Microsoft would be imposing on Xbox a 30% profit target

Bloomberg reveals that the company demands margins far above the industry average, affecting studios and projects.

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According to a report by Bloomberg, Microsoft has set an internal goal of 30% profit margin for its Xbox division, a figure significantly higher than the industry average, which typically ranges between 17% and 22%. This new standard, driven by Chief Financial Officer Amy Hood, has led to project cancellations, price hikes, and thousands of layoffs within the gaming sector of the tech giant.

Over the past two years, Xbox teams have had to adapt their strategy to this new focus on profitability, prioritizing games with lower development costs or greater commercial potential, at the expense of riskier or longer-term projects. The goal, according to sources, is to increase efficiency and meet the financial demands imposed by Redmond’s leadership.

A Financial Goal that Changes Xbox’s Roadmap

Until recently, Microsoft’s internal studios enjoyed considerable creative freedom, with a focus on quality without excessive concern for economic margins. Since autumn 2023, the directive has changed, and the gaming division has come under much stricter financial control.

This measure has resulted in the cancellation of high-budget projects, including Everwild, Perfect Dark, and Project Blackbird, all of which had been in development for over seven years. Additionally, Xbox has strengthened its multi-platform strategy, releasing some of its titles on PlayStation and Nintendo Switch as well, as part of a new model aimed at maximizing revenue.

Phil Spencer Under Pressure and a More Selective Future

The change has also affected Phil Spencer, head of the gaming division, who must now balance the required profitability with Xbox’s creative vision. In parallel, the hardware itself may undergo a restructuring. In recent statements, President Sarah Bond announced that the next console will be a “premium and carefully crafted experience“, suggesting a more selective and high-margin approach.

The situation coincides with a period of transition in which Microsoft prioritizes its investment in artificial intelligence over other areas. Although the Xbox division has registered a 34% increase in operating income, the challenge is to maintain this growth without compromising innovation or the appeal of Game Pass, a service that, despite its success, has reduced direct game sales.

With the quarterly results expected on October 29, the focus is on whether this new direction will achieve a balance between creativity, profitability, and sustainability, or if the pursuit of profit will put the essence of Xbox to the test.