Microsoft plans major layoffs in Xbox division
What's the story
Microsoft's gaming division, Xbox, is planning major layoffs and budget cuts. The move comes as part of a restructuring effort under new CEO Asha Sharma. Sharma took over the gaming business in February and has since been looking for ways to improve financial performance amid declining hardware sales and profitability pressures. The layoffs are expected after Microsoft's fiscal year ends on June 30, although the exact number of affected jobs remains unclear.
Strategic shift
Xbox's profitability metric down to just 3%
At the Bloomberg Tech conference, Sharma said her aim was to reset the business instead of chasing traditional software-industry profit margins. She revealed that Xbox's accountability margin, Microsoft's internal profitability metric, had fallen to just 3%. Over the last five years, excluding Activision Blizzard King, Microsoft has invested over $20 billion in content, platform and hardware subsidies while annual revenue has declined nearly half a billion during that time.
Market hurdles
Game Pass subscription service struggles to gain traction
Despite Microsoft's aggressive investments in gaming content, subscriptions, and cloud services, Xbox has faced growing challenges. The company's Game Pass subscription service has struggled to gain traction. Hardware sales have also continued to decline as Microsoft loses ground to competitors. Sharma said that Xbox would need to rebuild parts of its platform infrastructure and reassess investment priorities going forward.
Content strategy
Renewed focus on exclusive content under Sharma
One major change under Sharma is the renewed focus on exclusive content. Microsoft had been releasing Xbox-developed games on rival platforms such as Sony's PlayStation and Nintendo systems. However, during the recent Xbox Showcase, Sharma announced that major upcoming titles such as Gears of War: E-Day and Clockwork Revolution would not be released on competing platforms. This shift could strengthen the Xbox brand among core gamers.