The company reportedly asked its gaming division in 2023 to target profit margins of 30%, according to Bloomberg, which cited people familiar with the matter.
The goal was a significant jump from the 12% profit margin Xbox reached in 2022, as revealed in court documents, and well above the average video-game industry standard of 17% to 22%, analysts told Bloomberg.
Microsoft told CNBC that while the company does set ambitious goals, the reported 30% profit margin target was incorrect.
Microsoft has raised prices on its aging lineup of flagship consoles twice over the past year. Nintendo and Sony also announced price hikes for their respective consoles in August.
Jason ââPlayStationââ Schreier at the other place says it is still indeed 30% unlike whatâs being said here. Take that as you will I guess. Maybe the way you look at things can mean it is true and untrue at the same time, but Iâm not expert.
I trust Jason, he isnât the type of person to put out misinformation about this, but hopefully this report means that Microsoft doesnât have this insane expectation on all studios and just big ones like ABK, still insane to have that pressure on them too but at least they have huge IPs very capable of meeting that 30%.
Because actions speak louder than words and Microsoftâs moves for a while now clearly show a pivot towards trying to achieve the highest possible profit margin even if it means burning the goodwill it took the Xbox people nearly a decade to regain, they didnât even bother to deny the original report right away, I just hope that with this new report it means that some studios donât have that wild expectation on them.
I rather wait for official news rather than whatever comes out of an insiderâs mouth.
Cause most of the time they are proven wrong in a more consistent basis. I anticipaded this to continue for a while.
I never really believed every single studios of theirs would be forced to hit said margins.
Also, what are you on about witrh goodwill? You mean exclusives? Those are still a thing, whether its timed, launch or not its on them and their studios to decide. Is it incentives for those in the ecosystem? Game pass is there with three types of subscription tiers for those that want to use it, thatâs is also not counting their massive backward compatibility program and the promise to keep going forward with this, then their is play anywhere which has been consistently proven to have the best idea for the ecosystem by miles.
Sorry dang, but they way you went about that talk felt kinda dishonest, sure they will be critized like any other out there for their bussiness decisions but you cannot deny their efforts within the overall platform.
Seems Obsidian also aknowledged the 30% profit thing, tho they said itâs not like they were pointed at with a gun, itâs a goal for now, a dumb goal if you ask me, do anyone but Valve manage to get that much?
But from my maybe greedy perspective, it could be a good thing in the long run, studios should research and focus on what the people want, Keeper, South of Midnight or Avowed recently, were pretty much dead on arrival.
Iâm not saying they should try to make something they arenât good at just because itâs trending, but there should be a mix on what they can and want to do, and what the people want. The RPG genre for example has a LOT of potential on PC specially, but the artistic style or the tone from Avowed was just not it.
The truth is probably something in the middle and more business nuanced than just âthere is or isnât XYZ hard margin that every aspect of the Xbox business has to meet.â I mean, Game Pass alone puts how a studio would even track that into question. I do think Xbox has had a really great year as a publisher, and I donât want studios to be told not to release games like Keeper or South of Midnight or Age of Empires because they donât sell as much as COD. That said is Microsoft being ambitious with gaming all bad? Thatâs also something probably more nuanced than a yes or no. We wouldnât have Xbox Play Anywhere or Cloud Gaming if Microsoft wasnât insistent on growing Xbox, but then we also wouldnât have the Xbox Game Pass Ultimate price increase if Microsoft didnât want to maximize profit margins. I think the idea of âbad willâ is a little overblown though. Xbox hasnât uniquely raised prices or closed studios. They arenât acting outside of the industry norm. Arguably theyâre now acting more inside conventional business pricing strategies, and I do think thatâs because of the growth theyâve seen following the ABK aquistion. Also, likely because of the data they keep seeing. âGood willâ hasnât proven valuable to them. The Series S didnât sell in droves and the internet was mad at it in spite of its budget pricing. Before the price increase Game Pass was âkilling gamingâ by being too much value for too low of a price, and really at $15 a month isnât Xbox Game Pass Premium with cloud and PC games exactly the perfect middle ground of value those types wanted? Xbox also canât really keep moneyhatting games and studios that arenât going anywhere. I donât think Microsoft and Xbox are without fault (the buck stops somewhere and I do hate that Microsoft called for a blanket cut to pump more money into the AI bubble), but as far as current economic and supply chain issues go they arenât really being an outlier. Microsoft seems like any other for profit business with all the problems associated with that. I still prefer to game with Xbox because the ecosystem provides me the most value and the trajectory looks to expand that value. Time will tell how things play out, but this past year hasnât exactly been Xbox personally stabbing me in the back. In fact itâs been a great year for me as a gamer on Xbox. I feel bad for people entering the ecosystem for the first time in this year where the prices are awful, but I feel bad for them no matter what console ecosystem they try to entire. I paid $300 for my Nintendo Switch, but any gamer trying to buy a Switch 2 is paying a lot more than that. Any gamer trying to buy a Switch 2 game at launch is paying $10 to $20 more per game. The same goes for Playstation (though I think a little less of a difference especially if you go for a cheaper model) and Xbox. At $30 a month Game Pass Ultimate is a more difficult decision, but since its launch every game has gone up a minimum of $10 at launch and theyâve really built up the day one GP launches (really built up first party), the overall library across console, PC, and Cloud (which wasnât even there are launch), and they did add more benefits on top of that (which I think many of us donât love, but looking at the charts now Fortnite remains the number #1 game so I think Fortnite Crew and Ubisoft backlog and COD day one is really valuable to a lot of gamers). Thereâs the studio closures, but game cancelations and studio closures have unfortunately been a very common story these past five years.
Knowing what a company does internally and how they make decisions is difficult. I do think Microsoft definitely has more hooks in Xbox post ABK. I think Microsoft has more ambitions for Xbox and they want to see more returns from Xbox. However, I donât think thatâs unilaterally a bad thing or that thereâs a single criterion driving every decision now or that that criterion is completely unattainable for Xbox. I do think Microsoft as a public stock company is focused too much on shareholder value and short term growth like every other late stage capitalism stock company, but I donât think theyâre intentionally trying to sabatoge Xbox. The truth is probably something between what insiders and Microsoft is saying. It is also interesting to me that with the Blizzard interview the president of Blizzard was confused about the 30% number herself. Microsoft Gaming is now massive. I donât see how it could be as simple as a single thing to blame for everything we donât like thatâs happening now (or everything we do like).
Hard to believe what was said in court or out, since part of the takeover was meant to bring competition to Sony seen little of that since the takeover.
What came out of court is exactly what is happening.
Spencer testified there was no console growth baked into the ABK acquisition model.
Satya Nadella reiterated everything MS does is about the cloud. He said he wants to do with Xbox what did with Office and put it everywhere. He said he wanted to compete as a publisher. He said that it made no economic sense to take games off other platforms. He said the goal was to put ABK games and Xbox games in more places.
And a whole year prior to that, Microsoftâs Brad Smith, their legal head, said that they will allow other stores on the next-gen Xbox console marketplace.
And if you look at it from a video game publisher lens Microsoft did boost their position among the top publishers. And given the higher margin goals theyâre probably on pace to have a healthier business financially than they ever could have done with a console centric business.
What we are seeing currently is video games transitioning most likely to appear within televisions and pc without a need to download the product thanks to the cloud. That is what am understading from this whole thing as new tvs are now having xbox apps and potentially more in the coming years thanks to advances in cloud technology.
Also, donât put too much backing when satya makes a comment regarding xbox, as while he has final say on stuff he also has understands that they have a big ecosystem and that they require value towards it in more way than just selling theirs games on competitior platforms like playstation, nintendo and other pc store markets, is less important than supporting their massive ecosystem by itself, especially now that xbox has integrated itself within the pc community of players thanks mostly to both play anywhere and game pass .
So while he says he wants everything everywhere he wants it to be moainly by use of xbox ecosystem than just steam or any other. So they will most likley be looking to still attrach many users to their ecosystem more so than ever.
Playstation and Nintendo effectively do not stand any chance of directly competing with xbox anymore, Steam, Epic, Gog and other pc storefronts are their main competitors now.
The sooner playstation ports more games everywhere the better, the same thing for nintendo.
Also, if folks think exclusivity in some form will die are kidding themselves, there will always be exclusivety, its just that the way its going to be used will be different. I personally think it will be somewhat similar to netflix, hbo max, disney plus type of exclusives in some way shape or form in the future but thatâs just me in this line of thinking.
When Satya talked about cloud , he said that has to do with streaming and how itâs used for save data to take your game across devices.
I believe him. Long term, like over the next 10-20 years, thereâs a bigger market for what Xbox is doing than there is sticking with a proprietary gaming device as the center of the ecosystem.
Even Sony is taking steps in this direction. They decoupled the PS Portal. Itâs a matter of time before they offer a device agnostic cloud streaming option.
There seems to be no competition to SONY and people seem to have turned on Xbox, Microsoft and now Windows Hope next year things will change for the 25th party
You make a very good point and are correct about being a bigger pulsihers mind I stand corrected on that one.
They are indeed mostly going according to plan. I just donât personally think that the Office and Windows model can be applied 1 for 1 to the gaming business, but weâll see how it pans out.
I think looking at how a lot of people are championing exclusivity and the backlashes to physical media being on the way out, and I guess pretty much every reaction to moves MS has made which are, letâs be honest, quite often too early, really shows us how gamers in general are like boomers; they donât like change and hang on to what they know.
Gamers 20 and under are mostly not console gamers or have one because their parents bought it and they spend their time in one of the many GAAS that are popular with those age groups.
Gamers like ourselves, the hardcore crowds, are mostly in their 30s and above and we are an aging group. And letâs face it, we are the ones with the bigger wallets and are being milked for what weâre worth.
The reason why I donât fully understand MSâ position is because it seems the people hang on for dear life to the console model is my age group and weâre the milk cow. So why are they letting the competition dry them out hoping to catch the next wave?
Nintendo and Sony are basically the oil businesses and MS is the one pushing for clean energy, thatâs basically the best analogy I can find. We all knpw going green is the way to go, and funnily enough, Iâm fully in with 2 EVs and smart house features to control my energy usage, but oil lobbying is so strong that the transition isnât happening fast enough and so some of those companies that were investing in the future have to back track or close shop for the time being.
I know the entertainment market isnât exactly the same, but I feel like a lot of the gamers hanging on to the model we know and the Digital Foundries of this world are lobbying for the status quo as that is what brings in the money right now.
How just wonder how MS will come out on the other side when all is said is done. It seems that at every step something bad happens (COVID, tarrifs, now RAM prices) and they canât seem to catch a break!
Satya Nadellaâs statements in the FTC trial via Tom Warren / The Verge (June 2023)
I want to make it clear to the world that Microsoft is focused on cloud-first approaches. Teams, Windows 365, xCloud as the future⌠I want to basically use every opportunity to make cloud streaming more mainstream.
Just to make sure that itâs clear. Whenever I think about the cloud in the context of the Xbox pillars of content, cloud, and community, Xbox Live is part of the cloud. So even when youâre thinking about a console or a PC, the cloud is actually very integral to the experience. So itâs not just streaming alone when I think about the cloud.[/quote]
Microsoft lawyer: Will Microsoft forego sales of Call of Duty on PlayStation by withholding access?
Nadella: It makes no economic sense or no strategic sense. Our goal with Activision in particular, in their content and our content, is to get it on more platforms. Thatâs what weâve done with Office and thatâs what I want to do with gaming
Microsoft: Will you commit to continue delivering Call of Duty on PlayStation?
FTC: If Microsoft is going to grow, particularly in a business like console, it can grow by taking share from its competitors
Spencer: Thereâs no console growth in our [Activision] deal model.
FTC: Do you have any intention of this deal helping you climb out of the number three spot?
Spencer: In console, we do not.
One of the most harmful narratives for Xbox around all this was the idea that they were simply trying to paint a certain picture to get the deal across the finish line versus telling us exactly what they were doing. Itâs not a coincidence that reality today matches what they were telling us 2-3 years ago.
MS is trying to own whatâs next because there is no room for growth in the old business model. The number of console owners has been stagnant for nearly twenty years. The only way to grow out of third place in consoles would be to displace Sony or Nintendo, which basically comes down to hoping one or both make a serious misstep. Thatâs possible, but increasingly unlikely. I wouldnât try to make a growth business plan in those bloody waters.
And seeing as how console sales just hit a record 30-year low in US sales in November suggests Microsoft was right to pivot. Whether or not their particular bets pay off remains to be seen, but I like what theyâre doing with Game Pass, xCloud and Play Anywhere.