Microsoft’s profit squeeze reportedly behind recent Xbox price hikes, layoffs

Microsoft reportedly wants Xbox profits to be significantly higher than the industry average, which is one of the reasons for the recent wave of layoffs and price hikes at the company.

According to a report in Bloomberg, People familiar with Microsoft's business anonymously spoke to gaming journalist Jason Schreier about Microsoft's goal of achieving a 30 percent “accountability margin” (a term the company uses instead of profit margin) over the past two years. The new goal was implemented in the fall of 2023 by Microsoft CFO Amy Hood, and the finance team has reportedly taken on a larger role in the games business in recent years.

However, over the past few years, the share of the gaming industry as a whole has fluctuated between 17 and 22 percent. Over the past six years, profit margins have fluctuated between 10 and 20 percent, according to Xbox. BloombergThe gaming business posted a 12 percent profit margin in the first nine months of Microsoft's 2022 fiscal year, according to court documents.

Experts say Microsoft's target is not only 30% higher than the rest of the industry. Bloomberg this is the highest level a gaming company could hope to achieve during the boom year.

The goal marks a shift for Xbox, which previously didn't give game developers specific goals, instead instructing them to focus on making the best games possible.

Since the new goal took effect, the Xbox division has been looking for ways to cut costs and increase profits. Some changes may have been positive, such as the Xbox decision to release games on competing consoles.

However, many of the changes were not positive. Xbox has made a lot of bad decisions this year, including canceling many products, dismissal of employeesAnd increase in prices for console equipment, games, and the company's Game Pass subscription. And the long-term impact of this goal could lead to fewer risky games from Xbox studios, as game makers favor games that are cheap to produce or more likely to generate revenue.

Moreover, with Xbox plans to release a “very premium” next-gen consoleThe future of Xbox may be uncertain. Very premium likely means very expensive, and an expensive new console can be a tough sell for gamers who are increasingly feeling the pressure on their wallets. And this feeling will be exacerbated by Xbox's history with consoles – the company struggled after the Xbox 360 with PlayStation 5 is reported to significantly outsell Xbox Series X and S consoles. (Microsoft doesn't disclose official console sales figures, so third-party estimates are used for comparison.) Whatever Microsoft's plans for the next Xbox, if the company's games are available on other platforms, the hardware will have to do something pretty compelling to convince gamers to part with their money.

Source: Bloomberg