Microsoft Reportedly Sets Outrageous 30% Profit Target for Xbox Studios, Sparking Cuts and Price Hikes

Microsoft is reportedly putting heavy pressure on its Xbox division to hit extremely high profit goals, pushing the company well above what is normal in the gaming industry.

Sources familiar with the matter told Bloomberg that Microsoft executives have set a target of 30% “accountability margins” for Xbox, a term the company uses instead of profit margins.

Industry averages for video game profits usually range from 17% to 22%, while Xbox has historically posted between 10% and 20% over the past six years.

Court documents from 2023 showed that the division had a 12% profit 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.”

Bloomberg reports that the high target has already led to major changes within Xbox. Thousands of employees have been laid off over multiple rounds of cuts, and several games were canceled after years in development.

This includes Rare’s Everwild, The Initiative’s Perfect Dark reboot, and ZeniMax Online Studios’ Project Blackbird. Microsoft also shut down The Initiative, as well as other studios like Arkane Austin, the developer of Redfall, and Tango Gameworks, which made Hi-Fi Rush.

In addition to layoffs and cancellations, Microsoft has raised the prices of Xbox consoles and Xbox Game Pass Ultimate, now $29.99 per month. The company briefly tried raising new game prices to $80 but rolled back to $70 after fan backlash over Obsidian’s The Outer Worlds 2. Analysts expect the $80 price point could return next year.

Bloomberg noted that the 30% target was enforced by Microsoft CFO Amy Hood in fall 2023, shortly after Microsoft completed its $69 billion acquisition of Activision Blizzard. For context, Sony’s PlayStation division achieved a 16% profit margin in Q1 FY25.

The push for higher profits may change the way Xbox approaches games, Bloomberg reports. Cheaper or more likely-to-sell titles could get priority over riskier, more creative projects. The Xbox hardware division may also face major changes as Microsoft evaluates its performance.

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