Repeated poorly received releases may (temporarily) put a franchise on ice, but such actions are rarely truly permanent. Killer Instinct, for example, launched in 1994, had a sequel in 1996, and then lay dormant until 2013. There were three Marathon games released in 1994, 1995, and 1996 respectively, and then it lay dormant until Bungie announced the new Marathon game just a few weeks ago. IP never truly dies, it just hibernates until such time as its current owner manages to secure the funding to try to resurrect it again.
Studios, on the other hand, are much less resilient and more fragile than IP. A string of failures can honestly doom a studio. I will note that a failure in this context is a release that does not reach its revenue targets. If a studio has multiple sequential failures, it is in a bad position. Its financiers will be less willing to provide funding since the chances of recouping that investment are lower. It will have trouble hiring new talent since job seekers are usually less interested in working for a studio that is consistently unsuccessful. It will have trouble retaining its existing talent for similar reasons. Studios have employees and those employees are constantly draining money from their parent company in the form of salaries, benefits, overhead, and so on. Operating a studio for the multiple years it takes to develop a game without financial sustainability is a very tall order.
Publishers are not charities, they are businesses. In my experience, they will give successful studios freedom to do as they please, and they will give opportunities for unsuccessful studios to rescue themselves, but these self-rescuing opportunities are limited in number by necessity. If the publisher doesn’t think the studio is salvageable, then it makes business sense to shut it down.
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