The Failed Game Studio That Accidentally Built Xbox

On March 22, 1995, Bill Gates and Steven Spielberg stood on a stage at Microsoft headquarters. Reporters held recorders and cameras. Gates said the joint venture would hit “hundreds of millions of dollars” in sales within two to three years. Spielberg called it a marriage made in heaven.

They announced DreamWorks Interactive. Microsoft and DreamWorks each put up half the money: $30 million in seed funding. Paul Allen invested too. The studio would be based in Los Angeles, near DreamWorks, with a small office at Microsoft headquarters in Redmond. DreamWorks would supply creative talent. Microsoft would supply technology and a distribution platform.

“Without Microsoft, entering interactive entertainment would be foolish,” Spielberg told reporters. “They are the best company in the world.”

He also said: “We don’t want to stand on the shoulders of giants who have already created hit games or other products. We want to break new ground and find things no one has ever done before.”

Gates predicted hundreds of millions in sales. The studio planned to release more than twenty titles a year.

That was 1995. CD-ROM was rising. 3D graphics were just exploding. The internet was about to sweep across everything. Everyone believed interactive entertainment would be the next gold mine.

The studio did not become a hit machine.

By 1997, it had released seven products. Only four were developed in-house. The best seller was Goosebumps: Escape from Horrorland. It sold 130,000 copies in the United States by August 1997. That was not enough to make the studio profitable.

DreamWorks was busy making movies. Microsoft was busy with the internet. The studio sat in a spot where neither parent paid it much attention. Hollywood storytelling and software engineering did not fit together as neatly as people had hoped.

In 1999, the studio released Medal of Honor. Spielberg got the idea while filming Saving Private Ryan. After watching his son play GoldenEye 007, he thought World War II could work as a shooter.

Medal of Honor was praised. It put players into WWII battlefields. Its cinematic storytelling and realistic weapons set a template for later WWII shooters.

But the success came too late.

In 1998, DreamWorks Interactive released Trespasser: The Lost World - Jurassic Park.

Two former Looking Glass employees, Seamus Blackley and Austin Grossman, started the project. They got the Jurassic Park 2 license, brought it to DreamWorks Interactive, and won Spielberg’s support. EA published it. Microsoft put a promotional video on its Windows 98 disc.

The team tried ambitious things. They wrote a physics engine for object interaction and character movement. The game had wide open environments. Dinosaurs were controlled by AI. Before release, many outlets said it could be one of the best games of the year.

Then it launched.

Development had been rushed. Large chunks of content were cut. The hardware of the time could not handle the physics. The engine broke in public. Characters moved like puppets. Objects behaved strangely. Dinosaur AI often lost its mind.

GameSpot called it “the worst game of 1998.”

It sold 50,000 copies.

DreamWorks Interactive’s reputation took the hit. Spielberg grew doubtful about running a game company.

But Trespasser’s clumsy controls inspired later comedy games. Luke Williams, designer of Surgeon Simulator, said the clumsy surgeon came from the clumsy mechanical hand in Trespasser. Phil Tibitoski, one of the creators of Octodad, said something similar:

“In that game, this feature was supposed to be a serious, cool feature, but it turned into a buggy, disastrous, yet hilarious mess. It was so funny. I think that’s how we realized it could be a comedy game. Not just because of things like an octopus in a suit, but because watching these things go wrong was so much fun.”

Surgeon Simulator and Octodad became comedy game staples.

In February 2000, EA bought DreamWorks Interactive’s Los Angeles headquarters. EA took over Medal of Honor and other games. The Redmond part went back to Microsoft.

As a brand, DreamWorks Interactive was done.

Alan Hartman was among those who returned to Microsoft. He had been an executive producer at DreamWorks Interactive. He later joined Microsoft-acquired Digital Anvil and worked on Freelancer. Then he ran Turn 10, the studio behind Forza. In 2023, he became head of Xbox Game Studios.

Seamus Blackley also came to Microsoft. He had led Trespasser. After its failure, he pushed a console project through internal resistance. That project became Xbox.

Blackley said: “If Looking Glass had never existed, if Trespasser had succeeded, if I hadn’t blown up at Bill Gates and told him he needed a game console, the console market would have been monopolized by Sony.”

He also said: “That painful and brutal lesson greatly contributed to the birth of Xbox.”

Trespasser’s failure taught Blackley something. Without hardware built for games, and without a unified platform, even strong ideas get dragged down by PCs, drivers, and hardware differences. If Microsoft wanted to make games, it could not just publish them or ship a few PC titles. It had to build a console.

The Redmond team merged into Microsoft Games. DreamWorks Interactive left no brand at Microsoft. It left talent, lessons, and a platform ambition that went into Xbox.

At EA, the story went another way.

EA Los Angeles kept making Medal of Honor. In 2002, EA Los Angeles and 2015 released Medal of Honor: Allied Assault. Then 2015 refused an EA acquisition, split off, and founded Infinity Ward. Infinity Ward partnered with Activision on a WWII shooter called Call of Duty.

VG247 said: “Without Medal of Honor, there would be no Allied Assault. Without Allied Assault, there would be no Call of Duty.”

Call of Duty outgrew its predecessor.

EA Los Angeles later became Danger Close Games. In 2010, it released a modern-warfare Medal of Honor. The 2012 sequel, Medal of Honor: Warfighter, sold poorly. EA froze the series. Danger Close Games shut down. Some staff moved to DICE Los Angeles. DICE Los Angeles had a military shooter called Battlefield.

In December 2020, Medal of Honor: Above and Beyond came out. It returned to WWII. It was made by EA’s Respawn Entertainment, not DICE Los Angeles. Respawn’s head was Vince Zampella, a former 2015 member who worked on Medal of Honor: Allied Assault and Call of Duty. After falling out with Activision, he founded Respawn. EA later bought it. He was then put in charge of DICE Los Angeles and the Battlefield series. In 2021, DICE Los Angeles became Ripple Effect Studios.

Call of Duty? It and Activision were acquired by Microsoft in 2023.

Look only at DreamWorks Interactive, and it was not a success. It lived briefly. It released few games. Only a handful worked.

Look over a longer timeline, and its influence shows up in many places.

Medal of Honor led to Allied Assault, which led to Call of Duty. Trespasser’s clumsy controls inspired Surgeon Simulator and Octodad. Blackley pushed Xbox forward. Hartman went to Forza and Xbox Game Studios.

None of those works carry the DreamWorks Interactive logo. They all carry its traces.

EA inherited DreamWorks Interactive’s product line. Without Medal of Honor, there might be no Call of Duty and no later wave of WWII shooters. EA got the core shooter DNA and spread it across the industry.

Microsoft inherited something else. Xbox is its reincarnation. Microsoft kept no DreamWorks Interactive brand. It kept the talent, the lessons, and the conviction that it needed its own hardware.

Call of Duty, which spread out on EA’s side, returned to Microsoft when Activision Blizzard was acquired.

DreamWorks Interactive was a seed buried in a hurry. At Microsoft it grew into Xbox. At EA it grew into an FPS forest. It never became a towering tree itself. It let later growth put out branches.

The studio’s name is gone. Its fingerprints are not.