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Analyst: Xbox "generates" $2 billion in losses for MS. Hides it with patent royalties
- Thread starter ekim
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Banjo-Kazooie
Member
Okay I assumed you made a typo, couldn't be sure though...I agree with you now then
.Grampa Simpson
Banned
They have tonnes of money and tonnes of cash. Windows and Office are their business. Most businesses buy a copy of windows and a copy of office for each one of their employees. This survives as long as the laptop/desktop form factor survives for business.
The current trend now among large IT departments is to no longer buy a computer for a user, but buy a dumb terminal (that runs windows) that knows how to connect to a windows instance running on a server under Xen, helpfully sold to them by Citrix.
Windows and office are entrenched, and are unlikely to go anywhere.
Microsoft is however facing a few scenarios that they don't like.
The tablet computer is not controlled by them. They've made inroads there in the last year, but it's expensive, and they're not getting much of a foothold. If tablets take over, and they're an entirely Apple/Google ecosystem, then Microsoft is out of mainstream home PC market. They're left with the Business and Enthusiast market.
SteamOS is not controlled by them. If it takes off (and Valve is very good at playing the long game, so it very well might after 4 or 5 years) it could undermine the enthusiast market for them the same way that Sony's Playstation undermined it for them many years ago, but more so.
Microsoft wants to be in as many markets as they can. They want to be diversified, and for them it's worth blowing billions.
ThoughtsOfSpeaking
Banned
And by "a lot of momentum" they mean. "More than previous levels of sales" right?
Thats my thinking. It wont be enough just for Microsoft to keep pace with Sony (which is up in the air worldwide).
Im think these investors are only going to turn around on Xbox if it starts selling pretty unprescidented numbers for a game console. Like 20 million in the first 2 years.
I just dont see that happening with such a strong Sony.
MaulerX
Member
I fail to believe this simply because it doesn't make sense. It was only recently (maybe two years or a bit longer) that Microsoft started these Android patent deals and they've been doing it one company at a time. So coincidentally the Xbox division started hemorrhaging 2 billion a year around that time?
It costs money to establish yourself as a brand in a crowded marketplace, When Xbox debuted it was against Sony, Nintendo and Sega, the install base is growing to a point where it will be profitable, MS have said they can see 1 billion net gen consoles being sold as they think that next gen consoles are going to be must have media boxes to control the living room and they want windows controlling the living room, not android not sony not iOS.
They're in it for the long game and they think it's going to pay off this generation, hence the NFL Deal the snapping the HDMI in and the Kinect, this generation is make or break for Microsofts strategy which was originally:
Gen 1: become a brand
Gen 2: compete
Gen 3: Dominate and expand the market.
We are between Gen 2 and 3 right now and MS have done a great job so far, but iPads stole the market away.
ThoughtsOfSpeaking
Banned
And by "a lot of momentum" they mean. "More than previous levels of sales" right?
Thats my thinking. It wont be enough just for Microsoft to keep pace with Sony (which is up in the air worldwide).
Im think these investors are only going to turn around on Xbox if it starts selling pretty unprescidented numbers for a game console. Like 20 million in the first 2 years.
I just dont see that happening with such a strong Sony.
Edit: Scratch that. I had no idea the PS2 had been such a beast. Selling almost 20 million in its first year. If the xbox one has that kind of success, its safe to say this would not even be considered by investors as a divison to drop.
bleachrude
Banned
Except that his numbers don't make sense and no, you don't actually need to be an analyst.
How can Android royalties be covering for Xbox if MS wasn't getting Android royalties until the last couple of years? That\s honestly where I'm having trouble understanding his position
His opinion is that they are the best moves for MS shareholders (although it seems to be focussed on the short term) His opinion is biased because he believes that Microsoft will be better off diminishing the influence of Steve Ballmer. Now that may or may not be true and it is his job to work it out but is not an objective statement.
He also talks to shareholders and gauges their moods and preferences. Analysts are never the catalysts for big changes but they disseminate the preference and feelings of big stock holders and where they agree will justify them with numbers
Without access to the full report it is hard to either justify or refute the numbers because they don't tally against what Microsoft have publicly filed meaning he has either added or removed a layer of abstraction with informed estimates or guesswork. The statement that Xbox is losing $2bn a year seems hard to verify and doesn't reconcile with current MS financials.
What isn't in doubt in my mind is that Xbox is a candidate to be spun off, it seems to be a clear target of investor disquiet as it is not a core business and it doesn't have the growth ceiling that mobile has. Paul Allen's investment firm railed against Xbox. Maybe Xbox would be better as its own company as many gaming industry insiders have more than hinted that some of the compromises on the gaming side were made with a focus on Microsoft's overall strategy.
Isn't a couple years ago also when Kinect launched, R&D for Xbone seriously kicked in, and we started getting $150 holiday Xbox deals and timed exclusive CoD content to combat a newly-effective Sony?
EDD has always been a business of huge mystery inflows and huge outflows. The only thing we're really debating here is whether Live and aggressive hardware cost-cutting was keeping the division in the black or whether it's patent royalties and Live.
sixteen-bit
Member
DataStream
Member
There is a lot of analyst FUD going around right now as institutional investors try and get their say in the future of the company during this CEO transition.
semiconscious
Member
yeah, this. nothing inherently wrong with ms' gameplan. it was rolling along pretty effectively. but then the world changed...
well, that, & what's turned out to be, of necessity, ms' overly us/uk focus. i'm not so sure that becoming the 'all-in-one tv box of the world' was ever a very realistic ambition...
NervousXtian
Thought Emoji Movie was good. Take that as you will.
The FY13 numbers are out, no way the Xbox division lost them 2 billion. You'd have to assume then that Windows Phone and Surface made a profit?
Ahh, you changed your quote. Bing is part of online, not EDD.
MaulerX
Member
It's impossible for Microsoft to have been getting 2 billion a year from Android from the get go, if that's even right. They did not sign every company at once. Numbers seem wonky.
NervousXtian
Thought Emoji Movie was good. Take that as you will.
Well, big MS investors don't like the Xbox division because it's high cost & low returns.
Take a look through financial statements.. even when the Xbox is making money, it's a paltry amount compared to the investment made. They spend too much money to make money.
Investors would rather them focus on their core business that turns high profit margins.
As long as businesses use Office MS will be fine. Even with a lot of corps opting for XEN desktops, you still need Windows & Office licenses for those. MS biggest challenge right now it getting Surface Pro type form factors to catch on to stem the PC losses. And the road to getting there might be getting easier with the new Intel-based processors but they might also need to kill the Surface line as a gesture to their OEM partners who hate the fact that MS is encroaching on their market.
But MS as a company is not going any where. They are well situated to continue their OS/Office dominance. Investors just care about the other divisions cannibalizing on Windows & Office profits. For the record, like it or not Windows Phone is here to stay along with Skype. Bing is probably on it's last lap but it's crucial to Xbone, i say where ever Xbone ends up is where Bing ends up.
But MS as a company is not going any where. They are well situated to continue their OS/Office dominance. Investors just care about the other divisions cannibalizing on Windows & Office profits. For the record, like it or not Windows Phone is here to stay along with Skype. Bing is probably on it's last lap but it's crucial to Xbone, i say where ever Xbone ends up is where Bing ends up.
The Omega Man
Member
An eyeopener, many people believed including myself that the Xbox division was profitable, but not even in my wildest dreams would I have thought that they were bleeding so much money.
Galactic Barret
Member
With all the moneyhats, advertising, RRODs and R&D, its hard to not believe this is accurate.
bleachrude
Banned
But his numbers make no sense..
Yes, yes. He's friends with Bill and he "knows" people but the 2 billion a year figure is literally impossible. 2013 FY would show that and it clearly doesn't and MS only started getting those royalties relatively recently (Android has only become huge in the last 4-5 years). Seriously, for those believing this as a truth fact, can you explain how Android patents were covering Xbox losses in 2006-2009 when Android was still a blip in the market? You don't need to be a business major to figure out that his statements require time travel.
DataStream
Member
I am just saying that there seems to be some creative math going on to further the case in this analysts article when the reality is more in line with what you are saying. I agree there are plenty of large investors who feel that way, though I'm sure there are plenty who feel the opposite as well.
I personally don't see how MSFT can backdown from this strategy. With the trend towards BYOD and free services offering much of their core competency I think investment in maintaining consumer mindshare is extremely important. Enterprise software is ripe for disruption and IT spend is going to look very different in 10 years when the people who are taking over CTO positions are individuals who grew up in the internet age.
Killing_Joke
Member
Would not be surprised if they leave the HW business sooner or later.
-Losing billions of dollars
-Shareholders want out
-No gamer execs like there was with XOG/360
-Possible chance of low sales
Don did a great job at fucking up the division. Then again X1 can sell like gangbusters and everything will be ok. Who knows.
-Losing billions of dollars
-Shareholders want out
-No gamer execs like there was with XOG/360
-Possible chance of low sales
Don did a great job at fucking up the division. Then again X1 can sell like gangbusters and everything will be ok. Who knows.
AranhaHunter
Banned
What exactly is a cross licensing deal? If MS could get to them I believe they would have already.
But if Moto has such a huge portfolio that it can protect yourself, why isn't google using that to stop MS from getting royalties from other Android OEMs?
Google might have no option but to go after MS because MS' consortium is going after google for the nortel patents, which includes ads that appear on search results.
Cow Goes Moo
Member
you can't buy brand power, xbox has that
when you spend 100 million in research and development for your controller and it still uses AA batteries yes there's something wrong there
just to add as much as I dislike them I would be disappointed if they left the market the competition between them and Sony has only been good for consumers
just to add as much as I dislike them I would be disappointed if they left the market the competition between them and Sony has only been good for consumers
Mass Effect
Member
So the question is, what happens if this strategy fails? Do the investors finally say "get rid of it [the Xbox division]" or do they try again or what?
What would be the more likely scenario in that case?
It'll be years before that happens.
That might be when they kicked started the Xbox One engineering work in earnest.
The Ead was profitable before Windows phone launched, before android royalties and before skype was purchased. To suggest its now all of a sudden gone from making hundreds of millions profit and propping up the entire division, to losing two bil a year is a fantastically imaginative narrative, but completely implausable. This guy's pushing an agenda, he's not stupid enough to believe the FUD he's coming out with.
Yup, thats absolutely the big question and thats why Im really interested to see who becomes MS CEO and how the Xbone does in the market this coming year.
Not that I think that a single year will determine the Xbones fate but if its wildly popular or wildly unpopular, it could swing decisions a certain way.
GregLombardi
Member
Profit, or lackthereof is an easily hidden thing. The numbers you see are many times misleading, the trick is getting to the truth.
Investors already want it gone and now the CEO has to find a way to change their mind and show that the Xbox division is important enough to warrant the time and money being put into it over other divisions.
famousmortimer
Banned
For all the talk of "nintendo is doomed" we hear... it seems pretty safe to assume that if either the xbox one or ps4 tank - that company is leaving the industry as a hardware maker.
Nintendo, on the other hand, will keep putting along.
Nintendo, on the other hand, will keep putting along.
Looks like Sony has not escaped...
http://www.digitaltrends.com/mobile/zte-android-patent-license-microsoft/
http://www.theguardian.com/technology/2013/apr/24/zte-android-patent-microsoft
A cross licensing deal is where one each party agrees to use the other's patents without fee.
Leaving consoles is possible, although I don't see it, but their handheld division is plush.
That has more to do with Nintendo solely being a game company though and the others have other products(which IMO are the cause of their current problems).
MS yes: they have a leadership change incoming and shareholders are unhappy.
But can you really say the same for Sony? Kaz was the Playstation guy before becoming CEO, and Sony is a consumer products company. And they've been at it longer.
I just don't see their situations as equivalent.
Nightstick11
Banned
There is no way Microsoft is staying in this industry. Now all their nickel-and-diming attempts to monetize every little thing makes sense.
I find it pretty hilarious that Microsoft and Sony were so busy staring at each other that they lost billions trying to "take control of the living room" or the HD-disc format wars, yet companies like Apple, Nintendo, Netflix, etc. swooped in from nowhere and wiped the floor with Microsoft and Sony in terms of profit.
There is no way the investors would want to keep the Xbox division around if these numbers are real. That is no way to run a business.
I find it pretty hilarious that Microsoft and Sony were so busy staring at each other that they lost billions trying to "take control of the living room" or the HD-disc format wars, yet companies like Apple, Nintendo, Netflix, etc. swooped in from nowhere and wiped the floor with Microsoft and Sony in terms of profit.
There is no way the investors would want to keep the Xbox division around if these numbers are real. That is no way to run a business.
The interesting question is if one or the other bow out; who will buy the remnants? Could you imagine if Valve bought up the remnants of the xbox brand and joined the console wars in earnest?
Shining Sunshine
Banned
Gold subscription to be 25k a month.
TyphoonStruggle
Member
Holy shi*. I know this is off-topic, but if this isn't blatant collusion then I don't know what is. So basically, if you're rich enough you can force out the competition.
If MS and Sony were both to fail, that wouldn't give Nintendo a "Get out of Doomed" card. It would mean the console business as we know it is doomed.
I could see them getting out of consoles if only to put even more focus on tablets/mobile/phones.
At this point I think the goal MS was after with Xbox is no longer achievable, particularly worldwide. The idea of a single entertainment hub is nonsense now I'd argue. The closest thing to that is your router - that's the single point of connection for the home now.
Most people will have many devices and routes to internet & services and TBH rather than a device for the future to me the XB1 looks like a device for a future that never happened - a curio in many ways.
On the other hand MS badly, as in really, really badly, missed the tablet/smart phone market and it clearly needs to be successful there way, way more than in home console market for playing games with some additional services as a plus on the side.
Smart TVs will only continue to expand in marketshare too, making the idea of firing up a console to access something like Netflix or HBO rather odd - not to mention a waste of electricity - vs just accessing the service directly from your TV via your internet connection.
Not that I think the XB1 is doomed per se, or that MS couldn't make a decent go of being in home console space - but I think it really could be argued that the value of Xbox to the company overall is starting to look iffy in terms of being of any real strategic value.
A lot, I believe, is going to hinge on the new CEO and how he decides to fix MS biggest issue, weak OS share in tablets/mobile : diverting resources/engineers and budget from Xbox - such as buying exclusive access to TitanFall - to allow greater bandwidth for tablets/mobile could look very appealing I suspect.
The sales and reception of the XB1 vs the PS4 will also be a factor of course, and I suspect in particular if the signal from the market is the main interest in such devices is first and foremost for games : if that's the case, and considering the huge 180 from the original direction for XB1, again it would lend weight to the idea of bailing out of a market that's not going in the direction MS want or is useful for them strategically.
Prince Vultan
Banned
Oh dear... so all that fan bluster about how much profit Xbox is making for MS I've been reading for the past gen has been bullshit?
Will be sure to keep that in mind for future reference
Will be sure to keep that in mind for future reference
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