Microsoft reportedly ordered its Xbox division to boost profits to an unrealistic level

The Xbox gaming division has faced a challenging year marked by layoffs and canceled projects, signaling internal struggles. Reports reveal Microsoft set unrealistically high profit margin targets for its gaming division, aiming for 30 percent. This goal, exceeding industry averages and Xbox's historical performance, was implemented by Microsoft's CFO in late 2023. This aggressive target comes in contrast to the division's 12 percent profit margin in the first nine months of 2022. Microsoft's spokesperson claims success can be defined differently, sometimes necessitating tough decisions, including project cancellations. The stringent targets were introduced after Microsoft's acquisition of Activision Blizzard, adding popular franchises to its portfolio. Microsoft's strategy of including first-party games in Game Pass from day one has hindered achieving these ambitious margin goals. Xbox offers developers a credit system valuing Game Pass engagement, favoring multiplayer games. Moreover, sources state that Microsoft is likely to prioritize low-cost, revenue-generating games in the future. Xbox has explored bringing some games to other platforms, including its competitor, the PS5. Alongside raising console prices and development kit costs, Microsoft increased Game Pass Ultimate subscription fees. These moves contribute to concerns about Xbox's financial health and its impact on the games industry.