Microsoft's game division was about to face an impossible task. Game Pass price increase and mass layoffs are just some of its consequences

Microsoft Gaming has been making some pretty controversial moves for a while now, and it looks like things got really chaotic after they bought Activision Blizzard. In the two years after it wrapped up, we kept hearing about big layoffs at the giant's studios, their closures, or the cancellation of promising projects. Recently, there was also a big increase in Game Pass subscription prices, which greatly upset players.

Looks like all this chaos and aggressive restructuring might have been caused by just one person's decision. And it's not Phil Spencer.

Ambitious objective for the Xbox division

According to industry insiders, in the fall of 2023, a target was set for the Xbox division that was very difficult to achieve for a moderately performing company. Amy Hood, the Chief Financial Officer of Microsoft, determined that the gaming division should achieve a 30% profit margin.

1. This result is significantly above the industry average. According to estimates by S&P Global Market Intelligence, the average profit margin for video games in recent years has ranged between 17% and 22%. The target set by Hood would therefore only be achievable for the best-performing companies.
2. From official court documents, we know that during the first nine months of the 2022 fiscal year, Microsoft was only making a 12% profit margin. Therefore, the company's CFO intended to more than double the profitability ratio.
3. Unofficial sources report that before 2023, developers collaborating with the Redmond giant were not required to achieve specific profits and were instead focused on delivering the best possible games without worrying about financial constraints. Right now, not every project is expected to reach the 30% profit margin, but Xbox-related teams are encouraged to aim for this target.

Industry insiders believe that in the future, smaller games with a higher chance of quickly generating big money will be prioritized. Moreover, the department responsible for producing Xbox hardware may undergo a "thorough overhaul."

Microsoft's "main antagonist"

For many players, Phil Spencer, CEO of Microsoft Gaming, is primarily associated with everything controversial in the company's actions in recent years. After all, he is the "face" of the gaming division of this massive company and often speaks publicly. According to some industry journalists, Spencer is actually the only reason why Xbox still retains a "shadow of its former glory."

Based on the latest reports, it really seems like Amy Hood is the one "calling the shots" and making some questionable decisions. Some players believe that she and Satya Nadella (CEO of Microsoft) are ruining Xbox by choosing bad business models and focusing on AI development.

On the other hand, part of the community is still dissatisfied with Phil Spencer's actions, calling him a "yes-man" who just goes along with whatever the higher-ups, like Amy Hood, say. People are now wondering who is actually the "main antagonist" at Microsoft, doing the most harm to the Xbox brand.

• Microsoft
• Xbox Game Studios / Microsoft Gaming
• Phil Spencer