No, Xbox didn't pay $400 million for Hideo Kojima's 'PHYSINT'

Rumors about Xbox's deal with Hideo Kojima's upcoming "Action Espionage" title have been swirling recently.

Xbox is undergoing "restructuring" over the past few weeks, leading to thousands of layoffs and staff reductions in the form of divestitures. Microsoft's new gaming CEO Asha Sharma has made no secret of the intent to focus on big-name franchises like Fallout and The Elder Scrolls, and less time on smaller projects like those produced by Double Fine or Compulsion — both of whom are now fully independent teams. Existing studios like Obsidian have been moved to be closer to the Fallout franchise for example, and Halo Studios itself was recently shuttered (in essence) with the franchise handed off to Call of Duty publisher Activision.

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There have been some questions about the timing of Xbox's announcement in partnership with Hideo Kojima's "PHYSINT," as a result. With some (erroneously) speculating that the closures have been designed to fund Kojima's long-awaited return to the espionage genre. Metal Gear Solid is arguably among the top 5 (or maybe even top 3) most legendary franchises of all time. To get the spiritual successor to that on Xbox is a pretty huge coup, considering it was originally announced by PlayStation.

But uh, is this project going to cost almost half a billion dollars? And did it lay off thousands in order to do it? The answer is "no," trusted and verified sources tell me.

Speaking on his podcast, Chris Dring of The Game Business reported that Xbox's budget for PHYSINT is at $400 million. He has since walked back the claim after Bloomberg's Jason Schreier poured cold water on the figure.

I was told similarly by first-hand sources with direct knowledge of the contracts that the figure for PHYSINT is far lower than what is being reported here. It has been suggested to me that the "$400 million" figure is potentially what Sony and PlayStation might've been on the hook for until they cancelled the deal. Xbox and Kojima are building towards their Xbox projects on a "fraction" of this reported figure.

I'm told Xbox negotiated a deal with Kojima Productions that includes both movie and TV licenses for PHYSINT, and it also included enhanced terms for OD — Kojima's anticipated atmospheric horror game for Xbox.

We're seeing a more thrifty Xbox, and a more thrifty AAA industry in general

There has been a lot of discussion about budgets in recent years. Some estimates suggest Grand Theft Auto 6 has had a budget upwards of a billion dollars, for example. Developers from the likes of Saber Interactive, Remedy, and Bloober Team have all commented on building AAA-grade experiences on budgets in the tens of millions, rather than hundreds of millions.

Game development in the United States has become incredibly expensive. I'm told part of this revolves around salary competition for AI-adjacent software engineering disciplines, that often share cross-over hiring processes and salary scales with gaming companies. The closer you are to an AI development hub (like Microsoft HQ in Redmond, WA), the greater the competition for salaries becomes ... making game development potentially unviable from a purely fiscal perspective in some regions.

Microsoft has been exploring outsourcing in Eastern Europe, the United Kingdom, and other regions where game development is more "affordable" to that end. PHYSINT might have spendy Hollywood actors tied to the project, but Xbox CEO Asha Sharma has quite loudly stated goals around cost-saving and cost-cutting.

Movies and TV shows are also becoming an increasingly crucial tool for both marketing and offsetting costs for gaming projects. Selling the rights to streaming platforms like Netflix and Amazon Prime can feed back into game development budgets, and creates a symbiotic marketing beat (if indeed, the content is actually good). Given Kojima's penchant for cinematic games, PHYSINT should be at least one project that pays dividends if everything is executed well.

... I suspect Xbox will have to give Kojima more flexibility than they may want to if they do want the game to hit that coveted quality bar.

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