Xbox Studios Reportedly Pushed for Insane 30% Profit Margins by Microsoft

Microsoft is reportedly pushing its Xbox division to hit profit margins far above what the video-game industry usually sees, putting extra pressure on its studios.

According to Bloomberg, the company has set a 30% “accountability margin” target for Xbox, a figure well above the typical industry range of 17% to 22%.

People familiar with the matter told Bloomberg that this high goal has led Xbox to make tough decisions, including canceling games, laying off thousands of employees, and raising prices on consoles and services.

Over the past few years, Xbox’s profit margins have been lower than the new target, ranging from 10% to 20%.

Court documents from 2023 showed that the division had a 12% margin in the first nine months of Microsoft’s 2022 fiscal year. Neil Barbour, an analyst with S&P Global, said, “A 30% or better margin is usually reserved for a publisher that is really nailing it.”

The pressure has already had major consequences for Xbox studios. Several projects, including Rare’s Everwild and The Initiative’s Perfect Dark reboot, were canceled after years in development. ZeniMax Online Studios also scrapped Project Blackbird, and layoffs followed.

Microsoft shut down The Initiative, as well as developers like Arkane Austin, known for Redfall, and Tango Gameworks, which was working on Hi-Fi Rush.

In addition, Microsoft has raised the price of the Xbox Series X and S consoles and increased Xbox Game Pass Ultimate to $29.99 per month. The company also tried raising the price of new games to $80 but returned to $70 after fan backlash over Obsidian’s The Outer Worlds 2. Analysts expect the $80 price point may still come next year.

Bloomberg noted that Sony’s PlayStation division, by comparison, earned a 16% profit margin in the first quarter of its FY25, highlighting how aggressive Microsoft’s target is. The push for higher profits reportedly came from Microsoft CFO Amy Hood in fall 2023, around the same time as the $69 billion acquisition of Activision Blizzard.

According to Bloomberg, the result of this strategy is that Xbox may now prioritize games that are cheaper to produce or more likely to generate strong revenue, while riskier or innovative projects could be sidelined. The hardware side of Xbox may also face major changes as the company rethinks its strategy.

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