Lionhead rose to fame thanks to the Black & White series and became a really big studio after the release of Fable, which led to two very popular and the creator Peter Molyneux being promoted to the European creative director of Microsoft Game Studios. But when Kinect was launched, Lionhead was tasked with doing the Kinect title Fable: The Journey, which bombed hard.
After that, they tried to develop the asymmetric multiplayer game Fable Legends, which was never released before the studio ultimately closed, in what is widely seen as one of Microsoft's worst decisions. And it seems like Microsoft feel the same way. in the Xbox 20th Anniversary documentary series Power On, Shannon Loftis from the Xbox team explains without sugarcoating:
"One of the biggest missteps that we learned from in the past was Lionhead. We had already published Fable 1, and it was a hit... People wanted more, and so we bought Lionhead. Those were good years. But after Fable 2, Kinect came along and the Fable-Kinect marriage just never really took. And then Fable: The Journey was a passion project for a lot of people, but I think it deviated pretty significantly from the pillars of what made Fable 1 and 2 so popular."
Another Xbox boss, Sarah Bond, says Microsoft has been trying to learn from the Lionhead cancellation:
"We acquired Lionhead in 2006, and shut it down in 2016. A couple of years later we reflected back on that experience. What did we learn, and how do we not repeat our same mistakes?"
Fortunately, something good might has come from the story after all. Today, a new Fable game is under development at Playground Games with some ex-Lionhead developers involved. The Xbox boss himself, Phil Spencer says this was the lesson they got from this sad story:
"You acquire a studio for what they're great at now, and your job is to help them accelerate how they do what they do, not them accelerate what you do."
Basically, Microsoft are well aware they did not handle this the proper way, and wishes it would have ended differently. Or as Loftis puts it:
"I wish Lionhead were still a viable studio."
Thanks IGN