The sudden closure of several video-game studios at Microsoft Corp.’s Xbox division was the result of a widespread cost-cutting initiative that still isn’t finished.

This week, Xbox began offering voluntary severance agreements to producers, quality assurance testers and other staff at ZeniMax, which it purchased in 2020 for $7.5 billion, according to people familiar with the company’s plans. Others across the Xbox organization have been told that more cuts are on the way.

A spokesperson for Xbox declined to comment.

Employees were shocked by the unexpected shuttering Tuesday of three Xbox subsidiaries and the absorption of a fourth. The closures included Tokyo-based Tango Gameworks, which last year released the critically acclaimed action game Hi-Fi Rush. Tango was in the process of pitching a sequel, said the people, who asked not to be identified discussing nonpublic information.

During a town hall with ZeniMax staff on Wednesday morning, Xbox president Matt Booty praised Hi-Fi Rush but did not specify why the company had shut down the development studio behind it, according to three people who were in attendance.

Speaking about the closures more broadly, Booty said that the company’s studios had been spread too thin — like “peanut butter on bread” — and that leaders across the division had felt understaffed. They decided to close these studios to free up resources elsewhere, he said.

Booty added that the shutdown of subsidiary Arkane Austin, the longtime developer of games such as Prey, was not connected to the performance of its new multiplayer game, Redfall, a critical and commercial flop.

Before its closure, Arkane had been looking to return to its roots by pitching a new single-player “immersive sim” game, such as a new entry in the Dishonored series, according to the people familiar.

Jill Braff, head of ZeniMax studios, said in the town hall that she hoped the reorganization would allow the division, which also develops Fallout and Doom, to put more focus on fewer projects. “It’s hard to support nine studios all across the world with a lean central team with an ever-growing plate of things to do,” she said, according to audio of the meeting reviewed by Bloomberg.

“I think we were about to topple over,” she added.

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