Bloomberg has published a new report about the state of Microsoft’s Xbox division, providing some potential insight into the reasoning behind so many baffling decisions the company has made in the past two years. Apparently, Microsoft leadership has been pushing Xbox to reach a much higher profit margin than is typically expected in the video game industry, and the result is a fundamental shake-up in everything the company has been building, leading to raising prices, canceling games, and sweeping layoffs across its many acquired studios.
According to the report, Microsoft set a goal for Xbox of 30 percent “accountability margins,” which is apparently the term the company uses in place of “profit margins.” As Bloomberg lays out, the average profit margin in the industry is anywhere from 17 to 22 percent, with Xbox having averaged anywhere between 10 to 20 percent over the past six years. So a 30 percent goal is not only far above what the industry typically delivers, it’s well above what Xbox has been bringing in as of late. According to Bloomberg‘s sources, this new number was implemented in the fall of 2023 by Microsoft Chief Financial Officer Amy Hood. While not every project is expected to hit the 30 percent goal, several developers under Xbox’s umbrella have been given a different target goal than they had previously, with cheaper projects or ones that are expected to generate substantial revenue taking priority over riskier ones.
So if you’ve been wondering why everything in Xbox seems to be in disarray, here’s probably a pretty significant reason. Xbox has been reporting billions of dollars in revenue for services like Game Pass, while simultaneously laying off thousands of employees, canceling projects like the Perfect Dark reboot, and raising the prices for its consoles, dev kits, and Game Pass subscriptions. On top of this, the company has also been releasing its own first-party games on competing platforms, seemingly in an effort to get more bang for its buck on projects it was already funding. Many of these price changes had been attributed to the Trump administration’s tariffs, but this report makes it sound like they’re also part of a push from Microsoft for a much higher profit margin than is the industry standard.
While the Xbox division has been very publicly floundering over the past two years, the company is already teasing the next console, with president Sarah Bond saying it will be a “very premium, very high-end curated experience.”
