Microsoft pushing Xbox to hit profit margins of 30%
>Microsoft Corp. is asking its Xbox gaming division to produce profit margins that are well above the industry average, ratcheting up pressure on its video-game makers during a difficult time for the field at large.
>Over the past two years, executives at the Seattle-based software giant have set an across-the-board goal of 30% “accountability margins,” a term Microsoft uses in lieu of profit margins, according to people familiar with the business. The gaming division, which includes dozens of studios, has responded by canceling products, raising prices and slashing thousands of jobs, said the people, who asked not to be identified discussing nonpublic information.
>The average profit margin in the video-game industry in recent years has ranged between 17% and 22%, according to estimates from S&P Global Market Intelligence, while coming in between 10% and 20% over the past six years at Xbox. Court documents from 2023 revealed that Microsoft’s gaming business had a 12% profit margin for the first nine months of the company’s 2022 fiscal year.
>The new goal, which hasn’t been previously reported, is at the outer range of what a gaming studio can typically reach in a boom year, said Neil Barbour, an analyst with S&P Global. “A 30% or better margin is usually reserved for a publisher that is really nailing it,” Barbour said.
>In the past, game makers at Xbox weren’t asked to hit specific numerical targets, said the people, and were largely told to focus on making the best games possible without worrying too much about finances. The new target was implemented in fall 2023 by Microsoft Chief Financial Officer Amy Hood, whose team has taken a larger role in the gaming business in recent years.
>Over the past two years, executives at the Seattle-based software giant have set an across-the-board goal of 30% “accountability margins,” a term Microsoft uses in lieu of profit margins, according to people familiar with the business. The gaming division, which includes dozens of studios, has responded by canceling products, raising prices and slashing thousands of jobs, said the people, who asked not to be identified discussing nonpublic information.
>The average profit margin in the video-game industry in recent years has ranged between 17% and 22%, according to estimates from S&P Global Market Intelligence, while coming in between 10% and 20% over the past six years at Xbox. Court documents from 2023 revealed that Microsoft’s gaming business had a 12% profit margin for the first nine months of the company’s 2022 fiscal year.
>The new goal, which hasn’t been previously reported, is at the outer range of what a gaming studio can typically reach in a boom year, said Neil Barbour, an analyst with S&P Global. “A 30% or better margin is usually reserved for a publisher that is really nailing it,” Barbour said.
>In the past, game makers at Xbox weren’t asked to hit specific numerical targets, said the people, and were largely told to focus on making the best games possible without worrying too much about finances. The new target was implemented in fall 2023 by Microsoft Chief Financial Officer Amy Hood, whose team has taken a larger role in the gaming business in recent years.
