Microsoft’s lofty goals for Xbox profit are behind the price hikes and studio shutdowns

Pressure from Microsoft to achieve industry-topping profit margins has led to Xbox being butchered over the last two years, after not imposing specific targets on the gaming unit in the past. Citing sources with knowledge of internal matters, Bloomberg reports that Microsoft CFO Amy Hood set across-the-board targets of 30 percent profit margins in fall 2023, prompting its gaming division to respond by increasing prices, canceling projects, and laying off thousands of employees.

A 30 percent profit margin is significantly higher than average for the video game industry, analysts told Bloomberg, which typically ranges between 17 and 22 percent. By comparison, leaked documents show that Xbox hit a 12 percent margin for the first nine months of the 2022 fiscal year, prior to these latest targets.

Cost-cutting is always a fairly obvious motivation for slashing jobs and raising the price of products or services, but Microsoft’s lofty profit targets would explain why its gaming division has been so extensively gutted. During an investor call in July, Hood said that the Xbox division’s operating income had increased by 34 percent in its most recent quarter due to “continued prioritization of higher margin opportunities.”