Rumors regarding a deal between Xbox and Hideo Kojima’s upcoming “Action Espionage” title have been swirling recently.
Xbox has been in the middle of a “restructuring” in recent weeks, which is leading to thousands layoffs and workforce reductions in the form of transfers. Microsoft’s new gaming CEO, Asha Sharma, has made no secret of her intention 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 which are now completely independent teams. Existing studios like Obsidian have been brought closer to the Fallout franchise for example, and Halo Studios itself was recently shut down (in essence) with the franchise moving to Call of Duty publisher Activision.
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As a result, questions have been raised about the timing of Xbox’s announcement partnering with Hideo Kojima’s “PHYSINT.” Some speculate (wrongly) that the shutdowns were designed to fund Kojima’s long-awaited return to the spy genre. Metal Gear Solid is arguably one of the top 5 (or maybe even top 3) most legendary franchises of all time. Getting the spiritual successor to this 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 he fire thousands of people to do it? The answer is “no,” reliable and verified sources tell me.
Chris Dring said “the PHYSINT budget on Xbox would be around $400 million” was asked for comment by Jason Schreier; he said the Xbox deal for PHYSINT was potentially less than $400 million. “I hesitate to go into exact numbers without seeing the documentation or… pic.twitter.com/KCIHiADaO4September 26, 2026
Speaking on his podcast, Chris Dring of The Game Business reported that the Xbox budget for PHYSINT stands at $400 million. He has since walked back his claims after Bloomberg’s Jason Schreier poured cold water on the figurine.
Likewise, direct sources with direct knowledge of the contracts have told me that the figure for PHYSINT is much lower than what is reported here. It’s been suggested to me that the “$400 million” figure is potentially what Sony and PlayStation could have paid until they canceled the deal. Xbox and Kojima are building their Xbox projects on a “fraction” of this announced figure.
I’m told that Xbox negotiated a deal with Kojima Productions that included both film and television licensing for PHYSINT, and that it also included improved terms for OD – Kojima’s anticipated atmospheric horror game for Xbox.
We’re seeing a more economical Xbox, and a more economical AAA industry in general
There has been a lot of discussion about budgets in recent years. Some estimates suggest that Grand Theft Auto 6 would have a budget in excess of a billion dollars, for example. Developers like Saber Interactive, Remedy, and Bloober Team have all commented on creating AAA quality experiences with budgets in the tens of millions, rather than hundreds of millions.
Video game development in the United States has become incredibly expensive. I’ve been told that part of this revolves around salary competition for Software engineering disciplines adjacent to AI, which often share cross-hiring processes and salary scales with gaming companies. The closer you get to an AI development center (like Microsoft’s headquarters in Redmond, WA), the more intense the competition for salaries…making game development potentially unviable from a purely fiscal perspective in some regions.
Microsoft has explored outsourcing in Eastern Europe, the UK and other regions where game development is more “affordable” for this purpose. PHYSINT may have some expensive Hollywood actors attached to the project, but Xbox CEO Asha Sharma has clearly stated her goals for savings and cost reduction.
Movies and TV shows are also becoming an increasingly crucial tool, both for marketing and to offset the costs of game projects. Selling the rights to streaming platforms like Netflix and Amazon Prime can impact game development budgets and create a symbiotic marketing rhythm (if the content is actually good). Given Kojima’s penchant for cinematic games, PHYSINT should be at least a project that pays dividends if everything is executed well.
…I suspect Xbox will have to give Kojima more flexibility than it would like if it wants the game to reach that coveted quality bar.
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