Microsoft is reportedly demanding much higher profits from its Xbox gaming division than what’s typical in the video game industry. According to a report by Bloomberg, the tech giant has set a tough new goal: Xbox must achieve 30% “accountability margins” – Microsoft’s term for profit margins – across all its gaming operations. This target, implemented in fall 2023, is significantly higher than what most game companies achieve and has forced Xbox to make difficult decisions about its future, the report noted.Citing financial research firm S&P Global Market Intelligence, the publication says that the average profit margin in the video game industry typically ranges between 17% and 22%. Xbox itself has historically operated between 10% and 20% profit margins over the past six years. Court documents from 2023 showed Microsoft’s gaming business had just a 12% profit margin for the first nine months of fiscal year 2022.
How things changed under Microsoft CFO Amy Hood
Previously, game developers at Xbox weren’t given specific profit targets to hit. Instead, they were told to focus on creating the best possible games without worrying too much about the financial side. This approach allowed creative teams more freedom to take risks and experiment, the report noted.That changed when Microsoft Chief Financial Officer Amy Hood implemented the new 30% target. Her finance team has taken a much larger role in gaming decisions over the past two years, Bloomberg reported, citing people familiar with the business.Microsoft’s stricter profit demands come at a challenging time for the gaming industry overall. Development costs have skyrocketed as games become more complex and visually impressive, while players have become more selective about which games they buy and play.
