Microsoft's last two years have been marked by the layoffs of more than 10,000 workers, repeated development studio closures, and countless game cancellations—a relentless series of bloodletting and downsizing, made only more dire by the preceding consolidation campaign that saw swaths of the games industry brought under the corporation's gaming division.
Thanks to new reporting from Bloomberg, we now have a clearer idea of the motivation for Microsoft's current gaming strategy—if it can be called that. According to sources familiar with the business, Microsoft executives have been pressuring the Xbox division to achieve profit margins well in excess of industry average.
Bloomberg reports that in fall of 2023, Microsoft chief financial officer Amy Hood introduced a new target of 30% "accountability margins"—Microsoft's corporate euphemism of choice for profit margins—for the gaming division. In comparison, S&P Global Market Intelligence estimates that profit margins in the games industry have fallen from a recent height of 22% during the COVID lockdown years of 2020 and 2021 to an average of 17% in 2024.
In other words, Microsoft executives have been expecting the Xbox division to achieve a level of profitability almost twice the industry average, a margin that S&P Global analyst Neil Barbour told Bloomberg is "usually reserved for a publisher that is really nailing it."
As for how well Xbox might be nailing it lately, leaked FTC court documents from 2023 showed that Microsoft's gaming division only managed a 12% profit margin in the first nine months of the 2022 fiscal year.
An Xbox spokesperson said that success "doesn't look the same across every project or priority," but it's not surprising that the gaming division would resort to widespread bloodletting in an effort to meet seemingly unachievable profit margins that it would likely be incapable of otherwise. This is, after all, a company whose leadership's bold strategic vision lately entails cranking up Game Pass prices and cramming Copilot AI into Excel spreadsheets.
Not everything on Microsoft's balance sheet is suffering from cost-cutting, however. CEO Satya Nadella is set to receive a $96.5 million pay package for the 2025 fiscal year, his highest since taking the position.
