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A report by Bloomberg revealed that Microsoft is aiming to increase the profit margin of its Xbox division to 30%, a figure that significantly exceeds the industry average of 17-22%, according to S&P Global Market Intelligence data.
According to the report by Jason Schreier and Dina Bass, Amy Hood, Microsoft’s CFO, set this goal as part of a comprehensive plan to increase the profitability of all sectors of the company, but this ambitious goal led to a series of harsh decisions over the past two years, including:
- Canceling a number of major projects, most notably Perfect Dark from The Initiative and Everwild from Rare, both of which spent more than 7 years in development.
- Some studios, such as The Initiative, shut down completely after canceling their projects.
- Xbox hardware and Game Pass Ultimate prices increased by up to 50%.
- Laying off thousands of employees in multiple divisions of the company.
In 2023, the profit margin of Microsoft’s gaming division was only 12%, less than half of what the company is currently targeting, and data indicates that the global gaming sector has not exceeded 22% in profits since 2018, making Microsoft’s new target much higher than what is realistically possible according to analysts.
In an internal memo, Xbox president Phil Spencer explained that the cancellations are part of a focus on strategic growth areas, emphasizing that resources will be redirected towards projects that have long-term sustainability potential.
Industry experts believe that reaching a 30% profit margin requires additional cost reductions and expansion of digital revenues such as subscription services and in-game purchases, but this path may lead to more cancellations and fewer opportunities for innovation within Xbox Studios, raising concerns among developers and the public alike.
If Microsoft succeeds in achieving this goal, it will be the first major company in the gaming industry to reach a profit margin of this magnitude, but at the same time it may pay a significant creative price: the loss of experimental projects and creative studios that contributed to building the Xbox identity over two decades.
