A new article from Bloomberg has revealed some information regarding the financial situation at Xbox. The profit margin of the business has "plummeted to 3%" despite them investing over $20 Billion in (excluding activision) content, platform and subsidising hardware. They are apparently planning major layoffs next month as Asha tries to reset the business which they have publicly described as "unhealthy".

The full article is here (paywalled), I will put notable quotes below:

• Microsoft Corp.'s Xbox division is planning major layoffs next month, according to people familiar with the company's strategy. The layoffs, the exact scale of which is not yet clear, are expected shortly after the close of Microsoft's fiscal year on June 30. Xbox is also planning to significantly slash budgets for marketing and some other areas of the business
• In an email to employees on Wednesday seen by Bloomberg, Sharma wrote that the business had plummeted to a 3% "accountability margin," the metric Microsoft uses to reflect profit margin.
• "Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," she wrote. "Going forward, this cannot continue."
• "We are the fortunate stewards of industry-defining franchises that have enormous potential and player demand, but we have not adequately funded them to compete and win. At the same time, as we saw this past weekend at Showcase, a reliable pipeline of first- and third-party exclusives and new IP are critical to our success."

The email from Asha to Xbox employees has now been released Publicly: Next 100 Days: XBOX Reset - XBOX Wire

This is why they will never be on top again. Having people constantly scared to lose their jobs are not going to lead to a very creative and passionate team.

Taken from the email:

"We are in a hardware component crisis. When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier. Memory costs have followed a broadly similar trajectory."

Prices for console storage and memory have increased 4x since Fall 2025. Expected to increase even further by Holiday 2027.

The bullshit word games of ¨accountability margin¨ sums up Microsoft´s non credibility.
There isn´t any conceptual difference between what it measures and the conventional accounting term ¨operating margin¨.
But the latter term comes with expectations for transparent, accountable reporting to shareholders.
So MS makes up a bullshit new term, which it touts as enforcing accountability on division managment,
while at the same time avoiding it´s own accountability as a whole to the public and investors.

Same level of inanity as USA´s ¨war / not war¨ bullshit. Play some word games, evade clear regulatory requirements. 

Now more than ever Microsoft needs to transparently publish the real numbers for the Xbox business.
They can´t claim the numbers don´t really matter because it´s just some innovative growing business etc,
when at the same time they are literally doing layoffs and restructuring because of the numbers. 

This was ChatGPT response (although I had to prod it to go beyond the standard corporate BS):

1. The Weaponization of Non-Transparency

When Microsoft reports its earnings publicly to Wall Street, it bundles its divisions into massive, opaque categories (like "More Personal Computing"). They report standardized GAAP metrics like operating income for the broader segment, but they never publish the exact internal "accountability margin" calculations for specific divisions like Xbox.

This creates a massive information asymmetry:

• Internally: Executives use the specific, brutal reality of a 3% accountability margin to justify laying off thousands of workers, closing beloved studios, and slashing marketing budgets.

• Externally: To shareholders, Microsoft can gloss over these granular failures by pointing to the massive, abstracted revenue influx of an acquisition (like Activision Blizzard).

Microsoft is essentially keeping two sets of books: a public one that paints a rosy picture for the stock price, and a private one used to justify austerity measures to its workforce.

2. Shifting the Blame Downward

Calling it "accountability" implies that the fault lies entirely with the managers and workers inside that specific division. But in the case of Xbox, the cratering of their margin to 3% wasn't just a failure of internal management; it was heavily driven by massive, multi-billion-dollar strategic directives dictated from Microsoft’s top corporate leadership (such as the $69 billion Activision acquisition and aggressive Game Pass growth targets).

When those top-down bets didn't immediately pay off, corporate leadership didn't take the fall. Instead, they pointed to the "accountability margin" to frame the issue as an Xbox performance problem rather than a Microsoft corporate strategy failure.

3. Redefining "Accountability" as "Compliance"

True corporate accountability would mean Microsoft's top executives being transparent with investors about exactly how much money individual divisions are losing on hardware subsidies, or how much their massive investments are underperforming relative to internal goals.

Instead, Microsoft uses the term "accountability" purely as a mechanism for internal compliance. It is a tool to force a division to comply with corporate-wide profit standards (like the company's broader ~30% target) without ever having to be "accountable" or honest to the public about the messier financial details behind closed doors.

^^^^ This!!

Not being surprised if 'Accountability Margin' takes into account some kind of management fees payable to outside of Xbox as an inter-company transaction. Just funneling away money to corperate, making Xbox' division look worse.

Another possible distinction has to do with how Microsoft views the money they spend on acquisitions of Bethesta and Activision Blizzard King. Did they internally have corporate 'loan' the money to the Xbox division and requires scheduled pay-backs? This would not fall under 'Operating Margin', but could be part of 'Accountability Margin'.

So yes, a bit iffy with no clear definition what MS means by this.

One of the things I've hated for years about Microsoft is that they don't report real numbers for Xbox's division. Profit and expenses are bundled with the Moore Personal Computing segment. Microsoft has played loose with numbers for years. They rolled regular XBL subscribers into Gamepass in order to hide Gamepass losing subscribers. They didn't count game dev costs as Gamepass costs for 1st party games. Who knows if they even count Gamepass servers as an expense? Meanwhile, if someone tries a game on Gamepass and then goes on to buy said game, Gamepass gets credit for the full sale of the game. None of this makes sense and its clear that Gamepass doesn't make money. At least not long term. 

Sony and Nintendo are primarily videogame companies so it's easy to see if their gaming departments are profitable or not based on their PNL sheets. Xbox on the other hand gets lumped in with a massive Personal Computing Division so profits are hard to discern. 

Wonder which studio is getting the axe this time.
I can't believe Ninja Theory has lasted this long after Hellblade II's low sales, but with Senua just announced and coming next year, maybe they're safe until they get that one out the door.

Rumor is Arkane studios with Blade being cancelled.
People are saying Double Fine, could be in trouble too along with Compulsion Games.

Surprisingly Ninja Theory doesn't look too bad, even if it didn't sell that much, it did enough.... and they have a profitable mo-cap thing going on too.


So if studio closures happen it will likely be : Arkane, Double Fine, Compulsion Games.

There could also just be random layoffs throughout multiple studios.

Stupendous incompetence. Sony gaming just hit its profit record and is projecting to achieve the 2nd alltime highest operating profit this year only behind Nintendo's 2020 (Animal Crossing New Horizons year). And they're accomplishing this amdist a streak of terrible live service and acqusition failures, and many of the same challenges Microsoft is facing.

Xbox was doomed the moment Michael Pachter hyped up GamePass and downplayed Sony. Never underestimate master Pachter.

Significant slashing marketing costs while marketing has been remarkably weak is some strange thing to say.

And people want MS to drop even PC and focus on Xbox alone.

As I told on that thread, either MS knew well that the exclusivity thing is a charade or reality would come knocking on the door soon.