Microsoft Reportedly Asked its Xbox division to Deliver 30% Profit Margins

Microsoft CEO Satya Nadella said the company was “all-in” on gaming after completing its acquisition of Zenimax/Bethesda back in 2021. However, after several rounds of layoffs, various game cancellations and studio closures, and hardware and software price increases, Microsoft’s Xbox division seems to be in a strange place in 2025.

Today, a new report from Bloomberg reveals that all the things I’ve described above may be the result of Microsoft Chief Financial Officer Amy Hood putting an unprecedented amount of pressure on the Xbox division. According to the report, Hood implemented a new 30% profit margin target for the Xbox division in fall 2023, far above what’s usually seen across the industry.

“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,” Bloomberg wrote.

The report also says that “ot every project is expected to hit the 30% profit threshold, said the people, but many Xbox developers and groups have been presented with the new target.” However, in the past, Xbox’s first-party studios “weren’t asked to hit specific numerical targets” and were instead told to “focus on making the best games possible without worrying too much about finances.”

Well, that obviously changed after Microsoft shut down various studios, including Arkane Austin, Tango Gameworks (later purchased by Krafton), and The Initiative. The company also canceled Rare’s Everwild, its Perfect Dark remake, and Zenimax’s Project Blackbird, three games that had been in development for more than seven years.

An Xbox spokesperson told Bloomberg that Microsoft had to make some changes to ensure that its gaming business remains sustainable. “We look at the business as a whole, balancing creativity, innovation, and sustainability across a diverse portfolio of offerings. As with any creative business, sometimes that means making hard decisions and stopping work on things that are no longer working for a variety of reasons, and shifting resources toward the projects that are more aligned with our direction and priorities.”

While Microsoft’s new profit margin targets for the Xbox division are obviously causing damage to the business, the pay package of Microsoft CEO Satya Nadella reportedly hit a record $96.5 million in the company’s fiscal year 2025. The company will be publishing its FY2026 Q1 results next week on October 29, 2025, and all eyes will undoubtedly be on the performance of the company’s AI and gaming businesses