This is precisely why the gaming division has conducted layoffs, canceled projects, and closed studios.
Microsoft has set an ambitious goal for its Xbox gaming division to achieve a 30% profit margin, significantly exceeding the gaming industry average. According to journalists Jason Schreier and Dina Bass, this strategy has led to the cancellation of several major projects, price increases for consoles and Game Pass subscriptions, and the reduction of thousands of employees over the past 24 months.
According to the report, Microsoft CFO Amy Hood set a target of 30% "accountability margins" for the entire division, including Xbox, starting in the fall of 2023 — immediately after the acquisition of Activision Blizzard.
Previously, Xbox developers were not required to adhere to strict financial quotas and focused on creating the best games, but now priority is given to projects with low costs or high revenue potential, leading to the abandonment of risky ideas.
The average profit margin in the gaming industry in recent years has fluctuated between 17% and 22%, according to S&P Global Market Intelligence, with a peak of no more than 22% since 2018. In 2023, Microsoft's gaming division showed 12%.
An S&P Global analyst noted that a 30% profit margin is the result of ideal performance across many factors, not the norm.
