Did Outer Worlds 2's underperformance lead to a write-down at Xbox?

New reports indicate that sales of Obsidian's The Outer Worlds 2 didn't meet Microsoft's internal expectations--was this part of a recent write-down?

Did Outer Worlds 2's underperformance lead to a write-down at Xbox?
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Senior Gaming Editor
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TL;DR: Xbox recorded a significant impairment charge in its Q2 holiday earnings, likely linked to underperforming game releases such as The Outer Worlds 2 and Call of Duty: Black Ops 7. This write-down reflects Microsoft's efforts to meet aggressive profitability targets amid game cancellations and studio adjustments.

Xbox recorded a mysterious write-down in its holiday earnings quarter, and it could be related to games missing expectations.

Did Outer Worlds 2's underperformance lead to a write-down at Xbox? 2
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As part of Microsoft's latest Q2 results, company CFO Amy Hood confirmed that the Xbox games division recorded an impairment charge. At the time, we speculated that the charge may have been related to the games that Microsoft had released during the holiday quarter.

Companies typically record these kinds of charges as a way to adjust the value of software; if the game is selling badly, the company usually sees this as a sign it will be worth less than they previously thought. The game is then written-down--sometimes even written off--and it affects earnings as a result.

As I noted at the time, the impairment charge could also be the result of new adjustments made as a result of the game cancellations and studio closures that Microsoft made in mid-July, which corresponds with its Q1 period. It's also possible that the charge was made as a result of new adjustments that had to be made in how Activision handles its balance sheets and books.

The impairment charge was made in Q2, not Q1, so it's possible it could also be related to the games that launched during that time.

These titles included:

  • Keeper (Double Fine/Xbox Game Studios) - October 17
  • Ninja Gaiden 4 (Team Ninja/PlatinumGames) - October 21
  • The Outer Worlds 2 (Obsidian Entertainment) - October 29
  • Fallout 4 Anniversary Edition (Bethesda Game Studios) - November 10
  • Call of Duty: Black Ops 7 (Activision) - November 14

A new report from Bloomberg's Jason Schreier says that at least one of these games, Obsidian's The Outer Worlds 2, did not meet expectations at Microsoft.

Sales rankings results at Circana as well as the PlayStation Store also indicate that Black Ops 7 may also have missed expectations at Microsoft.

It's unknown exactly how the Xbox games division exactly balances its books and its record-keeping is influenced by internal metrics, such as the AM "accountability margin," which is synonymous with profit.

Bloomberg had previously published a report indicating that Microsoft was pressuring the Xbox unit to deliver steep 30% accountability margins; for comparison's sake, before it bought Activision, Xbox's accountability margin for the first 9 months of Fiscal Year 2021 was just 12%.