gears Tactics), which is funded by Emona Capital (Emona also funds UK publisher Secret Mode and Canadian developer Relic). But that deal didn’t complete.

The fourth studio is Ninja Theory. It also had two buyers at one point, but both deals fell through. I know two investors that looked at Ninja Theory, and they both told me the cost of the team was high, which ultimately deterred them.

UK law means that Ninja Theory isn’t being closed today. However, staff are being put on consultation, which gives Xbox around six weeks to secure a new home for the Cambridge-based team. I am told its next game, Senua, is “A significant step-up on Hellblade 2”, so fingers crossed it finds someone.

The fifth studio Xbox is divesting from is Arkane Lyon. The consultation on that studio extends to the end of the year.

There are those in the industry that are frustrated by the decisions that led to this situation. Nevertheless, change was necessary, and the decisions being made are sensible. Although cutting loss-making teams like Double Fine won’t make a huge difference to Xbox’s bottom line, it does free it up to focus on more lucrative areas and projects.

Beyond that divestment, Xbox is streamlining its operation by moving developers within its Xbox Game Studios business under Activision and Bethesda. To begin with, the developers moving are Rare, World’s Edge and Obsidian, along with the Halo IP.

Rare is behind Sea of Thieves. The pirate game has been a decent success, but it has been declining over the last few years. In 2025, Rare’s Everwild project was cancelled, which led to some redundancies. However, the studio was able to mitigate that by cutting back on outsourcing, and moving staff onto Sea of Thieves. As a result of its Activision move, there have been a few cuts to Rare’s central operations team. The studio is working on other projects.

Rare is a unique studio in Microsoft’s portfolio. It makes very original games, and has a 40-year legacy, with many of those games unavailable on current platforms (there are more Rare games on the Evercade retro console than on Steam). For me, it represents an opportunity.

One little observation around Rare. In 2002, Nintendo owned 49% of the studio and had the option to take the remaining 51%. It declined to do that, triggering a bidding war. By the end, two companies remained in for Rare. One of those companies was, of course, Xbox. The other? Activision.

In terms of Obsidian, there is some unhappiness that it’s becoming part of Bethesda. Some of the team feel they’ve lost the autonomy and freedom that they were promised. But the games it released last year, although good quality, didn’t perform as hoped. And the chance to stay together and work on a major IP like Fallout might, in time, be viewed as a positive outcome.

The biggest story is, of course, Activision taking over Halo. This is less about cutting costs and more about getting Halo moving again. Halo was once one of the world’s leading shooters. The 2007 release of Halo 3 was the biggest entertainment launch of all time back then. Today, it is a shadow of that.

Halo creators Bungie left the series in 2010, and was succeeded by 343 Industries (later rebranded Halo Studios). Despite some bold attempts, the studio has had limited success. Its ambitious 2021 Halo Infinite game also arrived late and underperformed.

There are many reasons Halo has waned beyond the products themselves. The genre has moved on, and sometimes franchises do just fade away over time.

Nevertheless, Xbox believes there’s life in Master Chief yet. And Activision certainly has the capabilities to test that theory. When Microsoft acquired Activision Blizzard in 2023, I said that Xbox might want to put all of its software teams under that company. Activision is a significantly more successful publisher than Xbox. Its output is generally good quality, arrives on time and, crucially, on budget.

It’s not flawless, of course. Activision had Bungie’s Destiny for a while, and struggled with that in the end. Call of Duty is having a bit of a low moment right now, too. But on paper, you can see why Activision would be given the keys to Halo.

That’s the important bit: On paper, this makes sense. But games are not made on paper. They’re made by people, they’re made by teams, they’re made by studios with distinct voices, visions and cultures. These things take time to cultivate. Building a new studio might sound exciting, but actually there’s an argument to be made that an existing group, who know each other, who have worked together across multiple projects, might be better placed to take a crack at rescuing a franchise like Halo. Perhaps Rare might be interested in taking on Halo? It’s a shame that Xbox is letting Arkane Lyon go. I’d bet they’d create a really unique Halo.

Beyond this week, there are three main Xbox studios that have not moved division: The Coalition (Gears of War), Playground Games (Fable/Forza Horizon), and InXile (Clockwork Revolution). All three studios have a new game out over the next 12-ish months. But I expect they will end up reporting to either Activision or Bethesda once their titles are released.

In the immediate term, these changes will help Xbox’s margins. 3,000 fewer employees, combined with, hopefully, a better year for Call of Duty, plus a GTA bump on hardware, should help the bottom line.

However, we won’t see the results of Activision’s Halo, or its new partnership with Kojima, for five to seven years. Which does prove that Xbox’s is in this for the long-term.

Will these moves save Xbox? It’s certainly got a long battle ahead. But ultimately success will be decided, as it always is, on the strength of the games it puts out. And it’s making big moves to deliver on that.

How is AI transforming game localization

The interview in today’s The Game Business Show is with two senior leaders from the world of video game localization.

Those people are Dominick Kelly, who is CE Senior Technology and Solutions director at Keywords, and Romina Franceschina, who is director of products, offers, solutions and implementation at the same company

The interview took place at Gamescom, and we dived into how this scene has changed as more companies try to take their games to markets like China and Korea, and vice versa.

Franceschina in particular talks about the need for a localization strategy, and whether you ‘stretch the game or stretch the gamer’. Stretching the game means making changes and tweaks to appeal to new markets, whereas stretching the gamer is getting audiences in other markets to embrace the culture and setting of the games.

“There will be situations where staying true to the culture of the source is what will interest the gamers,” said Franceschina. “But there will be other games that need a little bit more explaining or adjusting so it becomes more familiar to the gamer.”

One of the deeper conversations was around the role of AI. Keywords does see value in how AI can help translation. For instance, game developers can use AI translation to see how their game will look in other languages, and spot any technical issues early.

“Technologies like LLMs and AI – they’re not perfect, because it doesn’t really understand all the time what you need to do, humans are still needed—but you can throw it off to a machine, give it to a developer, let them look at it and go, ‘Wow, I didn’t realize my game looks like that in Chinese.’ And then they might go, ‘Okay, we need to do something about that.’

“It’s not going to tell you how it reads, or if the narrative flows, but it can show a developer, ‘Hey, the user experience is going to be really bad because they can’t play through the game as the instructions don’t fit on the screen’.”

But good localization requires the human touch, Kelly and Franceschina said.

“Don’t use it for dialogue, because AI will never really understand how a conversation flows in Japanese between a father and a son,” Kelly noted.

He added: “We’re not telling people not to use it. If the only option they have is to [AI translate], then that’s something they can do. It might expose the game [to a new market] and they can come back to us to fix it later.

“When you use AI there is a risk, because it’s so good sometimes, that the hallucination or mis-translation reads really well, but they’re probably wrong. You need really good linguists to catch those things.”

Franceschina said: “Some of the processes within localization may be ripe for new technology, but audiences will continue to be delighted by content created by developers that gets shared through the authentic voice of a human… maybe with a little help of technology.”

You can watch the full interview with Franceschina and Kelly in the episode above.

Meanwhile…

• Bungie says it will return to Destiny, and has announced plans to reinstate old campaigns, raids and destinations to the existing game. It also said it’s going to evolve Marathon towards a more survival-based experience to reach more players. Bungie had previously released a final update to Destiny 2, which resulted in the loss of over 290 employees.

• Two Swedish unions Unionen and Sveriges Ingenjörer have issued a strike notice against King after executives rejected a proposed collective bargaining agreement. Mediation is on-going, but if no agreement is reached, King staff will strike on September 25.

• The EU Commission has published a draft proposal for its KIDS act. The act suggests a ban on social networks and video sharing platforms for under 13s, and restrictions for under 15s. However, there are some rules that will also apply to online games, which could cover everything from Roblox and Fortnite to multiplayer modes in traditional games. The act discourages online game makers from using techniques that entice young users to play for longer, or to log-in more frequently.

That’s it for today. Join us next week for more big interviews and opinion!