Microsoft reportedly wants Xbox to hit 30 per cent profit margins, well above the gaming industry average
Microsoft reportedly wants Xbox to hit profit margins that are significantly higher than the industry average, which is one of the causes for the company’s recent spate of layoffs and price hikes.
Per a report in Bloomberg, people familiar with Microsoft’s business spoke anonymously to gaming journalist Jason Schreier about Microsoft’s target of 30 per cent “accountability margins,” a term the company uses instead of profit margins, over the last two years. The new target was implemented in the fall of 2023 by Microsoft Chief Financial Officer Amy Hood, and the finance team has reportedly taken a larger role in the gaming business in recent years.
However, the wider game industry has ranged between 17 and 22 per cent over the last few years. At Xbox specifically over the past six years, profit margin ranged between 10 and 20 per cent, according to Bloomberg, with court documents showing the gaming business had a 12 per cent profit margin during the first nine months of Microsoft’s 2022 fiscal year.
Not only is Microsoft’s 30 per cent target above the rest of the industry, experts told Bloomberg it’s at the high end for what a gaming company could expect during a boom year.
The target marks a shift for Xbox, which previously didn’t give game makers specific targets, instead telling them to focus on making the best games possible.
Since the new target came into effect, the Xbox division has looked for ways to cut costs and boost profits. Some of the changes arguably have been positive, such as Xbox’s decision to release games on competing consoles.
But many changes have not been positive. Xbox made a spree of poor decisions this year, including cancelling many products, laying off workers, and raising prices of console hardware, games, and the company’s Game Pass subscription. And the long-term impact of the target could lead to fewer risky titles from Xbox studios, with game makers prioritizing games that are cheap to make or more likely to generate revenue.
Moreover, with Xbox’s plans to make a “very premium” next-gen console, the future of Xbox could be uncertain. Very premium likely means very expensive, and an expensive new console might be a tough sell for gamers who are increasingly feeling pressure on their wallets. And that feeling will be compounded by Xbox’s history with consoles — the company has struggled following the Xbox 360 days, with the PlayStation 5 reportedly significantly outselling Xbox’s Series X and S consoles. (Microsoft doesn’t disclose official console sales numbers, so comparisons use third-party estimates.) Whatever Microsoft’s plans for the next Xbox, if the company’s games are available on other platforms, the hardware will have to do something quite compelling to convince gamers to part with their cash.
Source: Bloomberg
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