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[Gadirok]

I wonder what happens if the xbox suddenly becomes an irrelevant brand in the coming years, with a smaller market share than what the 360 obtained.

Would it cause MS to abandon and sell off the xbox brand entirely?

Would definitely cause stock to rise. But I doubt they would do that since they've already invested so much in it and haven't had that return yet. Their main mistakes were taking their audience for granted, but we still don't know how the next few years could turn out so this should be very entertaining.

 

[Mandoric]

Ah hah. So this is where critical thinking come into play. If you believe that Sony selling the PS4 at a loss will quickly lead to a profit, then why are we so quick to believe that Microsoft is racking up huge losses on the 360?

Doesn't make sense.

Either these things make money or they don't. They all have the exact same business model give or take a service or two.

As we've already covered in thread: MS is on-record as making very, very expensive choices recently that Sony apparently isn't (the $100m controller compared to the likely far-cheaper DS4, the $500m Kinect launch compared to the threadbare Move launch, the $1b+ in third-party dev and marketing support (probably significantly more now!) where Sony is being far more cautious, the ESRAM which is both harder to produce and requires more custom engineering than the PS4's APU, the NFL deal, opening TV studios specifically for Xbox where SCE simply gets an app for existing Sony Pictures output...

It's the same basic business model, but right now MS's differentiators are based on huge here-and-now investments while Sony's differentiators are based on costs that were sunk in the PS2 era (developing first-party talent) or superior/luckier market prediction (significant across-the-board spec advantage due to rising GDDR5 capacities.)

 

[GSG Flash]

Exclusive DLC doesn't come cheap

 

[PanicFreak]

So he is saying that Microsoft is lying. The Xbox 360 is a profitable device. There is zero chance they are losing 2 billion a year with it.

Maybe FY13 when it is trying to establish a foothold in the market with the One.

 

[LiveFromKyoto]

I guess it costs more to buy off the gaming media than we thought.

 

[clem84]

The Xbox One is really like the Xbox one after all.

lol

 

[Unknown Soldier]

so MS is earning more from Android than WP8?

This has been accepted as common knowledge for a long time now.

 

[Derrick01]

How?

Seriously how is it the Xbox division hemorrhaging money like that?

"1 billion investment in games"

"$400 million deal with NFL"

Then you've got the normal money losses from making new hardware, kinect and probably another few hundred million in marketing the thing. If they were losing that much money before that then I have no idea how either.

 

[Riki]

So he is saying that Microsoft is lying. The Xbox 360 is a profitable device. There is zero chance they are losing 2 billion a year with it.

Maybe FY13 when it is trying to establish a foothold in the market with the One.

Microsoft? Lying? Why, the very thought is unheard of!

 

[PanicFreak]

Yeah I dunno how that's possible. R&D for Xbone?

I'm pretty sure you can capitalize R&D for unreleased products. So instead of being a cost, it ends up on your balance sheet as an asset. You then depreciate it as you release the product.

 

[sixamp]

Such bs. The 360 has been profitable for sometime, the Xbox div has been making a rev for some time. Wp8 (I own one) is losing money but the OS is really picking up. The xb1 is costing money because it hasn't generated any yet and if anything the ps4 is gonna be losing more money at launch per unit than the xb1.

 

[Mandoric]

Balance sheets pls.

Rare's X360 titles have sold (extremely roughly!) around 10 million copies, correct?

That's $600m gross return on a $500m investment over a decade. 2% return a year. If every copy sold at $60, everyone at Rare worked for free, MS got every penny of the at-till price, and no offices needed to be maintained, then the investment in Rare would be worth slightly less than holding bonds.

 

[spatenfloot]

Ah hah. So this is where critical thinking come into play. If you believe that Sony selling the PS4 at a loss will quickly lead to a profit, then why are we so quick to believe that Microsoft is racking up huge losses on the 360?

Doesn't make sense.

Either these things make money or they don't. They all have the exact same business model give or take a service or two.

Sony isn't spending 500 million on an NFL deal.

 

[Curufinwe]

Such bs. The 360 has been profitable for sometime, the Xbox div has been making a rev for some time. Wp8 (I own one) is losing money but the OS is really picking up. The xb1 is costing money because it hasn't generated any yet and if anything the ps4 is gonna be losing more money at launch per unit than the xb1.

Why do you think this analyst is sending BS to his clients?

http://gigaom.com/2013/11/06/at-long-last-some-analyst-love-for-microsoft/

In a note sent under the subject line: “Action plan for new CEO, Sherlund wrote that shareholders:

“are being caught ‘off sides’ on Microsoft, still focusing on what could go wrong with the fundamentals, rather than what could go right with new management and likely changes in cost structure, disposition of money losing consumer businesses Bing and Xbox, corporate governance changes and financial engineering potentially extracting a lot more value out of the current assets.’

 

[Into]

They are spending half a billion on just a NFL deal. 2 billion loss is hardly surprising, add in CoD timed dlc, titanfall etc and there is a heavy cost and loss associated with it

 

[spatenfloot]

It's funny to see people dismissing a reputable analyst from one of the top securities firm in the world, without even trying to offer a counter-perspective/argument. Not even from MS's financial reports.

"Me and my bros all pay a lot for Live, dude!"

 

[purpletentacle]

If only MS could also funnel this patent money into their quarterly Bing losses. What's that up to now? 10 billion in total since 2005?

Also, I do find it curious that Mattrick, the guy who supposedly turned the ship around in terms of profit, was let go/left so quickly this year. Why would a company allow that over a few bungled statements and choices. Unless, of course, the division wasn't making money in the first place...

 

[Sanke__]

RIP xbox

 

[RE_Player]

Honest question here...

About how much money does MS spend each year with all their exclusivity deals with
3rd parties?

Depends on the deal. I would assume the small stuff, like an exclusive demo or beta, would be a co-marketing deal but the Call of Duty dlc deal would be a substantial amount.

 

[rschauby]

Iwata is such an idiot for not copying the Microsoft model.

Nintendooooomed!

 

[Curufinwe]

If only MS could also funnel this patent money into their quarterly Bing losses. What's that up to now? 10 billion in total since 2005?

http://blogs.barrons.com/techtrader...ed-recipe-for-50-microsoft-stock/?mod=BOLBlog

“We estimate Microsoft has lost $17 billion with Bing over the past 10 years. … It may be concerning to watch Google (GOOG) give away its Android operating system, Chrome and [bundling] competitive products …[but] this is a superior business model. … Mr Mulally is more likely to … conclude that Microsoft has lost the battle with Google … It is not important that Microsoft receive $5 or $10 billion for Bing … but rather that it eliminate about [10 to ]20 cents per share in annual losses …”

 

[kadotsu]

And people said mobile would be bad for core gaming.

 

[mephixto]

No wonder why some shareholders want to sell of the xbox division.

 

[walltowall]

Microsoft? Lying? Why, the very thought is unheard of!

Considering lying to your share holders is a crime. I think I'll go with Balmer and Co. Over an analyst.
Shit, I'm still waiting for my Apple television.

 

[Mael]

If only MS could also funnel this patent money into their quarterly Bing losses. What's that up to now? 10 billion in total since 2005?

Also, I do find it curious that Mattrick, the guy who supposedly turned the ship around in terms of profit, was let go/left so quickly this year. Why would a company allow that over a few bungled statements and choices. Unless, of course, the division wasn't making money in the first place...

Good point, then again he might have been sent as a cover spy to buy another company's assets Elop style....
Jokes aside, it's indeed weird considering that RRoD most likely cost Moore its place.... It made no sense to have the guy who made the turn around of their strategy leave at once without so much as a thank you note just because he was horrible at messaging the new product.
If worst came to worst they could have gagged him and used marketers to relay the messages like they always do...

Considering lying to your share holders is a crime. I think I'll go with Balmer and Co. Over an analyst.
Shit, I'm still waiting for my Apple television.

Except that you'll have to find where they went on record saying that the xbox business (and not the E&D division as a whole) was making them boatload of money.

 

[todd360]

There's a theory that Microsoft is intentionally messing up their Xbox One effort so they can get out of the console business. Just a theory.

It's just that stockholders don't really like the Xbox brand, it's like a money pit for them.

If that were true they wouldn't have made all the 180s right? It was basically a guaranteed failure before that.

 

[walltowall]

Good point, then again he might have been sent as a cover spy to buy another company's assets Elop style....
Jokes aside, it's indeed weird considering that RRoD most likely cost Moore its place.... It made no sense to have the guy who made the turn around of their strategy leave at once without so much as a thank you note just because he was horrible at messaging the new product.
If worst came to worst they could have gagged him and used marketers to relay the messages like they always do...

It could be that Mattrick left because he was not going to be CEO. Guys like that do not take lateral moves well, nor do they take a demotion (same title but reporting to someone lower than the CEO).

 

[Skeff]

Considering lying to your share holders is a crime. I think I'll go with Balmer and Co. Over an analyst.
Shit, I'm still waiting for my Apple television.

They're not lying to shareholders, they are simply rearranging the facts and figures whilst keeping them honest in a way to make it seem as if a particular division is doing better than a quick glance at the figures would have you believe.

They're not lying, they're just influencing the visibility of certain losses.

 

[harSon]

Why is everything negative concerning Xbox taken as gospel now? Since when do we take an analyst's estimations at face value?

 

[Sheroking]

Welp, what roll do you think their $10B cloud investment played into this?

 

[DirtyLarry]

Apparently we have a whole lot of financial analysts within this community.
Interesting how consuming ones products instantly makes one an expert on that company itself.

As such, I happen to know BlockBuster is actually not closing an additional 200 stores as they announced. They are actually doing fantastic from a financial standpoint although others report otherwise. I mean they have to be doing fine, I used to rent movies from them years ago so I am clearly knowledgeable on their actual financial success.

 

[tehrik-e-insaaf]

It's true (although not exactly 2 billion - the ROI on Xbox is pitiful and NPV negative when you account for the cost of capital)... There are a lot of people concerned inside MSFT that if the next 2 years don't show a lot of momentum the new CEO will clean house for political capital - in particular OEMs are pissed at MSFT right now - Surface, Xbox, and now Nokia along with killing IPTV and other neutral platforms - are huge departures from MSFT's traditional business partnerships

OEMs are running into the arms of Google - and Valve is looking to make a play

The good news is that if Xbox shuts down, the game studios will be around and they will expand - or at least that's what people have been discussing - so they will likely continue to have a large gaming presence - just more focused on supporting mobile/tablet, and PC - platforms that support their core businesses - you will likely see more TV integration with these devices as well

 

[Sheroking]

They're not lying to shareholders, they are simply rearranging the facts and figures whilst keeping them honest in a way to make it seem as if a particular division is doing better than a quick glance at the figures would have you believe.

They're not lying, they're just influencing the visibility of certain losses.

What every company ever does.

Take my friends employer: Holds bi-annual meetings to try and get employees to invest into the company because it's making so much money and is such a good investment; tells employees they made no money at bonus time. Both somewhat true with the right "math".

 

[hoos30]

Discounting xb1 R&D costs, I'd take this report with a huge grain of salt.

 

[Mael]

It could be that Mattrick left because he was not going to be CEO. Guys like that do not take lateral moves well, nor do they take a demotion (same title but reporting to someone lower than the CEO).

They guy at the head of the fucking Windows division got shuffled around, that guy certainly had more to show for his work than anything Mattrick ever did.
And on another note, Mattrick leaving could be seen in the same light as Elop (not so friendly takeover), then again Zinga...
And the timing doesn't make it look like he left of his own will either, then again it may be bad timing.

 

[$h@d0w]

Discounting xb1 R&D costs, I'd take this report with a huge grain of salt.

Tell that to the investors receiving it on their desks right now.

 

[Bradach]

Here's an excerpt from Microsofts FY13 financials (year end 30 June 2013)

If we remove $2bn (android patent revenue) from the revenue total we're down to $8.165bn revenue minus costs of $9.317bn we have a loss of $1.152bn.

I'm not sure where he's getting the $2.5bn loss of which $2bn he attributes to xbox.

 

[ShapeGSX]

Sony isn't spending 500 million on an NFL deal.

Neither is Xbox. That was a Microsoft-wide investment. There are Surface ads all over NFL stadiums on game day.

 

[Mael]

Why is everything negative concerning Xbox taken as gospel now? Since when do we take an analyst's estimations at face value?

You're basically saying that the guy who handled the financial side of MSFT when it went public doesn't know a thing about MSFT's finances....

This isn't Pachter claiming that a Wii HD is coming guys.

 

[Nightengale]

Why is everything negative concerning Xbox taken as gospel now? Since when do we take an analyst's estimations at face value?

When an analyst has the following credentials:

- top-ranked software industry analyst for 20 years
- 25 year in Goldman Sachs
- point person for MS during his tenure at Goldman Sachs
- long-time friend of Bill Gates
- long-time analyst of MS from IPO till today

This does not mean he's right in absolute values, but he's not some no-name analyst making predictions on when Apple is going to announce their TV.

 

[JimiNutz]

Shit would be bad if MS jumped out of the console race.

Surely Sony are likely to be forced out first? They are in a worse financial state and MS know that whoever hangs in longest is likely to end up dominating with no competition?

 

[EGM1966]

This article never specifically calls the Xbox group a loser, just the division that houses it. It also doesn't even mention the Surface which falls under Entertainment and Devices.

This is basically old news except for the Android royalties part.

Not how I read it - the article stated around $2.5 billion loss for the division with about $2 billion probably due to Xbox : seems pretty explicit.

Seems the analyst is credible and knows MS very well too which is telling. The following piece seems to fit with some of the investor rumblings reports already:

Sherlund believes Microsoft needs to spin out Xbox. He sees it as an orphan group at Microsoft that doesn't really fit with anything it's doing. Investors are blind to Xbox's struggles, says Sherlund, because they are "concealed by the hugely profitable Android royalties."

If this is true no wonder MS caved in and 180'd everything. Given they upped deal for TitanFall I'd guess they're not quite ready to bail out yet - but if PS4 does better than XB1 and current trends continue to make the idea of a single device that "owns" the living room access to services, etc. redundant you have to wonder if MS really will stick with Xbox particularly a new CEO who will want to make changes and show he's making the company more profitable.

 

[harSon]

When an analyst has the following credentials:

- top-ranked software industry analyst for 20 years
- 25 year in Goldman Sachs
- point person for MS during his tenure at Goldman Sachs
- long-time friend of Bill Gates
- long-time analyst of MS from IPO till today

This does not mean he's right in absolute values, but he's not some no-name analyst making predictions on when Apple is going to announce their TV.

And? Having an in depth past with the company, that ended back in 2006 when he left, doesn't make him Nostradamus in 2013. He's been grinding his axe regarding Xbox and Bing since he joined Nomura.

 

[IvorB]

Okay now I am actually starting to feel bad for MS. This is unbelievable. Let's lay off the MS bad news for a while; just a few days maybe. Can we?

This is quite huge if true. The accepted wisdom has been that Xbox makes money but now this. How so? What could be draining the cash?

 

[Portugeezer]

Surely Sony are likely to be forced out first? They are in a worse financial state and MS know that whoever hangs in longest is likely to end up dominating with no competition?

I thought the PlayStation division was pretty stable?

Xbox $2 billion loss sounds too much to believe.

 

[NoMoreTrolls]

Rare's X360 titles have sold (extremely roughly!) around 10 million copies, correct?

That's $600m gross return on a $500m investment over a decade. 2% return a year. If every copy sold at $60, everyone at Rare worked for free, MS got every penny of the at-till price, and no offices needed to be maintained, then the investment in Rare would be worth slightly less than holding bonds.

Holy shit. I've never seen that broken down.

 

[Curufinwe]

He's been grinding his axe regarding Xbox and Bing since he joined Nomura.

How dare an analyst suggest that a company divest itself of money losing divisions.

 

[Nightengale]

And? Having an in depth past with the company, that ended back in 2006 when he left, doesn't make him Nostradamus in 2013. He's been grinding his axe regarding Xbox and Bing since he joined Nomura.

It means he has credibility. Like I said, it has no absolution, but it means he's not Gene Munster or Michael Patcher, of which their analysis can be taken with a finer grain of salt.

 

[harSon]

I thought the PlayStation division was pretty stable?

Xbox $2 billion loss sounds too much to believe.

It is too much to believe. If Microsoft isn't profitable with the Xbox right now, then it's damn near impossible to be profitable as a platform holder.

 

[Raist]

Rare's X360 titles have sold (extremely roughly!) around 10 million copies, correct?

That's $600m gross return on a $500m investment over a decade. 2% return a year. If every copy sold at $60, everyone at Rare worked for free, MS got every penny of the at-till price, and no offices needed to be maintained, then the investment in Rare would be worth slightly less than holding bonds.

MS doesn't get 100% of MSRP back per copy sold...

There's VAT in most countries, and retailer's cut. So 40 to 50% of MSRP is gone already.