Xbox doubles down on profit, high-margin businesses: Xbox Game Pass, breaking exclusivity, etc.

On the heels of the comments from Xbox gaming CEO Phil Spencer, Microsoft CEO Satya Nadella gives an update on the future trajectory of Xbox.

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Xbox has one singular goal above all else: To meet (or ideally surpass) the profit margin goals that are set by Microsoft's CFO and board. The group has two ways to meet this goal: Cut costs and improve business margins.

We've heard Xbox talk about high-margin businesses in the past. Key examples include digital game sales and subscriptions like Xbox Game Pass. A big example of Microsoft executing on high-margin opportunities is launching Black Ops 6 onto Xbox Game Pass, although the exact business dynamics are blurry. Another example is how Xbox is breaking exclusivity to launch its games on PlayStation and Nintendo platforms.

The moves are paying off, and data indicates that profits could be up year-over-year at Xbox.

In the recent Q2FY25 earnings call, Microsoft CEO Satya Nadella gives a quick update on Xbox:

We are focused on improving the profitability of the business in order to position it for long-term growth, driven by higher-margin content and platform services.

And we're delivering on this plan. Black Ops 6 was the top-selling game on Xbox and PlayStation this quarter, and saw more players in its launch quarter than any other paid release in the franchise's history.

And we saw rave reviews of Indiana Jones and the Great Circle, which has already been played by more than 4 million people.

We also continue to see strong momentum for Xbox Cloud Gaming, with a record 140 million hours streamed this quarter.

All-up, Game Pass set a new quarterly record for revenue and grew its peak PC subscriber base by over 30% as we focus on driving fully-paid subscribers across endpoints.

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Predictably, no information on Xbox's specific profits were revealed, but that's because Xbox is not its own business unit within Microsoft. Xbox is part of Gaming, and Gaming is underneath the More Personal Computing segment.

Gaming did, however, boost total gross margin for its parent segment. As per the Q2 report:

"Gross margin increased $1.9 billion or 15% driven by growth in Gaming, including the impact of the Activision Blizzard acquisition. Gross margin percentage increased driven by sales mix shift to higher margin businesses and improvement in Search and news advertising and Gaming"