Support NeoGAF

[killer rin]

Scary. I bet they drop the Xbox when Steve Ballmer finally gets replaced. Honestly, I don't see how that wouldn't happened. We've all seen it before. It's called "pulling a Sega."

I really dont see them dropping Xbox. Doing so is basically dealing another massive blow to Windows Phone. Microsofts Music and Video services are both tied into Xbox, and most people wont even look at a phone OS which doesn't have a way to natively purchase music/video. Then Xbox Games prop up Windows Phones App count by putting in more value proposition to get people to buy phones.

Xbox really is tied too far into the entire Microsoft Ecosystem at this point. Although, while I dont see them actually dropping the division, I can totally see them taking a look at its finances and finding some way to cut costs.

 

[CLEEK]

Which makes no sense, because Android was very tiny in 2008. So how did the division not lose billions then (with higher hardware costs, less gold subscribers).

So unless they've somehow started manufacturing 360s at a much higher cost than 2008, it doesn't make sense.

R&D costs billions. Since 2008, MS would have sunk a staggering amount into Kinect 1, Xbox One and Kinect 2. And you have likes of Rare, who would chew through cash to produce Kinect flops. Marketing, money hatting and sponsorship would be huge too.

 

[Killroyskbg]

Qouting myself from a post about this yesterday.

R&D for new console, controller, kinect and also marketing, buying exclusives from third party studios, services, servers, repairs... the list goes on and on...

As you see can the entertainment segment is VERY small compared to MS other markets and does not like the areas provide profit ear after year. Just imagine how the numbers will look this year with the new console and all costs it will bring MS.

 

[Mandoric]

Which makes no sense, because Android was very tiny in 2008. So how did the division not lose billions then (with higher hardware costs, less gold subscribers).

So unless they've somehow started manufacturing 360s at a much higher cost than 2008, it doesn't make sense.

Did it necessarily have a worse margin then? I mean, in 2008, we're talking about the notoriously cheaply built original model still going for $400, rather than the sturdier Slim selling for $200 with regular holiday giftcard deals bringing it down to $150. Not sure there's been a two-thirds drop in manufacture cost.

Live is definitely a high point of the division by any analysis, and that's gone up up up, but how much is it counterbalanced by needing to compete far harder in marketing and developer relations?

Edit: Frankly, this applies to both the HD twins, in my opinion. Having two consoles so similar and evenly matched drives them both down to the lowest price each firm's investors can bear, meaning loooooong-ass stretches of poor profitability. The market at work, folks!

 

[Skeff]

Which makes no sense, because Android was very tiny in 2008. So how did the division not lose billions then (with higher hardware costs, less gold subscribers).

So unless they've somehow started manufacturing 360s at a much higher cost than 2008, it doesn't make sense.

Kinect product launch -> XB1 R+D and launch

 

[-PXG-]

Well, the red ring of death cost them a ton of money and they raised the price of Live mid generation for a reason. Not to mention that they've been throwing money at the NFL for that deal, they spent a ton of money on controller prototypes, and there is no way to figure out how much they paid EA for Titanfall.

This.

 

[Skeff]

Qouting myself from a post about this yesterday.

B2B strategy is looking mighty good right now.

 

[Alx]

R&D costs billions. Since 2008, MS would have sunk a staggering amount into Kinect 1, Xbox One and Kinect 2. And you have likes of Rare, who would chew through cash to produce Kinect flops. Marketing, money hatting and sponsorship would be huge too.

Rare only worked on 1 kinect titles and a half (Kinect Sports 1 & 2), and they were big sellers.

 

[Bradach]

Right but that wouldn't account for 2 billion dollars per year, it would show up as one or two particularly expensive years. Spikes in spending that are gone the next fiscal year, post launch.

The article seems to be saying that the Xbox division is losing 2 billion a year, each year.

The development costs are most likely amortised to the income statement from the balance sheet for the life of the product so some of the costs are still probably kinect related.
There may even be some xbox360 development costs still hitting the income statement depending on what they considered the life cycle of the 360 when it launched.

 

[soundscream]

This is just as silly as that investor who wanted Sony to sell Sony Pictures and used the underperformance of 2 movies as his justification.

 

[Devilgunman]

I wonder that too. The 360 has high sales, xbox live brings in millions in subscribers alone, decent first party sales, kinect was the biggest hardware launch in history, but it's down 2 billion every year? I don't get it.

Need a lot of money to make dat hat.

 

[Penguins&PolarBears]

Both figures are completely wrong.

Microsoft doesn't make that much from Android patent royalties yet and the Xbox division is not losing $2 billion a year. How could people here actually believe that the Xbox division loses $2B every year?

 

[skc]

So...does everybody realize that if this is true then there is no point of being in this business for any of the players. Sony, Microsoft and Nintendo too. Because if MS is losing that much money imagine how much Sony is losing on the Playstation.

And if the claim is then that the Playstation is profitable, use some critical thinking and ask yourself how it can be possible that the console with the superior attach rate and cheaper components is making losses.

Come on people. This need to take any negative XBox news as gospel is getting tired.

 

[deadpixel]

That's nothing. You have to spend money to make money.

 

[killer rin]

The development costs are most likely amortised to the income statement from the balance sheet for the life of the product so some of the costs are still probably kinect related.
There may even be some xbox360 development costs still hitting the income statement depending on what they considered the life cycle of the 360 when it launched.

Wait... is the -2 Billion dollar figure in the OP talking about the entire lifetime net profit of the Xbox product? Because that would make the figure alot more easier to swallow than losing 2 billion a year.

 

[soundscream]

Both figures are completely wrong.

Microsoft doesn't make that much from Android patent royalties yet and the Xbox division is not losing $2 billion a year. How could people here actually believe that the Xbox division loses $2B every year?

Console Warz: Bears & Salmon

 

[szaromir]

As far as I know, MS have never published the opertaing profit/loss for Xbox. It has always been grouped in with other products/divisions.

Entertainment & Devices is the current division that contains Xbox, and its profitable. But as per the OP, thats due to the $2B patent troll profits, which obstificates the staggering Xbox losses.

Compare to Nintendo and Sony, who always report directly their gaming revenue and opertaing profit / loss.

Let's look at FY2008: Android was yet to be released, there were no successful products in that division other than Xbox (stuff like Zune was bombing all over the place). What on Earth could cover the alleged humongous losses?

It's the other way around, Xbox has been profitable since middle 2007 (the first hardware revision with shrunk processors) and it's been used to cover losses from other unsuccessful ventures (Zune, Kin, Windows Phone 7&8).

 

[Skeff]

So...does everybody realize that if this is true then there is no point of being in this business for any of the players. Sony, Microsoft and Nintendo too. Because if MS is losing that much money imagine how much Sony is losing on the Playstation.

And if the claim is then that the Playstation is profitable, use some critical thinking and ask yourself how it can be possible that the console with the superior attach rate and cheaper components is making losses.

Come on people. This need to take any negative XBox news as gospel is getting tired.

errrrm sony have lost billions on the PS3. The only reason they're staying in the console business is the PS2 and the chase for a repeat of that. Also Nintendo made billions on the Wii, they have a different business strategy which is profit from day one on weak hardware and 1st party software for bigger profit margins on software sales.

 

[JaggedSac]

Lol, what a load of horse shit.

 

[Coulomb_Barrier]

$2 billions a year. Christ on a bike.

 

[CLEEK]

It's the other way around, Xbox has been profitable since middle 2007 (the first hardware revision with shrunk processors) and it's been used to cover losses from other unsuccessful ventures (Zune, Kin, Windows Phone 7&8).

This is not how financial reporting works. The R&D costs for the 360 wouldnt be written off as soon as the 360 was launched. It would be amortised over several years. Same with Kinect costs. Same with software development costs.

 

[Mandoric]

So...does everybody realize that if this is true then there is no point of being in this business for any of the players. Sony, Microsoft and Nintendo too. Because if MS is losing that much money imagine how much Sony is losing on the Playstation.

And if the claim is then that the Playstation is profitable, use some critical thinking and ask yourself how it can be possible that the console with the superior attach rate and cheaper components is making losses.

Come on people. This need to take any negative XBox news as gospel is getting tired.

On the one hand, all sides have significant expenses that exist only because all other sides are involved.

On the other hand, management makes--at least CAN make--the difference. It's why MS were golden with the 360 launch at the same time as Sony was dumping billions of dollars down the Kutaragi hole.

This analyst doesn't want the Xbox to not exist. He doesn't think it's impossible to turn a profit on it. He just thinks that the Ballmer-Mattrick and Ballmer-Elop management combos are fucking it up royally, and wants it taken away from them in particular.

 

[Captain Tuttle]

If they have 20 million Gold subscribers, they're making 1 Billion per 10 months off sub fees.

Yeah, I'm not buying this analyst's estimate. I suspect he's one of the people who want MS to spin off the division (which would be fine with me)

 

[p3tran]

I think it would take a REAL genius to be able to loose 2 bil/year
on a closed platform with over 80 million sold, 20-30 million paying subs,
and where cost is dirt cheap, and you get royalties out of everything....

on the other hand, I do also believe that inside microsoft, such kind of "geniuses" do exist.

 

[zomgbbqftw]

While the analysts in question obviously have an agenda to push, the Xbox project is not profitable for MS and it doesn't bring them any additional benefits for other parts of the company.

I think the difference going forwards is that the Bone is set for profitability from the outset, but that is going to limit the appeal against Sony who have stuck to their PS2/razor blades model and priced PS4 20% lower.

Additionally, the PS4 is better aligned to Sony's business portfolio than Microsoft's. PS4 helps Sony push certain standards, it helps them push their ecosystem of streaming services. If they get their act together they can use the PS4 halo effect to sell Xperia phones and tablets and even Bravia TVs as all of these products are somewhat related to PlayStation. Conversely, I don't see an area where Xbox helps Microsoft sell their core products, they have a virtual monopoly of both operating systems and productivity software at the consumer level, hamstringing the Bone with the Windows kernel isn't going to make any additional sales for Windows and productivity software is unsuited to the environment.

Skype is really the only beneficiary, but I it is in their interests to be on the PS4 as well, the Bone is just another device with which Skype is compatible and because of the integrated webcam it makes for a decent experience.

So therein lies the problem, Xbox as a division is not aligned to Microsoft's business portfolio, and whether these losses exist or not (I would be inclined to believe it given how massive Android patent royalties are for them from Foxconn and Samsung alone) the long term future of Xbox within the Microsoft stable needs to be looked at again now that Ballmer is on his way out.

 

[Shao Kahn Brewing a Stew]

The first Android-powered phone was sold in October 2008. Looks like profit ever since for MS.

 

[szaromir]

R&D costs billions. Since 2008, MS would have sunk a staggering amount into Kinect 1, Xbox One and Kinect 2. And you have likes of Rare, who would chew through cash to produce Kinect flops. Marketing, money hatting and sponsorship would be huge too.

This is not how financial reporting works. The R&D costs for the 360 wouldnt be written off as soon as the 360 was launched. It would be amortised over several years. Same with Kinect costs. Same with software development costs.

And those other products don't have similar costs that bring the division down but bring little to no revenues?
Also funny that you describe Rare as making Kinect flop when Kinect Sports was definitely not a commercial flop.

The first Android-powered phone was sold in October 2008. Looks like profit ever since for MS.

And the first profitable period (July 2007-June 2008) was before Android's launch.

 

[twobear]

Additionally, the PS4 is better aligned to Sony's business portfolio than Microsoft's. PS4 helps Sony push certain standards, it helps them push their ecosystem of streaming services. If they get their act together they can use the PS4 halo effect to sell Xperia phones and tablets and even Bravia TVs as all of these products are somewhat related to PlayStation. Conversely, I don't see an area where Xbox helps Microsoft sell their core products, they have a virtual monopoly of both operating systems and productivity software at the consumer level, hamstringing the Bone with the Windows kernel isn't going to make any additional sales for Windows and productivity software is unsuited to the environment.

I have no idea how you could say 'PS4 will help Sony sell Bravia TVs' and then in the next breath say that there's no way Xbone will push other MS services. MS have a music streaming service, they have a movie rental service, they're bringing the W8 app store to Xbone, and the OS is unified across all their products, they're pushing Skydrive integration across all of them (WP8, Windows 8.1, Xbone). The entire purpose of putting Metro on everything (including Xbone) is to push a unified software/hardware service and try to make people buy into an all-MS ecosystem à la Apple. Whether it will work is a different matter, but the exact same thing could be said about whether PS4 will make people buy Xperias and Bravias.

 

[Bill Squabber]

"Analyst" 2 billion is a lot to lose even for Microsoft.

 

[Miles Quaritch]

I have no idea how you could say 'PS4 will help Sony sell Bravia TVs' and then in the next breath say that there's no way Xbone will push other MS services. MS have a music streaming service, they have a movie rental service, they're bringing the W8 app store to Xbone, and the OS is unified across all their products, they're pushing Skydrive integration across all of them (WP8, Windows 8.1, Xbone). The entire purpose of putting Metro on everything (including Xbone) is to push a unified software/hardware service and try to make people buy into an all-MS ecosystem à la Apple. Whether it will work is a different matter, but the exact same thing could be said about whether PS4 will make people buy Xperias and Bravias.

Analysts, eh?

 

[spatenfloot]

I don't know why people find this so incomprehensible. The Xbone did not magically appear on their doorstep. R & D is massively expensive, as is a worldwide product rollout. They have huge marketing expenses. They said they were spending a billion dollars on games. ETC.

Plus, many gaming fans seem to think that the Xbox is Microsoft's only product. They have many failing products to support in their entertainment division.

 

[zomgbbqftw]

The first Android-powered phone was sold in October 2008. Looks like profit ever since for MS.

On that note, as I understand it, Samsung pays a royalty fee of around $5 per Android device they ship. Last quarter they shipped ~80m. Foxconn pays around $3 per Android device they assemble/ship. HTC pays around $15 per device. Asus around $10. The only OEMs who don't pay MS any fees are Motorola and Sony since both have much larger patent holding for mobile devices that MS wouldn't want to trifle with. Between them Sony and Motorola sold 15m devices for the quarter just passed, compared to 120m Android phones globally. The vast majority of those 120m will bring in revenues for MS.

I have no idea how you could say 'PS4 will help Sony sell Bravia TVs' and then in the next breath say that there's no way Xbone will push other MS services. MS have a music streaming service, they have a movie rental service, they're bringing the W8 app store to Xbone, and the OS is unified across all their products, they're pushing Skydrive integration across all of them (WP8, Windows 8.1, Xbone). The entire purpose of putting Metro on everything (including Xbone) is to push a unified software/hardware service and try to make people buy into an all-MS ecosystem à la Apple. Whether it will work is a different matter, but the exact same thing could be said about whether PS4 will make people buy Xperias and Bravias.

People are going to buy Windows 8.1 whatever happens. If they want a laptop they are buying Wintel. Having whatever unified experience isn't going to sell additional Windows licences.

WP8 is not a core MS business, neither are any of the other services you mention. It is a different type of business. Sony have entertainment production arms, they have a content licencing arm, they have a new content delivery arm, all of those are a part of Sony's core business.

 

[coldfoot]

I disagree with this analyst, however, there do seem to be too much management and not enough engineers in the Xbox division.
Most of EDD losses are due to MS's failed mobile ventures, Xbox probably operates at break even or close to that (disregarding Xbox one launch costs). and Android patents will eventually run out, I think it's 7 years.

 

[Lynn616]

. The only OEMs who don't pay MS any fees are Motorola and Sony since both have much larger patent holding for mobile devices that MS wouldn't want to trifle with.

You sure about this one? MS now has the Nokia patents.

 

[itsgreen]

Bull. Shit.

Bull. Shit. Analyst.

 

[Bradach]

Wait... is the -2 Billion dollar figure in the OP talking about the entire lifetime net profit of the Xbox product? Because that would make the figure alot more easier to swallow than losing 2 billion a year.

He seems to be talking about a yearly loss but i'm not sure what year he's referring to.

looking at the 2012 financials for the Entertainment and Devices section they generated $9.6bn but only made a profit of $0.4bn, meaning the costs were $9.2bn

If the android royalties generate $2bn and we remove them then the rest of that division is generating $7.6bn in revenue. Adjusting the costs down slightly to $9.1bn (5% of the $2bn android revenue relates to costs) we have a loss if $1.5bn.

This loss is attributable to the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 video games, Xbox LIVE, and Xbox 360 accessories, Mediaroom (our Internet protocol television software), Skype, and Windows Phone

 

[zomgbbqftw]

You sure about this one? MS now has the Nokia patents.

No they don't. They have a 10 year non-exclusive licence to patents associated to Nokia's devices division. Nokia retailed all of the IP.

 

[TheLegendary]

Both figures are completely wrong.

Microsoft doesn't make that much from Android patent royalties yet and the Xbox division is not losing $2 billion a year. How could people here actually believe that the Xbox division loses $2B every year?

I wonder how the analyst even came up with this theory. Seems utterly ridiculous

 

[twobear]

People are going to buy Windows 8.1 whatever happens. If they want a laptop they are buying Wintel. Having whatever unified experience isn't going to sell additional Windows licences.

I don't think this is true any more. Tablet sales are eating into traditional PC sales, and MS is losing one of their core markets as a result (the home computer user). That's precisely why they're pushing the unification angle, because they hope that by giving you the same experience on every device you're more likely to buy all of those devices.

WP8 is not a core MS business, neither are any of the other services you mention. It is a different type of business. Sony have entertainment production arms, they have a content licencing arm, they have a new content delivery arm, all of those are a part of Sony's core business.

WP8 isn't a core MS business, but not for lack of MS's wanting in to be (they wouldn't have just bought Nokia's phone business if this weren't the case). Again: this is why they're unifying everything. Got an Xbox Music account on your Xbone? Well you also get it on your WP8 phone. Got your user account on WP8.1 synced to Skydrive? Well now you get the same updates on your WP without having to fiddle every setting. That's the whole point of MS's current attempt, a unified software suite synced through the cloud.

 

[maquiladora]

Bull. Shit.

Bull. Shit. Analyst.

I guess that clears it up then. Lock thread pls.

 

[gofreak]

I have no idea how you could say 'PS4 will help Sony sell Bravia TVs' and then in the next breath say that there's no way Xbone will push other MS services.

But he's talking about MS's bread and butter - Windows, office, 'work' software.

Xbox can help push consumer services, but there are those - this analyst among them - who say MS should not be focussing on consumer services at all.

Sony, on the other hand...consumer electronics and media is core to their business.

 

[ShapeGSX]

This guy is guessing. There's no telling where MS puts the Android patent licensing money in those reports. Or whether Xbox is making money and Windows Phone is losing even more.

 

[Skeff]

I disagree with this analyst, however, there do seem to be too much management and not enough engineers in the Xbox division.
Most of EDD losses are due to MS's failed mobile ventures, Xbox probably operates at break even or close to that (disregarding Xbox one launch costs). and Android patents will eventually run out, I think it's 7 years.

I think the xbox360 and XBLG together in a bubble have been profitable since after the RROD fiasco was finished, However the Xbox division is of course responsible for Kinect and XB1 research + marketing which drags it down, the XB1 is not likely to be profitable for at least a year (although hardware will be sold at a profit, the 1 billion investment in launch games is a lot that will likely not be made back by such a small install base).

I'm still very curious if ValueAct provided this information as a source to the article.

 

[zomgbbqftw]

I don't think this is true any more. Tablet sales are eating into traditional PC sales, and MS is losing one of their core markets as a result (the home computer user). That's precisely why they're pushing the unification angle, because they hope that by giving you the same experience on every device you're more likely to buy all of those devices.

That's precisely why Allen wants out of Xbox/WP/consumer and wants to make Windows more suitable for corporate clients again. He, along with many others, believes that MS are risking their enterprise income to chase the consumer market which, while profitable, is not even in the same league as enterprise and B2B income.

WP8 isn't a core MS business, but not for lack of MS's wanting in to be (they wouldn't have just bought Nokia's phone business if this weren't the case). Again: this is why they're unifying everything. Got an Xbox Music account on your Xbone? Well you also get it on your WP8 phone. Got your user account on WP8.1 synced to Skydrive? Well now you get the same updates on your WP without having to fiddle every setting. That's the whole point of MS's current attempt, a unified software suite synced through the cloud.

I'll go back to the point made by Allen and others, whether or not MS want WP to be a core part of their business is irrelevant because it isn't. Like you said, this is after years of trying having spent billions on doing it, the latest being $7.5bn on buying Nokia's devices division. It is still a pitiful revenue generator and it eats into company development budgets and massively into the marketing pot. And it still isn't a core business.

Skydrive is cross platform, so I don't get what the problem is. I can get Skydrive on Android.

I'm still very curious if ValueAct provided this information as a source to the article.

Doubtful, they agreed not to fight any proxy wars on taking up their seat on the board. If it has come, it will be from someone high up within Windows who can see enterprise revenues declining in the future because of the unsuitable UI of W8.

 

[BrokenIcarus]

So what's the speculation about what those android patents are? I would think most licenses google has to pay would come from apple. How does MS make so much money from android licensing?

 

[Nightengale]

I guess that clears it up then. Lock thread pls.

Who's that?

 

[Narpas Sword0]

How could they possibly be losing 4x as much on Xbox as on Surface and Windows Phone combined?

 

[Primedoughnut]

Well if the xbox business is generating sooo much money, are there moves afoot to sell it off?

No company ditches a profit making division do they....

 

[LowEndTorque]

So...does everybody realize that if this is true then there is no point of being in this business for any of the players. Sony, Microsoft and Nintendo too. Because if MS is losing that much money imagine how much Sony is losing on the Playstation.

And if the claim is then that the Playstation is profitable, use some critical thinking and ask yourself how it can be possible that the console with the superior attach rate and cheaper components is making losses.

Come on people. This need to take any negative XBox news as gospel is getting tired.

Who is claiming this? It's well known that the PS3 was an enormous money sink for Sony.

 

[bro1]

It could also be a financial trick in order to lower their taxable revenue.