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That sounds like a huge management mistake. Either way was more or less fine, but both? No way. There can't be two people you're responsible to, unless you're responsible to them in completely unrelated ways. But here, both obviously had their own ideas. So basically mismanagement killed Lionhead.

Also, it's probably not the best idea to put a successful studio working on something completely different to what they've done in the past. Games as a service can work pretty well, but what was tried sounds like a pretty big risk to me.