While the new Xbox leadership team under CEO Asha Sharma has been on a charm offensive lately–while also promising a “reset” for the division that suggests layoffs are on the way–Microsoft CEO Satya Nadella got down to brass tacks recently. During a panel at the New York Times Hard Fork event, Nadella spoke about how Xbox will have to find a way to become more profitable as it enters a new era.
“No one can accuse Microsoft of not having invested for the last 25 years,” Nadella said. “And now we have to turn this into a sustainable business that delivers what is fundamentally one of the best sources of entertainment. The challenge we have is that we’ve not been monetizing that entertainment. In fact, if anything, we’ve been subsidizing that entertainment. There’s more monetization of Xbox games happening on YouTube than at Microsoft.
“And so that doesn’t mean we go do things that are unnatural. We want us to do what is really our job, which is to build great games, build great hardware, but we’ve got to do it in an economically sustainable way. I think Asha is really, 100 days in, and she put out a post saying in the next 100 days, she’s going to take a fresh look and make sure we deliver on what our fans expect of us both on the hardware side or on the publishing side.”
With gaming consoles and hardware experiencing a major spike in prices due to various global factors and hardware shortages, partly driven by the rampant investment in AI technologies, Nadella also remarked how Microsoft will have to find a way to “deliver the games in which it is economically relevant” to customers, although the Microsoft CEO didn’t have a solution for the dilemma.
Recently, Sharma confirmed that Xbox’s accountability margins only amount to a 3% profit, which isn’t exactly great considering how Microsoft has invested billions of dollars in acquiring studios and publishers over the last couple of years. The return on investment is not looking good, especially when games are becoming more expensive and are sold to a much smaller playerbase when compared to the PS5 and Nintendo Switch, while recent Game Pass price hikes saw millions of people cancel their memberships.
So what are Microsoft’s options to extract more profit from Xbox? One report claims that Xbox could be spun off into a separate company or a “wholly owned subsidiary” that would no longer operate as a Microsoft division. Microsoft is also said to be planning to increase investment in its biggest Xbox franchises–like Halo, The Elder Scrolls, and Fallout–and speed up development on new titles.
