Microsoft reportedly ordered its Xbox division to boost profits to an unrealistic level
The last 12 months have been pretty depressing for anyone invested in the long-term future of Xbox and the general health of the games industry. Back in May, Microsoft laid off 3 percent of its global workforce, with the company’s gaming division being one of the big casualties, and a number of upcoming titles were subsequently canceled. It painted a picture of a brand in crisis, but according to a new report, Microsoft has been setting its gaming division unrealistic profit targets for several years.
Sources told Bloomberg that in 2023, Microsoft implemented an "across-the-board goal" of 30 percent profit margins, which the report says Microsoft calls "accountability margins" internally. As Bloomberg’s Jason Schreier reports, this target, which was set by Microsoft’s Chief Financial Officer Amy Hood in fall 2023, is well above the recent industry average of 17-22 percent quoted by S&P Global Market Intelligence. Schreier adds that Xbox’s own average in the last six years is between 10 and 20 percent.
S&P Global analyst Neil Barbour told Bloomberg that Microsoft’s 30 percent target is the kind of margin "usually reserved for a publisher that is really nailing it." This is despite its gaming division only landing at 12 percent in the first nine months of 2022, as quoted in the report.
A Microsoft spokesperson told Bloomberg that it views individual games and projects differently with regards to what constitutes success, adding that it sometimes has to making tough decisions, including ending development on games, so it can shift its resources toward the projects that are "more aligned with our direction and priorities."
The new profit targets were introduced in the same year that Microsoft finally completed its $68.7 billion acquisition of Activision Blizzard, landing it hugely popular franchises such as Call of Duty and Diablo. Back in 2020 it acquired ZeniMax, the parent company of Bethesda, which means that long-running series like The Elder Scrolls and Fallout also now sit under the umbrella of Xbox’s gaming division.
Since 2018, Microsoft has been putting all of its first-party releases on Game Pass from day one, but this model has contributed to games failing to hit their 30 percent profit margin targets, according to Bloomberg’s sources. Xbox does offer developers a credit it calls "member-weighted value," which takes into consideration factors such as the collective number of hours Game Pass subscribers have spent in a game, although this formula tends to benefit multiplayer titles the most. Going forward, Bloomberg’s sources said Microsoft is likely to favor funding games with cheap development costs and proven revenue-generators over riskier projects.
Xbox has been successful in bringing some of its first-party games to other platforms, including its primary rival in Sony’s PS5, with major titles such as Forza Horizon 5 and Indiana Jones and the Great Circle making the jump in the last 12 months. In the wake of Microsoft raising the price of Xbox consoles in the US last month, the second time it has done so in 2025, it also slapped Game Pass Ultimate with a 50 percent subscription fee hike at the start of October. This week the company increased the cost of Xbox dev kits by $500.This article originally appeared on Engadget at https://www.engadget.com/gaming/xbox/microsoft-reportedly-ordered-its-xbox-division-to-boost-profits-to-an-unrealistic-level-150210398.html?src=rss
