Report: Xbox Has Been Asking Its Studios To Hit 'Higher Profit Margins' Since 2023

In other words, someone that has no understanding of gaming has set unreasonable, and potentially unobtainable, targets, and that has manifestly changed everything about Xbox. No wonder we have seen all these massive U-turns, and unpopular decisions. So, as an example, if Gears of War: E-day does not hit that 30% margin, will that be the last game in the franchise? This target has already massively affected Xbox, who knows what more damage will be done before Microsoft realise that gaming is very different to all their other divisions..?

@Fiendish-Beaver I completely agree. Someone with too much power and too little knowledge threw out some random, arbitrary figure and everything else that followed has been a direct result.

In the end, we users are going to pay for the acquisition of ABK...

Totally agree, @Gabrie. I rooted for the ABK acquisition thinking it would be really good for Xbox. Oh, how utterly wrong I was...

Why did I get EA vibes from this article?

I imagine the subsequent conversation between Phil and various studio leads went something like the beginning of Return of the Jedi.

“Mr. Spencer, this is an unexpected pleasure, we’re honored by your presence—“

“You may dispense with the pleasantries, I’m here to put you back on schedule.”

“I assure you Phil, my developers are coding as fast as they can. I tell you, we will reach 30% profit margin as planned.”

“CFO Amy Hood does not share your optimistic appraisal of the situation.”

“She asks the impossible. I need more developers.”

“Then perhaps you can tell her when she arrives.”

“The CFO is coming here?”

“That is correct, and she is most displeased with your apparent lack of profits.”

“We shall double our efforts…”

“I hope so, for your sake. The CFO is not as… forgiving as I am.”

@Fiendish-Beaver
Because you will probably know.
Did or will Ghost of Yotei make the 30% target
Out of interest.
Just trying to get a balance here.

@OldGamer999 if GoY was done on a £60m budget as rumoured (same as first)

Depending on marketing- which Sony always do a lot of I’d imagine it will have a decent profit margin due to cheap development.

But as the report states on average the margin is 17-22

We get a lot of rumours and here say with Xbox, and it's generally easy to brush off, but when Jason Schrier reports unrealistic financial targets set by a woman who doesn't know the industry, it makes me question if I just need to rip the bandaid off and get a ps5 on black Friday.

What the heck is going on there that MS can't go a few weeks without a bad story

@Fiendish-Beaver to be fair it sounds like Xbox was controlled by people who knew gaming but not how a business runs. That has obviously changed now. Its clear that Xbox division was haemorrhaging money from everywhere (especially Game Pass) and it took someone with business acumen to stop it. It's how every business works. Its a bit like me buying treats non-stop for my kids so they love me more than my wife, only for her to make me stop or we'll be in trouble financially, only for my kids to tell her she doesn't understand parenting

Buying Candy Crush crushed Xbox

@TheFatPlumber because EA is (was) also an American company which only works for its profit margins and shareholders. Like almost all larger American companies.

This is inspiring me to run away from Xbox. Fast, very fast.

Joking aside, physical games looks more appealing now so you’re not tied to any one ecosystem.

What a surprise. Satya Nadella and Amy Hood need to go from MS ASAP. Both are a disaster to this company.

The problem is, @StonyKL, that you need a balance. What has happened here is that you have gone from people that understand the business of gaming, but weren't hitting those high profit margins, to people who do not understand gaming, but understand business, though their business expectations are based on things other than gaming, and so they are setting targets that are achievable elsewhere, but not in gaming.

That Hood is setting these unachievable targets can only be bad news for Xbox because it can only lead to more cuts, more layoffs, less innovation, fewer games, and a decline in what Xbox is.

You do need a balance, but lurching from one extreme to the other is not going to help the business at all. It sounds to me like Hood just wants the Fornite formula, and if developers could manage to do that, they'd all be doing it because it is a model that makes billions. However, whilst Hood might want that kind of money to be rolling in, just how many of us want to be playing those type of games, and only that type of game...?

As a sidenote, keep giving the kids sweets so that you are their favourite parent. Then, when they have done something truly bad, you can show your displeasure, and they won't be doing it again, because they want you on side... 😉

As, @PsBoxSwitchOwner said, @OldGamer999... 👍

Shareholders gotta get their dividends.

How are Xbox studios supposed to increase profits by 30% when Microsoft has a subscription service that actively discourages people from buying games and has a seeming aversion to adequately or succinctly marketing - let alone selling - any hardware that says Xbox on it?

How, for example, is Double Fine supposed to increase profits by 30% with Keeper, when it's a single player game with no extra monetisation that's only available on certain platforms and that Microsoft encourages users to not pay for? Ridiculous.

It’s been obvious, all those hardware price hikes due to “tariffs” and price hikes for games and subscriptions citing “market conditions” it’s all a big BS excuse to increase their profit margins and with those completely unrealistic out of touch expectations we’ll keep seeing cancellations and studio closures every few months.

And it’s specially infuriating as they want to squeeze out every penny out of longstanding fans of the brand, the ones that stood with Xbox One and have been waiting since 2013 for “the year of Xbox” that never came.

You make a fantastic point, @Markatron84, which again goes to my point at #1, which is someone that has no idea of gaming is dictating unobtainable profit margins. How can that possibly be good for Xbox when someone like her is dictating policy...?

@Balaam_ I am altering the deal, pray I dont alter it any further

I assume that means more bloated games that are designed for everybody which makes people pay for more in game items and the products/games also make subscribers subscribed for longer because of it.

Good luck with that Microsoft, we don't have the time to waste hundreds upon hundreds of hours into games like Fallout 76, Elder Scrolls Online never mind new ones.

This doesn’t surprise me. It effectively proves why Redfall launched the way it did. They didn’t care about the quality of the product.

Xbox is cooked.
Companies do this to stress test to see if they can stand on their own. If they can, maybe they'll reinvest some money, but if not, they'll likely spin it off or tank it completely.

Microsoft never advertises anymore. Phil Spencer has been in charge over a decade with nothing to really show for it.

@Fiendish-Beaver Sounds like a very Satya Nadella thing.

Hates hardware. Only knows Enterprise.

Then trying to put that on Xbox while simultaneously killing the hardware.

Baked a cake
Had a breakdown
Bon appetit

Makes Sony’s acquisition of Bungie look genius

Bloomberg reports that XBOX's profit margin was 12% for 2024. Xbox revenue was $29 billion last year, so the profitability is between $3 billion and $ 3.5 billion, which is not bad at all.

Nadella has been tasked with increasing profits to deliver higher returns for shareholders. Now it's pretty clear why Microsoft closed so many small studios and canceled projects that weren't big IPs. Even if a small game like Hi Fi Rush or Keeper makes some small profit or breaks even, it's not enough for Microsoft. Microsoft wants to focus on big IPs to make money from microtransactions, and they also expect to increase Game Pass profit margin with the price hikes.

I read that 70% of 35 million subscribers have Ultimate Game Pass. This is 25 million subscribers for Ultimate. Assuming Game Pass loses 5 million, the remaining 20 million will pay $360 per year, which is $7.5 billion in revenue. You could add another $2 billion for a total $9-10 billion in revenue with the price hikes. This is double the revenue from 2024, in which Game Pass had reported 35 million subs and $5 billion in revenue.

This is the tragedy of shareholder capitalism instead of stakeholder capitalism or collective capitalism(Japanese model). Most public companies in USA are always choosing to sacrifice long term vision for short-term profits to please shareholders.

I believe Phil Spencer had a completely different vision for the future of Xbox, but Nadella and the Microsoft leadership prioritized short-term profits over a long-term plan. A long-term strategy could involve reinvesting all the gaming division's profits back into Xbox for the next decade to develop high-quality games and enhance services, driving growth for the division. Xbox needs a growth-focused CEO, like Jeff Bezos, whose approach would be to reinvest all profits back into the business to expand the Xbox division.

@Balaam_ I can just imagine Phil force choking a studio head
"I find your lack of profits disturbing..."

@Markatron84 It's 30% for the whole Xbox business, not for each game, so there's room for smaller and bigger projects, and you need to consider the subscriptions, etc. It's a number set by our beloved Satya and Amy, who seem to think that they should set some kind of supermarket economy when the video game industry is very complex and the bigger the publisher, Xbox, the more they should look at all the metrics and the long term.

I understand shutting down The Initiative after years of chaos and unproductiveness. I don't understand shutting down Perfect Dark when it was being fixed by Crystal Dynamics, a third-party studio that could have finished it. Cancelling Perfect Dark is long-term damage. This is just an example. Satya is Scrooge McDuck and Amy is the supermarket manager that sets the 30% margins for your daily products.

@Phil-Spencer-Gate

I believe Phil Spencer had a completely different vision for the future of Xbox, but Nadella and the Microsoft leadership prioritized short-term profits over a long-term plan. A long-term strategy could involve reinvesting all the gaming division's profits back into Xbox for the next decade to develop high-quality games and enhance services, driving growth for the division. Xbox needs a growth-focused CEO, like Jeff Bezos, whose approach would be to reinvest all profits back into the business to expand the Xbox division.

This exactly is the truth and what would be best for Xbox in the long term. Remember how short terms worked for Sony and their Fortnite wannabes.

@Banjo-

Every company in the West want to achieve as many profits as possible for the stock market. Sony is a japanese company which has undergone into "westernization" in the last decade, so you can see the company prioritize high profits by investing on live service games for easy money - but they failed because live service is a high risk business and extremely competitive.

The only company that doesn't care about profits so much is Nintendo that prioritizes long-term stability over short-term profits, staying true to its roots as a "traditional" Japanese company. Unlike others, Nintendo avoids massive layoffs or project cancellations. They take a conservative approach, focusing on creating high-quality, cartoonish games, which is what they excel at best.

Eventually if it all goes south, there will be internal riots, then Amy & Co in the high up office playing chess with people like Jason & The Argonaughts will wonder why?

Reminder that it was Amy Hood and Satya Nadella, not Phil, who wanted ABK. They wanted to move their gaming division towards mobile, a sector they see as having huge growth. This was laid out in the FTC trial.

@Balaam_

No way to know for sure if this is true...but it adds up.

Unfortunately Microsoft's focus on profit over growth and lack of clear direction will result in them becoming the next Sega. Once Sega lost consumer trust, they could not recover even though they had a great product.

Difficult to know if that will be possible and sustainable. Xbox stopped being 'just' the Console a decade ago when it merged into Microsoft and became their Gaming Brand so when they say they want 'Xbox' operating at a 30% profit margin, that's across ALL of Xbox, not individual games, but if you know one is 'costing' more than it will make back, its best to cancel at the earliest opportunity - cut all ongoing costs.

Whether they'll sell enough 'Products & Services' to see a 30% profit margin after counting the costs of running Xbox - all the MS Gaming branch, who knows, but they sell their Products/services on a LOT of devices - inc 3rd Party Gaming Platforms like PS and Steam.