Today, Xbox CEO Asha Sharma and Chief Content Officer Matt Booty addressed a letter to their team at Microsoft, which has been publicly shared.
The message focuses on the current situation of the business and on the steps leadership is envisioning for the future, encouraging the folks at Microsoft’s gaming division to face the next 100 days with both optimism and realism.
The challenges and strategy envisioned by Sharma and Booty are predicated on a list of six points, which you can read below in their entirety.
#1: Over 1 billion players choose to play XBOX and our games each year, for a total of 72 billion hours across Console, PC, Mobile, and Streaming (excluding much of China and a few other properties). Our franchises are also among the largest and most beloved globally and are now breaking records in TV and film. Going forward, our competition is attention. There are more great games, TV series, franchises, creators, content formats, apps, etc., than ever before.
#2: We will end this fiscal year at about a 3% accountability margin, down year-over-year. 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. Going forward, this cannot continue.
If you’re wondering (and many likely wouldI), “accountability margin” is how Microsoft calls what every other company in the world calls “profit margin.” I suppose in an era of “hard truths,” (see below) euphemisms are still a thing.
#3: 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. While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade. We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.
#4: We expanded our studio system when we needed a pipeline of content to meet multiple strategies across subscription, streaming, and devices. In the process, we have found ourselves over extended as we executed on changing strategies in a landscape of more readily available content. 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. We need to reassess the balance between these and our investment priorities for the next 5 years.
#5: Our current platform infrastructure is not built for the battle ahead. Our systems are overly complex, spanning hundreds of dependencies, which hinders our ability to move fast. We’ve become too reliant on vendors to operate our systems and must become more self-reliant as an engineering culture to build for the future. We must increase the value we ship to players while decreasing the time it takes to do so. Going forward, we’ll evolve and rebuild our stack and look at capabilities across all of XBOX and potential M&A to help us win in hardware, PC, mobile, and streaming.
The message continues by mentioning that Xbox won’t succeed by hiding hard truths nor by continuing to do the same things while expecting different results, but vows to make progress in the fields of hardware, content, experience, and services.
It also mentions that the foundation is in place with consoles as the center for showcase experiences and Windows as one of the largest gaming platforms in the world, on top of “incredible games” in the portfolio.
The aim, mentioned at the end, is to turn Xbox into the world’s first gaming and entertainment company.
This is certainly an interesting look at the inner thinking behind the leadership at Xbox. Unfortunately, it’s challenging not to read the looming danger of potentially extensive layoffs behind the messaging-
The reintroduction of console exclusives, which will clamp down on revenue coming from the most profitable part of the business, appears to be counterintuitive when the main issue is not making enough money, especially if implemented to sell more Xbox consoles, which have never been more expensive and can’t be shipped in great numbers anyway.
As reporters, we can only wait and see the result of this reset, but we can and should certainly say (even rather loudly) that its price shouldn’t be paid by the developers who make the games we love.
