- Microsoft has reportedly tasked Xbox with generating a 30% profit margin
- If true, it could explain recent studio closures and price increases across hardware.
- Bloomberg notes that the average profit margin target is usually around 17-22%
We may now know the reason behind Xbox Studios’ rampant layoffs, game cancellations, and price hikes for its hardware and subscription models, and it all comes down to hitting a profit margin target on Microsoft’s part.
A new report from Bloomberg alleges that Microsoft has tasked Xbox with achieving a 30% profit margin target, which is significantly higher than the industry average, which Bloomberg says is typically between 17% and 22% based on data from S&P Global Marketing Intelligence.
If true, it could go a long way toward explaining the litany of controversial decisions the Xbox division has made in recent years. That includes significantly increasing the prices of the Xbox Series X and Series S consoles in the US, as well as their restructuring and price increases for the Xbox Game Pass subscription service.
Internally, Xbox Game Studios has suffered numerous job cuts and high-profile studio closures. That includes the complete closure of The Initiative, which led to the cancellation of Perfect darkness. At the same time, Xbox canceled the release of Rare. Always wild, which had reportedly been in development for nearly a decade, along with 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 Circlehifi fever, and sea of thieves, They have all made the jump to other platforms, including PlayStation 5, Nintendo Switch, and Nintendo Switch 2.
Bloomberg notes that one result of this is that software that is generally cheaper to make, or is expected to turn a profit, may take priority over riskier projects. Xbox’s recent release of ninja gaiden 4 could be an example of this.
However, that mentality may go against Xbox’s strategy for the next generation of consoles. Xbox president Sarah Bond recently stated that the brand’s next major hardware will be a “very premium, very high-end experience,” something the average consumer probably won’t have much appetite for amid several affordability crises around the world.
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