Xbox layoffs move industry closer to an all-digital future

Shortly after Starfield was removed from store shelves, Microsoft has reportedly shuttered parts of Xbox's physical retail teams. This decision potentially moves the video games industry closer to an all-digital future.

4

With the exception of Nintendo, the other members of the Big 3--PlayStation and Xbox--make most of their revenue from digital channels. This trend has been growing in recent years and was supercharged during COVID-19 lockdowns.

Both PlayStation and Xbox have furthered a digital-first future with their respective digital-only PS5 and Xbox consoles, but recent events indicate that Microsoft is aggressively pursuing its all-digital aspirations. After all, Xbox plans to achieve market leadership by 2030 with an implied $32 billion+ in gaming revenues. Digital is a big part of those plans.

4

So what are those recent events?

Microsoft recently made the decision to lay off 1,900 people across its gaming segment, with layoffs affecting three operating units: Activision Blizzard King, ZeniMax Media, and Xbox Game Studios.

The layoffs affected everyone from developers to SG&A office jobs like marketing, HR, and logistics.

Microsoft also chose this opportunity to lay off parts of the departments that are dedicated to physical retail.

"Microsoft has also shut down departments dedicated to bringing Xbox games to physical retail," Windows Central managing editor Jez Corden said on Twitter.

Corden further cautioned readers that this does not mean Microsoft is totally exiting physical media. It's just that some of the internal jobs dedicated to getting Xbox physical game discs into retail stores have been eliminated. It's possible that Microsoft will outsource these jobs, but given the current landscape, we have to wonder for how long.

The news comes shortly after Walmart was told to remove all physical disc copies of Starfield from store shelves at the behest of Bethesda/Microsoft. It's also been reported that Walmart is removing all physical Xbox games from its retail shelves.

The reality is that going all-digital has been a long day coming for Microsoft.

4

The company has centered its business around a digital-first subscription with Xbox Game Pass, and recent internal leaks show that the company plans to make future Xbox consoles into all-digital devices, starting with a new digital-only Xbox Series X refresh that's codenamed Brooklin.

It's possible that Microsoft took this opportunity to accelerate its all-digital plans as it seeks to expand and establish its Universal Storefront, evolve the Xbox Game Pass subscription model, and eventually integrate advertisements into its console video games empire.