A new report has shed light on the goings on at Microsoft, which has allegedly pushed Xbox studios to deliver a 30% profit margin — much higher than the industry average.
Bloomberg’s Jason Schreier reported that Microsoft’s 30% profit margin goal had led to the gaming division’s huge layoffs, canceled projects, controversial price rises, and multiplatform push.
The cuts to Xbox have been deep. Thousands of staff have lost their jobs over several rounds of layoffs. Games such as Rare’s Everwild and The Initiative’s Perfect Dark reboot were canceled after years of development. ZeniMax Online Studios game Project Blackbird was canned, leading to mass layoffs. The Initiative was also shut down. Last year, Microsoft closed Redfall developer Arkane Austin and Hi-Fi rush developer Tango Gameworks.
Meanwhile, Microsoft has increased the price of the Xbox Series X and S consoles, and the price of Xbox Game Pass Ultimate to $29.99 a month — the latter of which was a hugely controversial move. Microsoft tried to make the jump to $80 video games, but ended up reverting to $70 after fans pushed back on the idea of paying $10 more for Obsidian’s The Outer Worlds 2. Most expect Microsoft to go to $80 at some point next year.
Bloomberg said the average profit margin in the video game industry is 17-22%. Over the past six years, Xbox has hit 10-20%. To put that 30% target into more context, Sony’s PlayStation division achieved a 16% profit margin in Q1 FY25. Bloomberg said Microsoft Chief Financial Officer Amy Hood enforced the new target in fall 2023 — amid Microsoft’s $69 billion acquisition of Call of Duty maker Activision Blizzard.
The upshot now is, according to Bloomberg, that games that are cheap to make or considered more likely to make lots of money may take priority over riskier projects. Xbox’s “floundering” hardware division, meanwhile, may face “a significant rethinking.”
IGN has reported on recent comments from Xbox president Sarah Bond, who said the next-gen Xbox console will be “a very premium, very high-end curated experience.” Bond has also called the idea of exclusive games “antiquated.” Nowadays, Xbox Game Studios is one of the most prolific and successful publishers on PlayStation.
Microsoft issued Bloomberg a statement that suggested its Xbox profit margin target isn’t the same across every project.
“We look at the business as a whole, balancing creativity, innovation, and sustainability across a diverse portfolio of offerings. As with any creative business, sometimes that means making hard decisions and stopping work on things that are no longer working for a variety of reasons, and shifting resources toward the projects that are more aligned with our direction and priorities.”
Wesley is Director, News at IGN. Find him on Twitter at @wyp100. You can reach Wesley at wesley_yinpoole@ign.com or confidentially at wyp100@proton.me.