The Subsidy, Part Three: What They Kept

Here is the thing I did not see coming.

For two months I wrote about this reset as a demolition. The word “subsidy” was going to put the studios up for sale, and up for sale meant the wrecking ball. That is how these stories usually go: a big company decides a studio is a cost, and the studio disappears, and the game it was making disappears with it, and a year later you are trying to explain to someone why a thing they loved is just gone.

That is not what happened on July 6. It let the studios go.

Double Fine walked back out the same door it walked in through in 2019, independent again, with its catalog and its IP in hand. Compulsion left too, carrying the Peabody it won a few months ago for South of Midnight, which is an award that almost never goes to a game. Ninja Theory and Undead Labs did not get shut down either. They found new owners, and those owners are putting up the money to finish Senua and State of Decay 3. Only Arkane, the Dishonored studio, is still in limbo, sitting in a consultation over what happens next.

And the games? Asha Sharma, the Xbox CEO, said it plainly: “None of our first party publicly announced games or projects are being cancelled as part of these reductions.” The sequels are funded. The projects are intact. Marvel’s Blade, which everyone spent last week burying, is apparently not dead.

So this is not a graveyard editorial. It is something stranger, and I think worse in a way that is harder to point at. Because while Microsoft was busy protecting the games, it cut about 3,200 people to do it. Roughly a fifth of the whole division. Sixteen hundred of them on Monday, the rest coming through next year. The Elder Scrolls Online team, at a studio that got to stay, was reportedly cut roughly in half. The work survived. A lot of the workers did not.

Read the Sharma line again with that in your head. “None of our publicly announced games or projects are being cancelled.” That is a sentence about products. It is not a sentence about people. And the fact that it was the reassuring line, the one meant to make you feel better, tells you exactly what Microsoft thinks you care about. It thinks you care about the merchandise. It might be right.

The makers get their freedom back, and their arm

I want to be honest about the Makers this time, because it is not a clean sad story and I am not going to pretend it is.

The studios that left are, in a real sense, free now. Double Fine getting its independence back is close to a happy ending in an industry that does not do those. Tim Schafer built that place, sold it to Microsoft for the runway, and now has it back with the runway spent but the doors still open. Compulsion is out in the world with a Peabody and its own name. Ninja Theory and Undead Labs get to finish the games they were making, with money behind them, for owners who presumably want them to succeed rather than to hit a margin.

That is the maker’s craft outliving the corporate parent. The thing they built, the studio and the games and the reputation, turned out to be more durable than the ownership structure wrapped around it. There is something almost hopeful in that, and after two editorials of pure anger I will take it.

Keeping the IP is the whole ballgame. When Bungie left Microsoft in 2007, Halo stayed behind. Bungie walked out free, but it had to build its future from scratch. That is the cautionary version of this story. Double Fine and Compulsion are leaving with the work that made their names, and that difference matters. Independence without your IP is just unemployment with extra steps.

None of our first party publicly announced games or projects are being cancelled as part of these reductions.Asha Sharma, Xbox CEO

But a studio spun off “with runway” is a studio that is freer and smaller and short a lot of the people it just lost. Freedom and amputation in the same envelope. You get to leave, and you get to leave without the colleagues who got the other email. Nobody at these studios is celebrating today. They are counting who is still there.

The breaker is the thing that told you not to own games

So if the studios are not the villain and the games are not the victim, where did this come from? Follow the model, not the memo.

Microsoft did not make one bad decision called Game Pass and wake up with 3,200 layoffs. The acquisitions, development costs and margin targets all belong on the same ledger. But Game Pass became the organizing logic of the division: put every first-party game on the service on day one, keep feeding the catalog, and trust subscriber growth to make the expense work.

On July 6, Sharma admitted the growth never arrived. Game Pass, she said, “created meaningful value” but “did not grow at the pace we expected.” She said the business was operating at margins “3-10x lower than comparable” companies. During the FTC fight over Activision, Microsoft’s own projections had Game Pass reaching about 77 million subscribers by 2026, on the way to a hoped-for 100 million by 2030. The reported count today is around 30 million. The bet did not miss by a little.

That does not prove every layoff can be dropped at the feet of one subscription. It does tell us the model Microsoft built the division around failed its own test. When the subscriber number stopped climbing, every studio underneath it became a cost to explain.

Microsoft looked at Netflix and saw a catalog that kept people paying every month. What it missed was the clock. Television can release a constant stream of new seasons and new shows. A major game takes years. You cannot ship a new Halo every season. You cannot build a service around an endless supply of expensive first-run games unless you are willing to subsidize that supply for a very long time.

And the studios Microsoft bought to feed that machine were never volume factories. I love what Compulsion makes. South of Midnight won a Peabody. It was also never going to sell a hundred million copies or drag tens of millions of people into Game Pass by itself. The same is true of Ninja Theory. Microsoft bought studios that make strange, specific art and then measured them inside a system built to demand scale. That was not the art failing. That was the model asking it to do a job it was never built to do.

There is a version of Game Pass that makes sense to me: a deep legacy catalog, older games that are difficult to buy and harder every year to keep running. Nintendo Switch Online and Sega’s recurring collections at least point toward the shape of it, even if neither one is permanent preservation. I would pay five or ten dollars a month for a serious archive without blinking. What does not make sense is putting the largest new releases on the same subscription on day one, pushing the price to thirty dollars a month, and expecting the audience to treat that bill like a necessity.

Last October Microsoft raised Game Pass Ultimate to thirty dollars. The reported subscriber count later fell by millions. This April the price came back down to twenty-three dollars, and future Call of Duty releases lost their guaranteed day-one spot. Microsoft has not said the price increase alone caused the decline, and I am not going to pretend it did. But the sequence still matters. When growth disappeared, the company retreated from the two promises that defined the strategy: ever-higher prices and every major game on day one.

Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.Asha Sharma, Xbox CEO

And that is the Breaker. Not one executive twirling a mustache. A model that taught players they did not need to own games, then taught Microsoft it did not need to own the studios making them. Ownership got hollowed out on both ends at once.

The people who make these games have started saying so out loud. Ben Starr, the actor behind Final Fantasy 16’s Clive and one of the most visible performers in the industry, spent a podcast appearance this week going through what he called the lies around the cuts. Consolidation sold as protection for studios is, in his words, now “known to be a lie.” And the sharpest one: at June’s showcase, Microsoft announced a new Senua game from Ninja Theory and promoted it as a day-one Game Pass release, weeks before revealing it had no intention of financing the game at all. A day-one Game Pass badge on a game the company had already decided somebody else would pay for. I made the shop-window argument in part two. Starr just said it plainer.

This is why a retro site is the one writing this. Everything POCG is about runs on the opposite premise: that you own the thing, that it is yours, that it keeps working because you have it and no one can un-sell it to you. Game Pass is the cleanest expression of the other idea, access instead of ownership, and I have watched people wave it off for years as a good deal, which for a while it was. July 6 is the invoice on that idea. Access is a relationship you do not control, and when the platform decides the relationship is not growing fast enough, the access is what gets cut, and so are the people who built the things you were accessing. And it is not only Xbox feeling the floor move. Around the same time, the petition against Sony killing the disc drive in 2028 pushed past two hundred thousand signatures, which is a lot of people trying to hold onto the plain right to own the thing they paid for. I have already said my piece about that decision, and nothing since has made me want to take it back.

The part you cannot re-download

Something else happened that week, a little to the side of the studio spinoffs, and it is the one that actually stays with me.

id Software, the DOOM studio, lost 136 people, most of the place. Not sold, not spun off, just cut: 96 in Richardson and another 40 working remotely, out of a studio of around 185, in the same week a new DOOM: The Dark Ages expansion shipped. Derek Best, a VFX artist who worked on all three modern DOOM games, said the visual effects team was cut down to a single artist, no lead and no producer, and that the engine programmer behind the particle work was let go too. “Collectively decades of knowledge was wiped out of the studio,” he wrote. “Nothing says business success like nuking a team into the dirt and relegating them to support studio size while also throwing out massive technological achievements.” DOOM and Quake and Wolfenstein are all safe, of course. The names carry on. The franchises are fine. It is only the people who made the last few of them who are gone.

Collectively decades of knowledge was wiped out of the studio.Derek Best, id Software VFX artist

And it is not only the past that thins out. Before the cuts, id was reportedly pitching new things: a co-op DOOM, a new Perfect Dark, a John Wick style original game they called Fury. Projects that now, most likely, never happen. You will not miss them, because you never got to see them. That is the quietest part of a studio being hollowed out. It does not only stop maintaining what already exists. It stops the things that were going to.

I should say plainly what id Software is, because if you are not a PC gamer this might read like just another studio getting trimmed. id, pronounced like the word and not the letters, is royalty. They are the people who more or less invented the first-person shooter, DOOM and Quake and the engines half the industry was built on top of. When you gut a place like that, this is how it tends to go. The name survives and the studio becomes a shell, kept around to make small strange things or to prop up other teams, its history quietly spent. We have watched it before, with 3D Realms and a dozen other names that used to mean everything and now mean almost nothing. You strip out the people and the institutional memory, you keep the logo, and a few years later the logo is all that is left. I hope I am wrong about id. I am not sure that I am.

The work, code, assets, stories and the people behind them.John Romero, co-creator of DOOM

And then John Romero, who co-created DOOM, said the thing out loud. He posted about the layoffs, and past the sympathy, which was real, he landed on this: he hopes someone is preserving id’s legacy. Not just the games. “The work, code, assets, stories and the people behind them.” A man who helped invent the modern shooter, watching his old studio get gutted, and the word he reached for was preserve.

I’m so sorry for everyone at id Software affected by these layoffs.

I know what it feels like to leave id while id goes on. It’s a strange and painful thing to step away from a place that holds so much of your work, friendships and history.

The people at id have done a great… pic.twitter.com/jxFFJ2bsFq

— John Romero 🤘🏽 (@romero) July 7, 2026

That is the sentence I keep coming back to, because it is the whole argument of this site in the mouth of someone who would know. You do not preserve a medium by keeping the shipping builds. DOOM is not at risk. What is at risk is everything around it that never ships: the reason a choice was made, the fix nobody wrote down, the person who remembered why. Gut a studio and the game survives while the memory of how it was made walks out the door with a severance packet. Romero has been on both sides of that, and when he tells you to preserve the people, he means the people are the part that gets lost.

What Part Three leaves you with

You can keep every game and still lose the makers.

Part one was about the promise leaving when the people who made it walked out the door. Part two was about the bill coming due. Part three is the receipt: paid in full, in people, merchandise retained.

This series began with a promise that the games you bought would keep working, that backward compatibility meant your library came forward with you, that somebody inside Xbox treated preservation as a value and not a line to trim. The man who built that promise was in this layoff. Kevin LaChapelle, a thirty-seven-year Microsoft veteran, led the team that created Xbox backward compatibility, and Microsoft let him go. The feature still works. Your old games still run. The person who made them run does not work there anymore. If you want a single picture of “kept the games, cut the people,” that is it.

I do not think that promise is coming back, because look at what is being built to replace it. Microsoft has not announced whether Project Helix will include a disc drive, but the expectation is that it will not. The company is reportedly testing a way to convert physical Xbox One and Series discs into digital licenses, and that system reportedly does not cover original Xbox or Xbox 360 games.

So here is the inference, and I want to label it as one: a discless box, an incomplete conversion program and the architect of backward compatibility shown the door do not look like a future built around your old discs. People who preserve games for a living are already warning where that road ends. One leader in the field says piracy becomes the only option in a discless future.

If you care about playing your old Xbox and Xbox 360 discs, stop assuming Microsoft will always do it for you. Keep the hardware you own. Pick up an Xbox One X or hold onto a Series X when you find the right price. That is your backward compatibility now: you, holding the disc, on a machine you kept.

I do not think the bet was a lie. I think Microsoft believed the Netflix model would work, that buying enough studios would keep the service full and make the subscriber money come. It was wrong. And being wrong at this scale never seems to cost the people who made the call. It costs the people who made the games.

A reader sent me the arithmetic after the layoffs, and it belongs here. Microsoft cleared about $101 billion in net income in its last fiscal year. Satya Nadella’s pay rose 22 percent to a record $96.5 million. Those numbers sit comfortably beside 4,800 layoffs, all of them true at the same time. Three days after the Xbox cuts, Sharma was named to a Federal Reserve task force on jobs and productivity. The executive who had just eliminated 3,200 jobs will now help the government think about employment. I could not have written that if I tried. The word subsidy never seems to reach the top floor.

Buy the game if you love it. Own it if you can. When a company tells you it will keep everything safe in the cloud, on the subscription, for one low monthly price, understand what it means by everything. It kept the part it could still sell you. The people were the subsidy. They always were.