While many have called out Microsoft for its recent pricing decisions for gaming hardware and subscription services, a new report courtesy of Bloomberg’s Jason Schreier has indicated that these decisions have been part of a larger move by Microsoft to get the Xbox division get higher profit margins. According to the report, Microsoft executives have set a goal of a 30 percent increase in what it calls “accountability margins” – essentially the company’s internal term for profit margins.
This mandate has led to Xbox’s response, which has in the last couple of years revolved around cancelling several of its in-development projects, shuttering some of its studios, and even letting go of thousands of its employees. For the sake of context, the report indicates that the average profit margin in the gaming industry sits somewhere between 17 and 22 percent, while Xbox’s own margins have fallen between 10 and 20 percent in the last six years.
The target of 30 percent was reportedly set in Fall 2023 by Microsoft’s CFO Amy Hood. The report also makes it a point that, in the past, Xbox developers weren’t really asked to hit any specific targets. Rather, the developers were encouraged to focus purely on making the best games they could manage. Another result of this new target has also been a change in Microsoft’s approach to game releases; foregoing console exclusives, the company has instead opted to go with multiplatform releases for its titles.
A spokesperson for Xbox suggested that this 30 percent target isn’t as universal as it appears at first glance, and that not all projects under the Xbox banner are expected to hit it.
“We look at the business as a whole, balancing creativity, innovation, and sustainability across a diverse portfolio of offerings,” they said. “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.”
As for the reason behind the Xbox division also being mandated to hit the new targets, the report indicates that the company’s acquisition of several other gaming companies over the last few years brought in more scrutiny towards its finances by Microsoft executives. These acquisitions include the $7.5 billion deal to acquire ZeniMax back in 2020, and the $69 billion acquisition of Activision Blizzard in 2023.
While Microsoft will be getting ready to reveal more of its financial details at the end of the month, for the financial period that ended in June, Amy Hood had noted that the operating income from Xbox division had gone up by 34 percent thanks to the company’s “continued prioritization of higher margin opportunities.”
What this means for Microsoft’s future plans, especially when it comes to gaming hardware in the form of next-generation consoles is currently unknown. However, a recent statement by Xbox president Sarah Bond has indicated that the company might be aiming for a higher price tag with a premium console release.
