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 $5 million budget wasn’t going to swing it. To make the game Microsoft expected, they’d need more money: a total of $7 or $8 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 $2 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’ve 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 Honor, 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 $5 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 $5 million multiplayer reboot of Phantom Dust had become a $5 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 $5 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.


You can reach the author of this post at jason@kotaku.com or on Twitter at @jasonschreier