The Xbox brand has been in rough shape for a long time now, but recent years have been especially rough for team green. Between studio closures, layoffs, and price hikes on hardware and Game Pass, it seems like Xbox is doing anything it can to survive. That may even mean ditching consoles for good, although it seemingly won’t happen next-gen.
Thanks to a fresh report from Bloomberg’s Jason Schreier, we may finally know the root cause for the decisions Xbox has made for the past two years, and it all comes down to hitting an ambitious 30% profit margin.
Microsoft Reportedly Expects A 30% Profit Margin From Xbox
This Could Be The Cause Of Numerous Cuts And Price Hikes
Schrierer’s report claims that Microsoft executives have “set an across-the-board goal of 30% “accountability margins,” a term Microsoft uses in lieu of profit margins, according to people familiar with the business.” For context, Schreier points out that most of the video game industry ranges between 17% and 22% profit margin expectations.
For Xbox, which has lagged behind PlayStation and Nintendo in both hardware and software sales for around a decade, this was an unachievable goal without major changes. We know from leaked court documents in 2023 (also via Bloomberg) that Xbox showed a 12% profit margin during the first nine months of the 2022 fiscal year.
Analyst Neil Barbour commented to give further context by stating, “A 30% or better margin is usually reserved for a publisher that is really nailing it.”
This shift in expectations apparently comes from Chief Financial Officer Amy Hood, whom Schreier’s sources say has become far more invested in the Xbox division as of late. As a result, Phil Spencer, the CEO of Microsoft Gaming, was forced to find ways to cut costs in order to meet these goals.
That high profit margin goal could explain the major shakeups seen at Xbox over the past two years, from hundreds of layoffs and studio closures, to shifting away from exclusives to sell first-party games on rival platforms to maximize profits.
What Caused This High Expectation For Xbox
It Might Be More Than Just The Activision Acquisition
The Bloomberg report indicates that this 30% profit goal was not always in place for Xbox, and was only introduced two years ago. Many already speculated that the purchase of Activision-Blizzard for just under $69 billion would bring more scrutiny to Xbox due to the sheer size of the deal. However, that might not be the only contributing factor.
Schreier speculates that, in addition to the Activision deal, this new profit expectation lines up with the start of Microsoft’s multi-billion-dollar investment into AI. Without condoning it, this information does at least offer a reason for the recent behavior we’ve seen coming out of Xbox and could inform what comes next for the brand and possible next-gen consoles.