Bloomberg: For the last 2 years Microsoft has pushed Xbox to hit profit margins of 30% an ambitious target that's far higher than the industry average

[Grand Conde]

The new goal, which hasn't been previously reported, is at the outer range of what a gaming studio can typically reach in a boom year, said Neil Barbour, an analyst with S&P Global. "A 30% or better margin is usually reserved for a publisher that is really nailing it," Barbour said.

In the past, game makers at Xbox weren't asked to hit specific numerical targets, said the people, and were largely told to focus on making the best games possible without worrying too much about finances. The new target was implemented in fall 2023 by Microsoft Chief Financial Officer Amy Hood, whose team has taken a larger role in the gaming business in recent years.

Moving forward, games that are either cheap to make or deemed more likely to generate significant revenue windfalls may take priority over riskier bets, said the people, while Xbox's floundering hardware division may face a significant rethinking. In a recent interview with Mashable, Xbox President Sarah Bond said the company's next console will be "a very premium, very high-end curated experience," suggesting a departure from previous Xbox iterations.

An Xbox spokesperson said in a statement that they take a long-term view of their business and that success "doesn't look the same across every project or priority."

Xbox has struggled to sell consoles largely because it has failed to develop exclusive games on par with Nintendo's The Legend of Zelda: Breath of the Wild or PlayStation's God of War, both of which won Game of the Year awards and drove significant console sales.

Xbox's best hope for a blockbuster game in recent years was 2021's Halo Infinite, the latest entry in its most vital franchise. Despite some early accolades, the game was ultimately seen as a failure and led to a complete overhaul of the studio behind it. Later this week, Microsoft will announce a new Halo release in an attempt to resuscitate the franchise.

The change has hurt Xbox game sales, according to the people — a continuing challenge that may make it even more difficult for the studios to achieve a 30% profit margin. To account for the lost sales, Xbox offers its developers a credit, which it calls "member-weighted value" and is calculated based on several factors, such as the number of hours that Game Pass players collectively spend on a particular title. The opaque formula seems to favor games in which players can spend the most amount of hours, such as online multiplayer titles, according to people familiar with the calculations.

Since Microsoft began releasing most of its games on Nintendo and PlayStation platforms last year, some Xbox titles have seen early success, such as 2024's Indiana Jones and the Great Circle, which is estimated to have performed best on the PlayStation 5.

Jason Schreier (@jasonschreier.bsky.social)

SCOOP: For the last two years, Microsoft has pushed Xbox to hit profit margins of 30%, an ambitious target that's far higher than the industry average. This chase for profit has led Xbox to raise prices, cut thousands of jobs, and rethink everything. Story...

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[Grand Conde]

CAC tweets.

 

[King Sun]

 

[Kamikaze Revy]

@MeachTheMonster tried to tell ya'll. "The profit margins"

 

[daze23]

how many companies exist to establish this "industry average"?

 

[Gizmo_Duck]

Just get Blade out the door and go away forever

And free arkane Lyon And double fine from the AI apocalypse that’s about to ensue over there

 

[GambinoMakeItWork]

Game Pass playing out how Microsoft intended objectively would've been the worst timeline for gamers

 

[Gizmo_Duck]

Game Pass playing out how Microsoft intended objectively would've been the worst timeline for gamers

Yep, glad it failed

 

[Half A $]

Gamepass credits

 

[MeachTheMonster]

@MeachTheMonster tried to tell ya'll. "The profit margins"

What else could it be about for a business?

Sony cult don’t believe in capitalism anymore

 

[MeachTheMonster]

how many companies exist to establish this "industry average"?

OMG Microsoft trying to make money

 

[Legal]

Just get Blade out the door and go away forever

And free arkane Lyon And double fine from the AI apocalypse that’s about to ensue over there

Oh, they'll get Blade out and go away forever, alright.

It's just Arkane that's most likely to be the one going away.

 

[Loose]

Makes sense why they're making terrible decisions last 2 years

 

[Diondon]

A blight on every industry they set their lil beady eyes on

 

[CoolinInTheCut]

Why do you guys even care about this shyt? This is embarrassing.