In a definitive retreat from the immersive virtual worlds that prompted its 2021 rebranding, Meta Platforms Inc. announced the closure of three of its premier internal VR game studios. The move follows a disastrous financial period for the company’s Reality Labs division, which has now logged a cumulative operating loss exceeding $70 billion since 2020.
The decision, confirmed during a high-stakes all-hands meeting led by CTO Andrew Bosworth, marks the end of the road for Sanzaru Games, Armature Studio, and Twisted Pixel. These studios were the creative engines behind some of the Quest platform’s most acclaimed titles, including Asgard’s Wrath, the VR port of Resident Evil 4, and the recently released Marvel’s Deadpool VR.
A "Pivot to AI" Claims its First Casualties
The closures are part of a broader restructuring that includes the layoff of approximately 1,500 employees, representing roughly 10% of the Reality Labs workforce. Internal memos obtained by reporters describe a "narrowing of focus" as Meta shifts capital away from high-fidelity VR gaming toward artificial intelligence and AR-enabled wearables.
"We are shifting our investment to focus on third-party developers and partners to ensure long-term sustainability," wrote Tamara Sciamanna, Director of Oculus Studios, in a memo to staff.
The strategy appears to be a direct response to the runaway success of the Ray-Ban Meta smart glasses compared to the sluggish adoption of the Quest 3 and Quest 3S headsets. While the "metaverse" remains a long-term goal for CEO Mark Zuckerberg, the immediate priority has pivoted to "Meta Compute" , an AI-first infrastructure designed to compete with the likes of OpenAI and Google.
The Fallen Studios
The shuttering of the studios represents a significant loss for the VR Community.
Beyond these closures, Meta also announced that the popular VR fitness app Supernatural will no longer receive new content updates, effectively entering a "maintenance-only" phase. This is a startling reversal for an app Meta fought a year-long legal battle with the FTC to acquire in 2021.
The $70 Billion Reality Check
For years, investors have voiced skepticism over the "burn rate" at Reality Labs. A report from the New York Times highlights that despite tens of billions in Research & Development, Reality Labs generated just $470 million in revenue in the most recent quarter, less than 1% of the $4.4 billion it spent in the same period.
Analysts suggest that the "Year of Efficiency" which Zuckerberg touted in 2023 has evolved into a "Decade of Discipline."
"The metaverse vision was built on the assumption that VR would become the next major computing platform by 2025," said Ben Hatton, a connected devices analyst. "The reality is that consumers prefer the convenience of AI-powered glasses over the isolation of a bulky headset. Meta is finally following the data."
The Future: Smart Glasses and "Avocado"
The savings harvested from the closure of these gaming studios are already being redirected. Reports indicate Meta is doubling production capacity for its smart glasses and pouring billions into a secretive "skunkworks" AI project codenamed "Avocado" , a next-generation large language model expected to debut later this year.
Furthermore, Meta is encouraging its remaining Horizon Worlds developers to build for mobile and web rather than VR-first. This "mobile-centric" shift suggests that the company is abandoning the idea of a 3D-only social network in favor of a hybrid experience that users can access on the devices they already own.
For the VR industry, the news is a somber reminder of the volatility of the medium. With the closure of the teams behind the industry's most "triple-A" experiences, the burden of proof for VR's viability now rests almost entirely on third-party developers and Apple’s competing Vision Pro ecosystem.
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