- Xbox was reportedly tasked by Microsoft to generate a 30% profit margin
- If true, it could explain recent studio closures and hardware price hikes.
- Bloomberg notes that the average profit margin target is typically around 17% to 22%
We may now know the reason for widespread layoffs, game cancellations, and price increases for its hardware and subscription models at Xbox Studios – and it’s all due to Microsoft hitting a profit margin target.
A new report from Bloomberg claims that Microsoft has tasked Xbox with achieving a profit margin goal of 30%, which is significantly higher than the industry average, which Bloomberg says typically ranges between 17 and 22%, according to data from S&P Global Marketing Intelligence.
If true, it could go some way to explaining the litany of controversial decisions made by the Xbox division over the past two years. This includes a significant price increase for Xbox Series X and Series S consoles in the United States, as well as a restructuring and price increases for the Xbox Game Pass subscription service.
Internally, Xbox Game Studios has seen numerous job cuts and closures of high-profile studios. This includes the complete shutdown of The Initiative, which led to the cancellation of Perfect dark. At the same time, Xbox canceled Rare’s Always wild, which has reportedly been in development for nearly a decade, alongside an unannounced online project from Zenimax Studios.
This could also explain Xbox’s decision to largely abandon platform exclusivity. Games like Forza Horizon 5, Indiana Jones and the Great CircleHi-Fi Rush, And Sea of Thieves, have all made the jump to other platforms, including PlayStation 5, Nintendo Switch, and Nintendo Switch 2.
Bloomberg notes that one consequence of this situation is that software that is generally cheaper to make, or expected to generate profits, may be prioritized over riskier projects. Xbox’s recent release of Ninja Gaiden 4 could be an example of this.
However, this mindset could run counter to Xbox’s strategy for the next generation of consoles. Xbox President Sarah Bond recently said the brand’s next mainline hardware would be a “very premium, very high-end experience,” something the average consumer probably won’t have much of an appetite for amid the various affordability crises around the world.
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