There Will Be Even Fewer Good Games. Microsoft Requires a 30% Profit Margin from Xbox, Above Industry Standards — Bloomberg

As a result, the gaming division enacted layoffs, shelved projects, and shuttered studios.

Microsoft has set an ambitious target for its Xbox gaming arm: a 30% profit margin — far above typical industry levels. Journalists Jason Schreier and Dina Bass report that this approach has led to the cancellation of several high-profile projects, price increases for consoles and the Game Pass subscription, and the elimination of thousands of jobs over the past 24 months.

According to the report, Microsoft’s CFO Amy Hood instituted a 30% “responsibility margin” goal for the entire gaming unit, including Xbox, beginning in autumn 2023 — shortly after the acquisition of Activision Blizzard.

Previously, Xbox studios were not constrained by strict financial targets and focused on crafting standout games. Now, emphasis has shifted to low-cost initiatives or titles with strong revenue prospects, which has sidelined riskier, more experimental ideas.

Data from S&P Global Market Intelligence shows the gaming industry’s average profit margin has hovered between 17% and 22% in recent years, never topping 22% since 2018. In 2023, Microsoft’s gaming division recorded a 12% margin.

An S&P Global analyst pointed out that achieving a 30% margin requires near-perfect alignment of multiple variables and should not be viewed as the norm.

Source: iXBT.games