How Double Fine Survived The Xbox Bloodbath

Hello, One Take Schrier here, and today I've got a story for you, and it is a good one. This week I spoke to Tim Schafer, the head of Double Fine Productions in San Francisco, about his recent return to independence after 7 years under the Xbox umbrella. I spoke to Schafer for a Bloomberg story that you can read in the show notes, but I'm also going to tell you the story here. We're going to start in 2019 when Schafer approached Xbox seeking a minority investment in Double Fine, which was small but beloved by fans across the world for weird and funny games. And Double Fine was working on a game called Psychonauts 2, long-awaited sequel to the cult classic Psychonauts, but it was facing significant delays, and its publisher was actually facing a criminal investigation, believe it or not. Starbreeze, the publisher behind Psychonauts 2, was dealing with some insider trading allegations, which left

Double Fine in kind of desperate need of financial support. You can watch this whole story, by the way, in the PsychOdyssey documentary, which is truly tremendous. I've shouted out before, I will shout it out again. If you ever If you want to know how games are made, you really can't do much better than watching PsychOdyssey, and it's all free on YouTube. You can learn more about the trials and tribulations behind Psychonauts 2. So, Tim Schafer went to Xbox. He said, "Hey, I want a minority investment." Xbox said, "Well, actually, we don't really do minority investments, but what if we buy your whole studio?" And Schafer didn't find this immediately appealing. He told me that he was thinking at the time, "I don't want to get bought by you. You guys love shutting down studios. You shut down Lionhead. You shut down all these other studios in San Juan." But, um there were a few things that were appealing about going with Xbox beyond money and financial stability. Um Phil Spencer, who was in charge of Xbox, really loved Double Fine's games. He

thought they would be a good fit for Game Pass, which is a subscription service that offers players access to hundreds of games, this large catalog of software. Got Double Fine's kind of small, quirky, funny games that would be perfect for that. And Matt Booty, who ran the Xbox Game Studios organization, told Schafer that like things had changed um in the organization. They had this model called limited integration where the game studios within Xbox would essentially have autonomy. Xbox was mostly hands-off and gave them as much freedom as possible to do their own thing. And in fact, back in 2015, Xbox had parted ways with one of their first limited integration studios, a studio called Twisted Pixel, which made Kinect games, motion control games. And Xbox had decided to move away from Kinect. And rather than shutting down the studio, Xbox allowed Twisted Pixel's management to go independent and even offered them some runway money to help them get started in their independent journey. So, Schafer called up Twisted Pixel, and they said, "Yeah, that's true. Um, Matt Booty fought for us. Uh,

he stood by his word and got us this runway and got us this freedom." Um, so ultimately, uh, because of that, they were kind of incentivized by that, Schafer agreed to sell Double Fine to Microsoft. Schafer wouldn't tell me anything about the kind of the contract negotiations and the specifics of of of uh if they had like a clause for freedom and independence, like if if they had anything like that. Um, but uh I imagine he got something in writing, as well. Um, and for a while, things were good under Microsoft. Double Fine wound up finishing Psychonauts 2. Again, you can watch that in PsychOdyssey. Um, was well received, critical acclaim. Double Fine got the freedom to work on these kind of weird new games, like Keeper, which is a a narrative adventure game about a walking lighthouse, um and Kiln, which is a game where you build pottery and then battle other players with your pottery. Um, and Double Fine just kept going even as Game Pass started to stall. The Xbox organization faced financial pressure from Microsoft, which I've reported on extensively on Bloomberg. This kind of

pressure for for higher profit margins um, that started around the Activision acquisition in 2023 or so. Double Fine kept going. And actually Schafer told me that he found it really helpful to collaborate with other Xbox studios like Compulsion Games and Obsidian Entertainment. They have this kind of like loose federation of independent game developers that all had financial security, could share technology, could swap ideas. It was kind of a really cool um, organization for a lot of them. But of course good times never last forever. And in February of this year Phil Spencer said he was going to retire. Bad sign for Double Fine. The new boss Sarah Bond Sharma came in. She went and visited Double Fine. She was in quote unquote listening mode earlier this year. She wanted to learn everything about the organization, but it was very clear from the start that she had a very different mandate, different vision than Phil Spencer did. And actually like around April May or so, Sharma began speaking publicly about Xbox's business woes and

finding ways to return the company to growth after years of declining profit margins. And Schafer again, he knew this was going to be bad news for like a studio like Double Fine that does not make huge profit margins, does not make massive hits, that really was acquired to fit into Game Pass. But he wasn't told immediately that this was going to happen, that Xbox was going to part ways with the studio. And in fact, he told me that he kind of he started he he knew before he didn't know. He started kind of like slowly realizing that things are going to be bad when like someone wouldn't return his calls or someone wouldn't reply to his joke text. He kind of like knew before he knew. Um, and what eventually ensued from all of this was this just kind of long grueling negotiation throughout June um, as Shafer talked to Xbox over and over and lawyers talked to Xbox. There's just back and back and forth about getting ownership of the intellectual property, getting as much runway as possible, trying to take Double Fine independent, just like Twisted Pixel a

decade earlier. So, those calls and those conversations proved to be prescient. And of course, it all culminated on July 6th when Xbox announced that it was divesting five studios, including Double Fine, which would get to spin out, get to regain control of its franchises, Psychonauts, Brutal Legend, Keeper Kill, etc., etc. And this is kind of Shafer told me he felt like this was kind of locked in and there was really nothing he could have done about it cuz I was talking to him a little bit about like, well, if Keeper and Kill had been more profitable, like if they'd been bigger hits, do you think you guys might have had a chance to survive at Xbox? And he doesn't think so. He thinks that Sharma's vision is to focus on Xbox's biggest franchises and Double Fine can't be kind of neatly fit into one of those. They can't just be turned into a Halo maker or a Fallout maker the way that Obsidian was. I'm going to quote Shafer here, which is quote, "We had a mutually beneficial mission, which is just to put great games on Game Pass, and then their

mission changed. I can't imagine any amount of profitability unless we had a breakout Minecraft hit that year would have saved us." And I want to give a couple more quotes from Shafer because he is an eternally quotable human being. And also because we talked about some really interesting kind of candid things. Because I asked him, I said, "Do you feel like Double Fine was treated unfairly because you were told, 'Hey, come in and just make great games for Game Pass,' which you did, and then suddenly, 'Oh, you're being let go because you don't fit in the mission anymore.'" And I I want to read you this quote from him. Shafer said to me, and again, this is all in Bloomberg, so check out gift link to the story below if you want to help support my work. Quote, "The games industry is full of terrible things and I can't change most of them. It's like I'm a captain of a little fishing boat and it's like whether worrying about whether the ocean is fair. Not much I can do about it. Just keep this little boat afloat. Keep trying to see if that's a reef or is that a bunch of fish? Is that money over there?" Um, so yeah, that's how he views

things and at the same time he was telling me that like when he found out that Xbox wanted to get rid of Double Fine, he was wondering like, "God, is this the end? Should we be mourning?" And then he started feeling invigorated by the experience. Like, "Wait a minute, we're not going to go out like this. I'm going to give you another great quote from Schafer." Quote, "No one puts Double Fine out of business except for me. Asher is not going to shoot my dog. I'm going to shoot it. But I'm not going to shoot it because it's going to do great. A lot of people want to walk the dog." So, what happened was after they returned to independence in July, they had a plan and they started putting together a plan, talking about a plan. So, they had they had this cash from Microsoft which would give them some runway. They could keep going for a certain amount of time. Schafer wouldn't tell me the exact number, but it's limited. It would only last so long. So, they had to make some moves. They had to do cuts um and they wound up cutting 23 staff members, shrinking down to just under 70 people. Um, they had gotten bigger under Microsoft and they wanted to get back down to the size they were as an indie before. Um,

they put out a statement on Twitter, just kind of a heartfelt statement about the people that they lost. Um, really tragic for those for those folks. Um, they also decided to start exploring other ways to generate revenue like ports and remasters and so on and so on. In fact, this week they just announced and shadow dropped a PlayStation version of Keeper which had previously just been on Xbox and PC. Um, I wouldn't be shocked. Schafer wouldn't confirm this, of course, but I wouldn't be shocked if they were having lots of conversations about remastering their games which they've done successfully in the past. They actually remastered Day of the Tentacle and Grim Fandango. Um, Day of the Tentacle wasn't technically a Double Fine game. In fact, neither was Grim Fandango. But still, Double Fine got the rights to remaster those from their from Schafer's old company, LucasArts. Um wouldn't be shocked to see them remaster Psychonauts or Brutal Legend for modern consoles. And of course, Schafer is out there pitching new games to potential investors. Um one thought I had, I think I've mentioned this in a previous uh uh video, is that a potential investor worth keeping an eye on is a company called Fictions, which I actually did a

whole video about them. That is the publisher that was launched by former Annapurna staff and is now backed by private equity. They actually wound up in taking taking and inheriting the portfolio of Private Division, including Beast of Reincarnation, which came out last month. And Fictions, what's interesting about them, is that one of their top executives is a guy named Greg Rice, who you might have seen floating around in the indie space. He's often on the Day of the Devs videos. He's very involved with that. Um he used to do indie stuff for PlayStation, and before that, he was Schafer's right-hand man at Double Fine for more than a decade. Um Schafer wouldn't comment on like who they were talking to, but I have a feeling that they are having extensive conversations with Fictions, um among other potential investors. Um so, it leads to some other questions about Double Fine's future, right? Like, this is a company that over the last few years, especially, has been making weirdo games about lighthouses and pottery that like obviously good fits for Game Pass, but uh does this mean that Double Fine has

to rethink, hey, rethink their approach to making games that are more commercial? So, I spoke to Schafer a little bit about that, and he told me, I'm going to read you another quote from him, which is, quote, "We never actively tried to make a game we thought was going to lose money. I think people would say, 'Oh, Keeper looks like this arthouse thing that no one expects to be a hit.' But to me, it's the kind of game that someone who doesn't play games would love. I really think there's a mass market appeal to Keeper. If we could just get to those people, So could have them catch lighthouse fever." Um Shaver told me he also thinks Kiln can still be a hit. He's not giving up on Kiln. Uh this week it got a new update and a permanent price drop, although um the results have not not worked out so far. Um I checked Steam's concurrence and um as of when I checked a couple of hours ago, it had two players online. Not ideal for a multiplayer PvP game. Um plus I it's also worth noting here that while Keeper got some pretty solid reviews and was

actually um nominated for some awards and I think people generally liked it. Um Kiln has been panned by several critics. It has something like a 66 or 67 on Metacritic. Um so what else is Double Fine doing? They also launched a Kickstarter this week and I'll post a lot a link to that in the show notes as well. They have been seeking $400,000 to fund this two-week game jam that they do called Amnesia Fortnight. And Amnesia Fortnight is this very big kind of institutional Double Fine thing. They've been doing it for many years. It led to a lot of some their greatest games like Costume Quest and Stacking. Um They've already exceeded the $400,000 goal, so they're going to hit that. Um and they're opening up for a few more weeks to try to make more and keep their runway going. Backers of the Kickstarter are going to get to vote on four of the game pitches that have been made for Amnesia Fortnight and those four will then be prototyped and playable. And then backers will get to vote on the winning game, which will then be

finished and sold to the public. So that's kind of a neat new thing that they're doing. And they're also going to film the game jam, which is probably the most exciting part for me personally because Two Player Productions, their in-house documentary team, which made PsychOdyssey, which once again is just an absolute must-watch if you care about video games and how they're made and you want to know the human side of game development. It's really just a complete like tour de force. Like you have to watch PsychOdyssey. Anyway, they're going to make a a documentary about this new Amnesia Fortnite, so that's all very exciting. I'm jazzed for that. And so, this new game that they're going to release as part of this Amnesia Fortnite is going to be under this label called Double Fine Action Labs, which I was talking to Schafer a little bit about this because something that's emerged in recent years is the rise of {quote} "friend slop" games, games that are cooperative, that are weird, that are wacky, that are made on very short timelines, which I think has been inspirational for Double Fine. They look

at that and say, "Hey, like, we can do weird, wacky, creative things on short timelines. Maybe people don't care that much about, like, is this the most polished game with the highest graphical fidelity? Maybe they just want to try weird things, and maybe a hit could come out of that." So, this label, Double Fine Action Labs, they're going to use to make a bunch of weird, small things. And I was talking to Schafer a little bit about We were laughing about the story that that he had heard about a game studio that had gotten an investment of $300 million and got their game to to 80% completion, and then it just fell apart. And how often that happens, and it's happened in recent years in the games industry. I just made a video not too long ago about Lightspeed LA, which is just a perfect example of that, of like, making this massive investment to make the next big hit, only for it all to fall apart. And Schafer's just thinking, like, how many cool, small games could we make for that kind of money? Why don't we try to do that? Why don't we try to do more weird, small things? I want to read another quote from him. Again, very quotable person, which I

think is is it's worth sharing his words. Quote, "After all these years, how little I understand about the business just shows how hard it is to know. That's why I'm focused on keeping my team alive. That's why we do all these creative things all the time. If we stop doing these wacky, creative things, we'd eventually be like, who cares? The games aren't These games aren't lucrative enough to make up for how hard they are. They have to also be really fun and rewarding to make. Um, I just want to note here, I've seen the sentiment online for years now about people just kind of complaining about game developers and how they all make tons of money and like they just to to to push out slop and unpolished games and milk milk people and whatnot. And I think this quote from Schafer is really telling cuz I think that's how a lot of people who make games feel. They actually don't make enough money to make up for how hard it is to make games and how long the hours can be and how excruciating the process can be. Um, if you are a programmer in San Francisco,

you can be making twice or three times as much uh at a company like Meta or Google or Anthropic as you do at a company like Double Fine or any other game developer. It's really the kind of the satisfaction and the fun process and the rewarding process of making games that makes it worthwhile for you. Um, So, yeah, it was really interesting talking to Schafer this week and I appreciate that he took the time to speak with me given that he now has to run a business and keep things afloat and can't just be kind of collecting those Microsoft checks because I actually I expected him to be more weary and exhausted and sad about this whole process and maybe he was and it was he was keeping it hidden, but he told me he was actually just like feeling reinvigorated and re-energized. Um, and I want to read a couple more quotes from him. He told me quote, "We've been through a lot this year. A lot of it is very soul-sucking stuff, inner conflict, threats of extermination, long negotiations, strenuous hard trade-offs with lawyers, tons of demoralizing stuff." Um,

but now he was telling me that like Double Fine is facing this very familiar surma- surmountable problem, which is can we get a game signed and keep staying alive, which Schafer was very comfortable doing for 19 years. And I I it was tiring for him. If you watch PsychOdyssey, you can see him being like, "Man, this is excruciating. I want to just focus on games, not on the biz dev part, not on the dog and pony show of like going out to publishers." But, after the 7-year break, Schafer was telling me that like he was feeling energized to do it again. And I'm going to quote him again. Quote, "This is the good fight. Can we think of a great idea for a game that we can actually do for the right budget that can get to this publisher who's interested in these types of games. This kind of problem-solving is soul enriching. Using creativity to solve problems is what gets us up in the morning. So, it is hard, and it is scary, and it is stressful, but it's at least putting some fire back into the bellies of the team and me." So, now it's September

2026, Double Fine has this Kickstarter going, they're going out there trying to get money for some of their bigger game pitches, they're going to make a bunch of smaller games as well, just throwing as many darts as the dartboard as they can to try to see what hits. In the past, Double Fine has not had the most success making big commercial hits. I think they've been able to they were able to stay alive for 19 years and and tread water kind of for 19 years. Um and then they got a nice boon with Microsoft, and now they're independent again. I don't know how long they'll be able to stay independent, and obviously it is a real shame and a tragedy that they had to lay off 23 people and that those people no longer have jobs and have to go out into this market that is incredibly tough for game developers. It can be months if not years to find new work in this industry right now. But, um we'll see what happens. Double Fine is now independent again, they control their own destiny, they will try to find money and see what they can do.

Um but, you know, Tim Schafer, he was able to do it for 19 years even when it seemed like he couldn't. And if you watch PsychOdyssey, you can see how close they get to the breaking point in a lot of ways. Um They've been there before. In fact, in PsychOdyssey, Tim Schafer tells the story about how Psychonauts 1 was canceled by its publisher and they were about to run out of money. They were couldn't make payroll when Tim Schafer called up an old friend of his, Will Wright, and Will Wright was willing to write them a check for a quarter million dollars as like a bridge loan to help them make payroll so they could get this game out the door. So, from the beginning, Double Fine was facing that existential crisis and they made it through. So, there is reason to believe that they could do it again now that they are no longer part of Xbox. Different world, different market, we'll see what happens with Double Fine next. Once again, you can find my Bloomberg article about all this in the show notes and also a link to PsychOdyssey and a

link to the Double Fine Amnesia Fortnight Kickstarter if you're interested in checking that out and I will see you all next time.