Microsoft’s 30% Xbox Profit Push Sparks Layoffs and Backlash

Microsoft’s gaming division is under intense scrutiny after a new Bloomberg report revealed that the company’s top executives have imposed a steep 30% profit margin target on Xbox studios. This ambitious demand – nearly double the industry’s average – has allegedly triggered a chain reaction of layoffs, canceled projects, and sweeping strategic shifts across the Xbox ecosystem.

It’s a stark contrast to the company’s earlier years of creative experimentation and consumer-friendly branding, and many now fear that the Xbox identity itself is at risk.

The Bloomberg report, by veteran journalist Jason Schreier, paints a picture of a division squeezed between shareholder expectations and an increasingly competitive gaming landscape. For context, the average video game industry profit margin hovers around 17–22%, while even Sony’s highly successful PlayStation division posted just 16% in Q1 FY25. Xbox, by comparison, has historically landed between 10–20%. So when Microsoft’s Chief Financial Officer Amy Hood reportedly enforced the 30% goal in the fall of 2023 – right as the company finalized its $69 billion Activision Blizzard acquisition – many insiders saw it as a warning sign. The message was clear: performance over passion.

The fallout was immediate and brutal. Over several waves of layoffs, thousands of Xbox employees lost their jobs. Entire projects were scrapped, including Rare’s mysterious Everwild, The Initiative’s Perfect Dark reboot, and ZeniMax Online’s Project Blackbird. Even established studios weren’t safe: Arkane Austin, the developer behind Redfall, and Tango Gameworks, creators of Hi-Fi Rush, were both shuttered. The Initiative itself – once touted as a new era of Xbox talent – was dissolved entirely.

Meanwhile, Microsoft has raised prices across the board. The Xbox Series X and S consoles are now more expensive, and the Xbox Game Pass Ultimate subscription has climbed to $29.99 per month, sparking outrage among long-time fans. The company even flirted with increasing new game prices to $80, backtracking only after widespread backlash over Obsidian’s The Outer Worlds 2. Analysts expect that $80 price point to return soon.

To investors, the math makes sense. After spending nearly $100 billion on acquisitions, including the blockbuster Activision Blizzard deal, Microsoft’s leadership wants results – fast. But critics argue the approach sacrifices long-term brand health for short-term metrics. Studios are reportedly prioritizing low-cost, high-return projects over creative risks, potentially stifling innovation. As one developer described it, “if it’s not safe, it’s dead.”

Xbox president Sarah Bond has tried to reassure fans, calling the next generation Xbox “a very premium, very high-end curated experience.” Yet her remark that exclusives are now “antiquated” only fueled speculation that Xbox is abandoning the very concept that once defined console identity. Indeed, Xbox Game Studios now releases more games on PlayStation than ever before – a stunning reversal for a company that once fought to dominate the console wars.

Microsoft’s official statement to Bloomberg downplayed the uniformity of the profit targets, emphasizing a “balanced approach” that weighs creativity, sustainability, and business performance. But the community isn’t convinced. Many see it as a clear pivot from a culture that once celebrated creativity and accessibility to one now obsessed with quarterly returns. Xbox’s rise was once fueled by its willingness to take risks – from Game Pass to cross-platform play – but under these financial pressures, the division may be forced to trade innovation for survival.