When Microsoft first entered the gaming industry, they did so on the back of a relatively small Games division with no blockbuster titles. Fortunately for them, the acquisition of Bungie Studios and the Halo franchise gave the console a great start and took the Microsoft Games Studios to new heights. Although the Xbox was never the global success Microsoft had hoped it would be, the company continued to slowly gather partners and lay an even greater foundation for their Xbox 360 console. After dominating the hardcore, next-generation market for two years, Microsoft had built up a library of fantastic titles, continued to acquire companies for their First Party, and built very strong relationships with Second Party Studios. While Sony has struggled to gain enough software support and their sales have lagged behind the Xbox 360, Microsoft has seemingly thumbed their noses at the market by allowing several key developers to leave. So this begs the question: why are developers leaving Microsoft?

The problems in the Xbox 360 camp began earlier this year. The Xbox 360 was out-selling the PlayStation 3 each month and with numerous exclusive titles and plenty of developers committed to the platform, what could go wrong? The first issue that reared its ugly head was the problem with the actual Xbox 360 hardware. Apparently, Microsoft didn’t properly design the console , which began to emit the infamous “3 Red Rings of Death” and render the console to paperweight status. Although it took some time, Microsoft admitted they found the root of the problem and offered to repair any broken consoles for free. Unfortunately, these repairs were met by many delays and users not only had to wait multiple weeks for their console to be repaired–but a large majority of those repaired consoles also were defective.

Shortly after the repair program began, the head of the Microsoft Games Studio, Peter Moore, left the company to helm EA Sports. In return, a former EA executive agreed to replace Moore’s position at Microsoft. The rumors came flooding in that Peter Moore was becoming the “fall guy” for the hardware problems at Microsoft. EA, Peter Moore, and Microsoft all denied these rumors as false. However, it should be pointed out that when Peter Moore leaves your company, bad things usually follow. Just look at the fall of Sega for proof of this.

Since Moore’s departure, things seemed to be improving at Microsoft and the Xbox 360 appeared poised to break virtually every holiday sales record with a ton of exclusive titles on their console. While the latter still appears to be certain, in recent weeks, Microsoft has lost Bizarre Creations, Bungie Studios, and Bioware in their First Party/Second Party offerings. To make matters more detrimental to the Xbox platform, Microsoft never had the rights to any of the franchises Bioware made for them. This includes the hit RPG Jade Empire and the highly anticipated Mass Effect. Fortunately, Microsoft was able to secure the Halo and Project Gotham Racing franchises at Microsoft property. However, Bioware, now owned by EA, has already hinted that Mass Effect and the other two titles in the trilogy may soon find their way on the PlayStation 3 and possibly PC/Mac platforms to maximize the revenue they generate.

The domino effect of Microsoft losses does not appear to be ending anytime soon. After losing Peter Moore to EA, Bungie Studios to their own independence, Bizarre Creations to Activision, and Bioware to EA, other Microsoft Developers, like Rare and Lionhead Studios, have also been rumored to seek independence or be acquired by other companies. What is the root cause of this? Are these losses just coincidence or is something really bad happening at Microsoft?

The Games Division at Microsoft has never shown a profit in their entire existence. Microsoft has continued to give the Division plenty of time and money to build up its presence in the market and acquire as many partners and Developers to solidify their position in the industry. After reaching a critical mass and appearing to accomplish these goals, Microsoft has just let a large majority of what made them successful leave the company. For a company with unlimited funds and proving to be on the verge of record sales, how can this be happening? With Mass Effect possibly coming to a PS3 near you and Peter Moore utilizing the PlayStation Network, has Microsoft given control of this generation back to Sony?

In a business where exclusive titles equal dominance, Microsoft may have just given Third Parties the key to making Sony successful in this generation. If Microsoft does end up losing their lead and not dominating as Sony has in previous generations, one must only look back to see how the Developers left Microsoft and ruined what could have been a console dynasty with Xbox 360.

By Kaleb Rutherford – 10/17/07

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