Microsoft Demands Industry-Topping Profit Margins From Xbox: Report

• Microsoft has reportedly set a 30% profit margin goal for its Xbox division.
• The high target has prompted Xbox studios to cancel projects, raise prices, and cut jobs.
• Industry data shows that typical gaming margins range between 17% and 22%.

Microsoft Corp. (MSFT) is reportedly tightening expectations for its Xbox gaming division, demanding profit margins that exceed industry norms during a dull phase overall for the gaming sector. 

According to a Bloomberg report, over the last two years, the company has established a target of 30% “accountability margins,” a term used internally to measure profitability. The goal, far higher than the industry’s usual range, has driven Xbox studios to cut projects, increase prices, and eliminate jobs during an already turbulent period for gaming.

Industry Standard

Estimates show that most gaming companies earn between 17% and 22% margins, while Xbox historically achieved between 10% and 20%. 

Court filings revealed that Microsoft’s gaming arm reported just 12% margins in early fiscal 2022. The 30% benchmark, introduced by Chief Financial Officer Amy Hood last fall, represents the high end of what a studio can reach even in boom times, cited the report.

Microsoft stock inched 0.3% higher in Thursday’s premarket. On Stocktwits, retail sentiment around the stock remained in ‘bearish’ territory amid ‘normal’ message volume levels. 

Revenue Becomes Priority 

According to the report, the new mandate has forced Xbox head Phil Spencer to refocus the division’s strategy. Games expected to deliver steady revenue or low development costs are now prioritized, while ambitious and risk-heavy projects have been shelved.

On October 1, Microsoft announced a 50% price hike for the top-tier Xbox Game Pass subscription, and said that Xbox Game Pass Ultimate will now cost $30 a month, up from $20. 

Microsoft's stock has gained over 22% in the last 12 months. 

Also See: Elon Musk Tips Hat To Sundar Pichai For Google's Latest Quantum Leap: 'Congrats'

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