Microsoft has imposed a profit margin target of 30% on its Xbox division, a figure much higher than the average usually obtained in the video game industry, according to reveals Bloomberg. This guideline would explain many of the controversial decisions that Xbox has taken in recent years, especially in terms of project cancellations, massive layoffs and price increases are concerned.
a goal to leagues. The average profit margin in the video game industry has ranged between 17% and 22% in recent years, according to share Jason Schreier in his article, based on estimates from S&P Global Market Intelligence. As the journalist states, on Xbox, that figure was between 10% and 20% over the last six years. On the other hand, court documents from 2023 revealed that Microsoft’s gaming business had a margin of 12% in the first nine months of fiscal year 2022.
S&P Global analyst Neil Barbour affirms that “a margin of 30% or higher is usually reserved for a company that is really nailing it.” To give an example, look at Capcom right now, which is practically in its golden age and which in recent reports operating margins were seen that were close to 40%.
Who is behind the change? According to According to Schreier, this goal was implemented in the fall of 2023 by Amy Hood, Microsoft’s chief financial officer, whose team has assumed a much more relevant role in the gaming business in recent years. According to sources As cited by Bloomberg, previously Xbox developers did not have to meet specific numerical targets and were asked to focus on making the best games possible without worrying too much about finances.
The practical consequences. To achieve that margin, Xbox has had to take drastic measures. In 2024 it announced that it would release most of its games on Nintendo and Sony consoles for the first time. In July we discovered that canceled several expensive projects that had been in development for more than seven years, such as Everwild, Perfect Dark or Project Blackbird. Also has laid off thousands of employees and Game Pass prices have increased and of the consoles. To go up, they have even increased the price of your development kits. According to the sources of the reportlooking to the future, games that are cheap to produce or with high income expectations will be prioritized over riskier bets.
The Game Pass dilemma. The strategy of including all Xbox games in Game Pass on launch day has hurt direct game sales, according to they point Schreier’s sources. And just as share In the middle, to compensate for these losses, Xbox offers its developers a credit calculated using an opaque formula that seems to favor games in which players spend more hours, such as online multiplayer titles. This makes it even more difficult to achieve that 30% margin.
The next hardware bet. Sarah Bond, president of Xbox, has declared recently told Mashable that the company’s next console will be “a very premium, very high-end and polished experience,” suggesting a change in strategy compared to previous generations and, predictably, a significantly higher price. There are already voices that point to a console much more similar to a PC, a concept similar to what we have seen with the ROG Xbox Ally. However, there is no official information yet, so we will have to wait to find out more details.
The official response. An Xbox spokesperson has declared that the company “has a long-term vision” for its business and that success “does not look the same in every project or priority.” He added that they evaluate “the business as a whole, balancing creativity, innovation and sustainability across a diverse portfolio of offerings.” Just like account Bloomberg, in July, Amy Hood said in a call with investors that the Xbox division’s operating income had grown 34% in the quarter ended in June thanks to “continued prioritization of higher margin opportunities.”
Decisions. Xbox has been losing market share to PlayStation and Nintendo for years. Microsoft no longer discloses Xbox hardware sales, but analysts estimate PlayStation 5 has sold more than double of units than the Xbox Series the purchase of Activision Blizzard for $69 billion in 2023, the largest acquisition in the history of gaming. However, it seems that for Microsoft it is not enough, and everything indicates that the company will be much more aware of its gaming division than ever, a struggle between executives and senior managers that no one knows where it will end.
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