How A Small Studio’s Chance At The Big Time Died At Microsoft’s Doorstep

How A Small Studio’s Chance At The Big Time Died At Microsoft’s Doorstep

One week in early February, three top employees from the independent game studio Darkside Games flew to Redmond, Washington for a secret meeting with Microsoft.

Over the course of the meeting, which lasted two days, Darkside’s leadership tried to convince the mega-corporation to give them a few more million dollars, according to two people familiar with the situation. For the past few months they’d been working on an Xbox One reboot of the cult classic Phantom Dust, and it’d become clear to Darkside’s producers that their $US5 million budget wasn’t going to swing it. To make the game Microsoft expected, they’d need more money: a total of $US7 or $US8 million, at the very least.

Microsoft wouldn’t budge. As they flew back to Florida, Darkside’s leads were pessimistic about the negotiations working out, and sure enough, the next week, on February 17, they got a phone call: it was all over. Microsoft was moving on.

“There was just no leeway,” said one person familiar with the meeting. Microsoft had already dumped roughly $US2 million into the project, but at that point the publisher decided to pull out rather than pour more money in.

“They said, ‘OK, let’s cut our losses.'”

Shortly afterward, Darkside laid off all of its staff. The owners would later go on to contract a few artists and programmers for small projects, but today the studio is a shell of itself. Almost all of their employees have either relocated or taken jobs at nearby game companies like Magic Leap and High Voltage. When the Phantom Dust deal fell apart, Darkside did too.

Though you may never have heard of Darkside Games, you’ve probably heard of the games they have helped develop — the Florida-based studio has contributed to Gears of War: Judgment, Spec Ops: The Line, Sunset Overdrive, and various Borderlands games, handling all sorts of art, DLC, and other features. Darkside, like many other small studios, was firmly rooted in the unglamorous world of outsourcing, helping make other companies’ games rather than creating their own. When Phantom Dust came along, Darkside employees say they were ecstatic — finally, they could prove that they were capable of making their own game, too. Finally, they’d reached the next level.

So just what happened? How does a successful independent studio go from working on top AAA games to laying off its staff in just under a year? Over the past few months, I’ve talked to five people who worked for the company — all of whom spoke under condition of anonymity in the interest of protecting their careers — in an attempt to learn the story of how Darkside collapsed. It’s sad, frustrating, and more than a little tragic.

When asked to comment on the specific details in this story, Microsoft declined, only re-sending the statement they sent when we first broke news that the two companies had parted ways. (“Microsoft partnered with Darkside Game Studios in the development of ‘Phantom Dust,’ but our working relationship has now ended.”)

Way back in 2002, a group of Florida-based artists started a production company that they called Shadows of Darkness. After several years doing outsourced art-work for game series such as Call of Duty and Medal of Honour, the developers decided to branch into design, forming a new studio called Darkside in 2008. Using the connections they’d gained over the years, the newly-formed Darkside picked up some high-profile contracts, doing tech work for games such as BioShock 2 and even designing entire chunks of AAA games, like the Borderlands downloadable content “Claptrap’s New Robot Revolution” and the multiplayer portion of the 2012 shooter Spec Ops: The Line.

Few game developers want to spend their lives in outsourcing, however, and the people at Darkside had grander ambitions. They wanted to do something on their own. After years of serving as secondary studio on other peoples’ projects — and after a number of unsuccessful game pitches that included potential projects involving Transformers and The Walking Dead, according to a studio source — Darkside’s developers were hungry for their own big thing.

“The ultimate goal was to create our own game,” said one person who worked for the company. “That’s where Phantom Dust came in.”

Above: concept rendering of Darkside’s Phantom Dust reboot.

In early 2014, Darkside’s leadership began serious conversations with Microsoft about making something new. Microsoft was looking to revive some of their old franchises on Xbox One without spending too much money, and Darkside was a small yet experienced studio that Microsoft’s producers already knew thanks to their work on the Xbox-exclusive Sunset Overdrive. It seemed like a good fit.

“Microsoft had a list of [intellectual properties] that we might be interested in,” said one person familiar with Darkside’s pitching process, adding that the list included the sci-fi shooting series Perfect Dark, the action-card game hybrid Phantom Dust, and a handful of other Microsoft-owned properties. At one point Darkside pushed for Battletoads, according to that source, but Microsoft told them it was off the table.

Phantom Dust was the one that really stood out to us,” the person said. “It was a really obvious choice.”

Obvious to them, maybe, but to an observer it seems odd — Phantom Dust was never a commercial hit, nor were many people begging for the series to come back. On top of that, the old Xbox action game was developed by a Japanese team, led by now-independent designer Yukio Futatsugi. Why would Microsoft task this small studio in Florida with rebooting it? It was a cult classic, sure, but how many people would really care?

Still, Darkside employees say they were excited at the prospect, and Microsoft really wanted to make it happen. (In late 2013, Xbox boss Phil Spencer had talked to Kotaku about rebooting Phantom Dust, so this had been on Microsoft’s wishlist for a while.)

After some heavy-duty conversations in the spring of 2014, the two companies walked away with a deal: Darkside would get a $US5 million budget to build a multiplayer-only reboot of Phantom Dust, complete with a spectator mode, tournaments, and a complicated replay system allowing players to share files, according to one person familiar with the original pitch. The initial plan was to make it a competitive online sport, along the lines of Hearthstone and League of Legends. They gave it the codename Babel.

Above: a slide from the art bible Darkside created for the reboot of Phantom Dust, which was code-named Babel.

Though some Darkside staff say they were hesitant about this decision to rebrand Phantom Dust as an eSport, given how much fans loved the original game’s single-player mode, the developers were high on the project. “We were very passionate about it,” said one person familiar with the deal. “It was a huge break for us as a company.”

Like the original Phantom Dust, Darkside’s reboot would be an action game where players’ abilities were determined by pre-constructed decks of cards. Each player would control a character on an arena-style battlefield, using skills and taking advantage of destructible environments in an attempt to defeat their opponents. As in the original, the goal was to give players as many different card options as possible. The initial plan was to release the game in August of 2015.

No more than a week after they’d signed the contract, according to several ex-Darkside employees, Microsoft’s team came back to the studio with a new request: they wanted a single-player campaign. “They decided that fans were gonna want a single-player game,” said a person who worked on the project. “But they weren’t going to change the budget or the timeframe.”

Suddenly, what was once a $US5 million multiplayer reboot of Phantom Dust had become a $US5 million multiplayer reboot of Phantom Dust with a six-hour single-player story mode attached. That meant Darkside would need more designers, more artists, and more programmers, all of which equated to extra time and money that they didn’t have. Still, employees say they were committed to pulling it off. This was their first solo project. They wanted to prove they were good enough to do it. According to one Darkside source, their tentative plan was to build a fun vertical slice — a playable and demonstrable chunk of the game — and use it to persuade Microsoft into giving them more money.

Darkside was in the very early stages of development when E3 came around in June of last year, and some at the studio say they were shocked to see Microsoft announce Phantom Dust there. They were even more shocked to see the game announced through a pre-rendered trailer that nobody at Darkside had worked on, according to studio sources. Perhaps most frustratingly for people at the studio, Microsoft wouldn’t tell anyone that Darkside was developing the game. Darkside was put on a gag order; though the game had been announced, they still couldn’t tell people they were making it. “It was very sad,” said one person on the project. “It showed a lack of confidence in us.”

One former Darkside employee says some at the studio were caught off-guard by the announcement. “We didn’t even know if they were going to show it,” the employee said. “We were basically told, ‘Hey check out the E3 presentation.’ The whole studio’s in the living room, we have a TV going with an Xbox watching the presentation, and then all of a sudden there’s that two-minute CG trailer. And we were like, ‘That’s amazing.’ But at the same time, they didn’t use any of our assets, they didn’t use any of our card packs, nothing. Basically what they showed had nothing to do with the game whatsoever. We had no idea that was even happening… It was like, ‘Holy crap, now fans are expecting characters to look like that, and that’s not what we’re making.'”

Darkside soldiered on, and full development started around August of last year. As the months went on, things got shakier. Microsoft’s demands for the game increased, and the pressure got worse and worse as Redmond kept asking for new things, Darkside sources say. Microsoft wanted a longer single-player campaign; they wanted various features added and changed; they wanted Darkside to help contribute card art to the accompanying mobile game Microsoft had planned. “This kind of focus change happened on a nearly monthly basis,” said a person who worked on the game.

“They asked for things pretty quickly,” said a second person close to the studio. “We kept telling them, ‘We cannot make this game for the budget you want.'”

In the fall of last year, another obstacle popped up: one of Microsoft’s creative directors, who Darkside sources described as integral to Phantom Dust‘s success, left the company. His role was never re-filled, which hurt Darkside a lot — producers at the studio had to communicate with Microsoft’s creative team on a daily basis, and he had been one of their most important connections in Redmond. “He was a huge fan who really understood the game,” one source said, “so when some of the producers would make some really stupid requests, he would be able to say, ‘This was a really stupid request.'”

Development was rocky — when is game development ever not? — but Darkside was all-in. By the end of 2014, they were no longer taking other contracts; the studio had around 50 employees, all of whom were working on Phantom Dust. It was a calculated gamble, but Darkside staffers say they didn’t see it as much of a risk based on their conversations with Microsoft about the game.

The original plan was for Darkside to finish the vertical slice by December, but after some struggles, they convinced Microsoft to extend the deadline to January. One particularly strange moment for Darkside happened around then, when Microsoft’s Ken Lobb said on a podcast that Phantom Dust would be “about a 30-hour JRPG.” The developers were baffled. That was never part of their plan. “Nobody knew he was gonna say that,” said one Darkside staffer. “We were told by people at Microsoft that Ken just does things like that.”

By the end of January, they had a vertical slice. Darkside sources say they loved the way it turned out, as did Microsoft. The art, characters, and levels were all approved. “Everybody was very happy with it,” said one person who worked on the game. “The execs had fun playing it, I was surprised to hear. They were actually having fun with it in their office, in meetings.”

You can see footage of the vertical slice (which we published last month) here:

Even as Darkside’s developers celebrated the successful prototype, leadership couldn’t ignore the looming money problem. By February, it had become a huge concern — they just didn’t have the resources to deliver what they knew Microsoft expected. There were no signs that Microsoft would be willing to give them more money, even after all the work Darkside had put into the game already.

“[Microsoft] loved us; they said we were one of the best devs they’d ever worked with,” said one person who worked on the game. “They wanted to go forward with us — the issue was the budget.”

So in mid-February, Darkside’s top leadership flew out to the corporation’s Redmond campuses for a meeting that they hoped would get them more money. Darkside made the pitch: to properly reboot Phantom Dust with both multiplayer arena battles and a sizable single-player campaign, they’d need more resources. It just wasn’t doable at $US5 million.

Microsoft said no.

“When it came down to it, the game they wanted could not be done,” said a person familiar with the studio. “We could not make them the game they wanted for the budget they had.”

On Tuesday, February 17, Darkside got the phone call: it was over. Microsoft would no longer be moving forward with them on Phantom Dust. Darkside’s owners immediately told the staff that the project was cancelled and that they’d have to lay everyone off — they’d put everything into this game, and without it, they had no other options.

Two months later, the former employees of Darkside have mostly moved on, taking jobs at other Florida development companies like the enigmatic augmented reality outfit Magic Leap. One anonymous employee told me in late February that some of them had started a new company, and a handful of others are still working with Darkside’s ownership as contractors. But when Phantom Dust failed, Darkside did too.

So will the Phantom Dust reboot still happen? Publicly, Microsoft is saying yes, but some people who worked on the game say they don’t believe it — after all, if Microsoft was willing to allocate more money to make the game they want, why wouldn’t they have just done it with Darkside? People who worked with Microsoft say the publisher’s creative team worked very hard to try to salvage the project, and one source said they’d be “shocked” if the publisher had alternate plans in the works.

Game studios shut down a lot. Sometimes it’s because they’re part of bigger companies that just don’t see their value anymore. Sometimes it’s because they’re a group of artists unable to recapture past glory. Sometimes it’s because things just don’t work out. For Darkside, a studio that helped make games you may have loved and came oh-so-close to finally striking out on its own, this ending stings the most.


  • Bad company to approach for money I guess. Should have went to Sony since Sony is embracing indie developers.

    • The issue is that Darkside would have had to create their own IP if they went with Sony, whereas MS owns a huge catalogue of old IP that hasn’t seen any action in many years.

      It’s shocking that MS wouldn’t allow a larger budget IMO, an extra few million would have been invisible in their cashflow and they lost something which I and I’m sure many others were quietly excited for.

      • I think Darkside made one very important mistake: asking for more money when only $2 million of the $5 million had been put in. If they’d waited until $4.5 million had been put in (or even the whole $5 million) and THEN said to MS “more money or the game doesn’t get finished” they might have won the stand-off. As it was, MS thought that $2 million was an acceptable loss, and preferable to putting in another $6 million (double what they thought remained to be put in).

    • Seriously?

      I don’t blame Microsoft, really. I would be questioning how all that money has been spent so far. I’ve seen more progress made on a smaller budget. If the company can’t manage money well, what’s to say they won’t be back asking for even more later on?

      Let’s be real here, how much revenue does DS expect from this game? Because I can tell you it’s probably not going to be $8M.

      • Let’s be real here. With the budget they did managed to get the game to the point of initial plan which was multiplayer only. Then comes Microsoft wanting to add SP campaign without giving additional budget and time. Now tell me why Microsoft was not to blame?

        Sometimes it is just not worth defending companies doing shitty decision, regardless who they are. But Microsoft does have a history of screwing with indie developers.

        • Firstly, that’s according to what the ex-employees said and secondly even if it was true, it was a week later.

          If I signed a deal with a builder to build a new house and a week later I said I wanted to add another storey but for the same agreed amount, it’s up to the builder to decline it or accept there and then, not wait until they’ve built the foundation and then ask for more money.

          • If you signed a contract w/ a builder for a set amount and suddenly changed the schematics you’ve just broken contract unless you have a proviso saying you can add/change things on the fly (at which point any builder taking on the job would be insane) and the builder is within their rights to not only ignore your changes unless you provide funding but literally walk away from the project

            Problem is it’s a terrible analogy since studios don’t exactly have the same freedom to “walk away” especially since work is the lifeblood of a studio. And project contracts don’t work the same way. Funding for a project is already estimated before contracts are signed to make sure they are within scope. Should the studio of course fail to deliver on original plans then that’s the studios fault. HOWEVER when you are drastically changing the scope of a project you are also drastically changing the funding required. Any other studio or publisher who changes stuff on the fly always forks out cash. You can’t change scope midway and then say “too bad” when you need more money. Unless your a big publisher who can just cut the studio…

          • Of course the studio had the option to walk away. By their own admission they decided not to in order to prove they could do it.

            If Microsoft change the scope of the project it is up to the studio to say we can’t do this in the agreed budget. They didn’t. They took it on to try and prove they could and then went back half way through after realising they couldn’t.

          • Imagine if the builder wasn’t actually working for the home owner, but instead the developer of a larger real estate project, and had been offered a percentage of the final sale price of the house plus an advance as the payment. Now to take the analogy further, imagine that the project was so large that the builder had to give up all other projects to work on the building, and had sunk some of their own savings into the project (since they’d be getting it all back when the royalties from the sale come in, right?).

            That changes the dynamic quite a bit, so the builder is no longer in such a strong position to refuse variations on the original contract now.

          • God, this bullshit about assuming people are lying and narcissistic “If I were…” scenarios has got to stop.

      • You seem to be ignoring the part where Microsoft and DS agreed to a project, and then Microsoft went and kept dramatically expanding the scope of the project without expanding the budget to handle it.

        I’ve done a course on managing projects and right from the second week they spoke about project creep and how that is one of the biggest reasons why so many projects of all stripes fail. Reading this the only thing I blame DS for is not pushing back from day one and going “if you want single player added onto the project you need to pay for that.” But they didn’t and Microsoft kept blowing out the scope of the project and are entirely responsible for it’s failure.

        • They’re not entirely responsible for the failure if Darkside told Microsoft they could do it, which is what it sounds like they did. In that case, they overpromised and that’s at least partly their fault too.

          • From the article it sounds like Microsoft started redefining the project scope without even informing the team first (all those announcements on what the game would be). So I’d put it at 99% Microsoft and 1% DS for not standing their ground.

      • I think the blame is Microsofts not Darksides.

        If I ask for somebody to build me a fence that’s 20 meters, and they quote $500. I can’t ask for 30 meters of fence, oh and I want it made out of this instead of that and I want it to be higher too. No you can’t have more money you quoted $500. In my example knowing nothing about the real world costs of fence building I added an extra amount of fence and changed the height and possibly even to a more expensive material. In fence building I couldn’t sue the guy because my contract was for a 20 meter fence.

        In the Video Game world, it seems you can redesign things from the ground up but not inject more cash into the budget. Microsoft kept moving the goal posts, and they ran out of money before they passed them. Now if they failed to deliver on the original promise of a MOBA style game than that would have been Darksides fault.

        I never understand why people think they can change things after the initial brief. It’s like asking Subway to untoast your sandwich, not possible you said toasted and you can’t go back.

    • Around September 2014 Stephen Elop ex-ceo of Nokia took over part of the Xbox catalogue. His job while at Nokia was basically to prep the company for sale to Microsoft. Something tells me when he took over his part at Microsoft with relation to Xbox he would’ve done more cost-cutting, etc. Given he initially wanted to sell the Xbox brand all together.

      Edit: This is speculative but the timing is too coincedental to be assumed as nothing?

  • The problem is they signed a deal for $5million then MS changed the scope of the project repeatedly. If Darkside were properly managed it wouldn’t have accepted the variations to the contract without additional funding.
    Lesson is, don’t make promises you can’t keep. In business you have to pay for what you want.

    • IMHO it’s less about DS management and more about corporate clout. This is less about “keeping promises” but more along the lines being small fish being taken advantage of the big boys. As their first big project and as a small unknown studio they can’t just go “No can’t be done!” as they would have likely just been dropped there and then… the sad part is it looks like they tried to make it fit but in the end being small fish in midst of sharks means they just got taken advantage of…

      Had it been any of the more established studios MS wouldn’t just suddenly cut and run on a project. The fallout would be too big… but as a small studio with their first big project? Cut and run and no one will be the wiser..

  • Darkside got out businessed. This is what happens when creatives try to play with accountants and lawyers.

    It’s sad, but the reality is you NEED to hire the kind of people you said you never would as an idealistic startup.

    • Exactly. Darkside looks like they didn’t stand their ground and just bent over. Darkside should have said that they only agreed to the initial contract and that if MS wanted more (e.g. single player campaign), they needed to give them more money. Instead, they just agreed to all the additions without getting more money.

      Darkside’s management was to blame for being a pushover.

      • Pretty much this. One of the first things they warn you about in project management classes is the slow scope creep of the project and how vital it is to manage it. Of all the advice they gave DS did pretty much the opposite (I.E caved without raising any issues).

        At the very least they should have pulled Microsoft in for a chat when they started making announcements to the public about what the game would have without consulting them.

    • I dunno… It just seems impossible to me that they would’ve gone to those negotiations and not mentioned the words ‘out of scope’. I strongly suspect they were fucked either way as soon as they signed the initial deal which allowed the publisher to change the goal-posts. I’d be willing to bet the ‘negotiations’ were more of a begging and justifying deal.

      • Signing a contract which allows that changing of scope is still on them.

        I know a few lawyers who specialise in weaseling out of contracts, you need to have these people read everything you sign because they’re definitely working for the other side too!

  • I’ve said my piece about where blame lies up above.

    I will say I am sick of Executives with no knowledge making decisions or deciding upon arbitrary additions to a game with no thought for how much effort is required.

    I just find it unusual that a company being described as excited and even desperate to make their own game, needed so badly to get their hands on somebody elses IP. I’m sure there is more to the story than what’s in the above article I just find it strange.

  • How many millions did they BLOW on that CGI film? the game looks like a 2009 version of Second Son…… Sorry to say.

    • Mmm… dat Ekin Cheng lookalike though. I would have bought an Xbone for a game looking like that 😉

  • Pretty disgusting how this complicated discussion devolved into people arbitrarily assigning blame based on ignorant (by definition) perspective.

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