Microsoft’s 30% profit margin target is expected to have shortsighted consequences for future Xbox projects.
In a recent interview with 404 Media on YouTube, Bloomberg’s Jason Schreier discussed his recent report that Microsoft now expects its Xbox gaming division to deliver profit margins approaching 30 percent, a benchmark more commonly associated with high-margin software businesses like Azure or Windows. While Schreier noted that such a target is not inherently unrealistic “in a vacuum,” he warned that the mandate could distort Xbox’s long-term strategy.
According to Schreier, Microsoft CEO Satya Nadella and CFO Amy Hood likely view the 30% figure as reasonable because the company’s other software-driven divisions routinely achieve similar or higher margins. For many traditional games, the math isn’t impossible, as a 100 million USD game earning 130 million USD in revenue is theoretically achievable. However, Xbox is not operating under normal conditions. The existence of Game Pass, Microsoft’s subscription service, significantly complicates revenue projections. Titles launching day one on the service sell fewer copies, as players can simply subscribe instead of paying full price.
This tension is especially evident for development teams like Double Fine. When Microsoft acquired the studio in 2019, the message was to make great, creative games. Its niche, art-driven titles were never expected to sell millions, but they added cultural and artistic value to the Xbox ecosystem. Schreier argued that imposing hard margin targets on such studios fundamentally alters their purpose and could constrain the types of games they produce in the future.
As per Schreier, the impact of the 30% profit margin mandate is already visible. Projects with long R&D cycles, or those unlikely to be immediately profitable, have increasingly been canceled. Ambitious new IPs like Zenimax Online’s Blackbird and formerly high-profile reboots like Perfect Dark were cut in part because they did not promise near-term financial returns. The Bloomberg journalist stated that these decisions reflect a shift toward short-term thinking at the expense of cultivating future franchises. R&D-heavy initiatives rarely deliver 30 percent margins upfront, but historically, they are how the industry’s biggest hits, such as Halo, were created.
