- Xbox has reportedly been tasked by Microsoft to deliver a 30% profit margin
- If true, it could explain recent studio closures and price hikes across hardware
- Bloomberg notes the average profit margin target is typically around 17-22%
We may now know the reason behind Xbox Studios’ rampant layoffs, game cancellations, and price increases for its hardware and subscription models – and it’s all down to achieving a profit margin target from Microsoft.
A new Bloomberg report alleges that Microsoft has tasked Xbox with delivering a 30% profit margin target, which is significantly higher than the industry average, which Bloomberg notes is typically between 17-22% according to data from S&P Global Marketing Intelligence.
If true, it could go a ways to explain the litany of controversial decisions the Xbox division has made over the past couple of years. That includes significantly raising the prices of Xbox Series X and Series S consoles in the US, as well as its restructuring and price hikes for the Xbox Game Pass subscription service.
Internally, Xbox Game Studios has seen numerous job cuts and high-profile studio closures. That includes the complete shuttering of The Initiative which led to the cancellation of Perfect Dark. At the same time, Xbox canceled Rare’s Everwild, which had reportedly been in development for close to a decade, alongside an unannounced online project from Zenimax Studios.
It could also explain Xbox’s decision to largely ditch platform exclusivity. Games like Forza Horizon 5, Indiana Jones and the Great Circle, Hi-Fi Rush, and Sea of Thieves, have all made the jump to other platforms including PlayStation 5, Nintendo Switch and Nintendo Switch 2.
Bloomberg notes that one upshot of this is that software that’s generally cheaper to make, or expected to turn a profit, may take priority over riskier projects. Xbox’s recent publishing of Ninja Gaiden 4 could be one example of this.
However, that mindset may run counter to Xbox’s strategy for the next console generation. Xbox president Sarah Bond recently stated that the brand’s next main hardware will be a “very premium, very high-end curated experience,” something that the average consumer probably won’t have much appetite for among various affordability crises across the globe.
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