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Microsoft Loses $177m on Xbox in Three Months
Albanach writes "The BBC News are reporting in this story that Microsoft's Home Entertainment Division has filed a submission to the Securities and Exchange Commission reporting a loss of $177 million for the three months to 30 September 2002. The loss comes on revenues of $505m for the division that manufactures the Xbox games console. Microsoft are said to be prepared to spend $2 billion funding Xbox live over the next five years, suggesting it will be some time before the home entertainment division break into the black."
They have said from the get go that they didn't care about losing money to dominate the market.. And they have taken some market share from Nintendo and a small amount from Sony.. But that number seems pretty small for a company with like 20 billion in cash..
*narf!*
We really need to redefine business loss. Microsoft didn't lose money. They knew ahead of time that they were going to be in the red on the Xbox. Not that I'm saying Microsoft is bad for following this practice, it's common practice in many markets.
I just don't think that purposefully loses should count like a standard lost. They know that this $177m they drop now, it's an expense. Not a loss. They will get it back, they are just taking credit out on their budget and getting the government to pay the interest.
Dacels Jewelers can't be trusted.
Who here thinks games consoles are profitable?!? The money is made from the games.
an abusive monopoly. No other company can just throw this kind of money away in this market. The only reason why people are not saying something is because Sony is actually beating Microsoft's stupidity.
Bel, the mostly sane.. "Of course I can't see anything! I'm standing on the shoulders of idiots." -- Me
XBox: Down.
Windows OS sales: Up.
Office Package: Up.
Pre-packaged units with retail machines: Up.
MSN Subscriptions: Up.
Mouse sales: Up.
Boo hoo hoo? Psh.
Informatus Technologicus
This is similar to how we report linux and windows vulnerabilities. When a windows vuln is mentioned, we bitch about the OS and its quality etc. etc.; when a linux vuln is mentioned, we downplay the potential risks, and then compliment the speed of patch/update/fix release.
Don't get me wrong--I love linux, use nothing else, and haven't for many years; this ridiculous attitude of most zealots is annoying, however.
i'm a (not so proud ;) ) xbox owner, and while i'm excited about various applications (sega's games, xbox live), the xbox is already #3 in this console war and will stay that way. the main reason is their DISAPPOINTING presence in japan (which is virtually non-existent). you simply can't win a console war without support from nihongo developers and users.
that said, i don't this MS really cares. for a first iteration console they've done well, and you can kind of think of xbox as a testbed for future MS consoles (especially xbox live). also, they only have some 50 billion left in the bank (oh, the convenience a desktop OS provides!).
my bet is that xbox2 will come out BEFORE ps3 simply because first-mover momentum in the industry has become more important. the ps2 is hard to develop for, but the installed base is NUTS so developers flock to the ps2. MS realizes this so i wouldn't be surprised xbox2 comes out by 2004ish.
smd4985
Yeah, I bet you must feel really sorry for poor little Sony. Big bad Microsoft has soooo much more money then Sony. Sony are just the little guy trying to make an honest buck.
Jeez, open your eyes people, Sony has much more of a monopoly over Joe Public's possesions than MS do. Sony can piss money away on a loss leader just as well as Microsoft can.
I expect that they will scale back their marketing a LOT as soon as they proliferate a base number of boxes, which was their entire objective anyways.
Besides, Microsoft was already planning for first year loses so it isn't like that this wasn't forseen.
How sad that on the day Microsoft launches Xbox Live, we have a story about how much money MS is losing on the Xbox.
The desire among the overzelous Linuxites for the Xbox to fail is palpatable at Slashdot. Just look all the posts advising people to buy a Xbox but not buy any games. Just so MS can lose money. Its pathetic and sad.
Go ahead and buy a Xbox, waste your time and install Linux on it. But I dare you not to play Halo on it (Game of the Year and a work of art).
I dare you not to plug in your Cat-5 and fire up Unreal Championship (released Today!). Oh! and when Halo2 is released later late 2003, please do'nt go and buy it. Leave it to the serious gamers.
The Xbox is a great piece of tech. Real gamers know it. Thats why in the states its outselling the GameCube (read linked article above).
Two words: Microsoft Office
Companies may be bitching and moaning about the cost of the new licensing system for it, but not many of them are actually switching to Word Perfect or OpenOffice/StarOffice.
Office productivity suite dominance is still MSFTs cash cow, and until major companies are willing to jump ship they're going to be pretty profitable.
I'm surprised that's even legal?!
Even if that's not a lot of money for MS, in Belgium it's forbidden to sell products for less money than you needed to produce it...
It's unfair competition.
If they put Playstation and Nintendo out of business because they don't have the money to use this trick, some American judge should finally see what MS is doing and give them a REAL punishment...
Is this really frontpage news?
:)
After all, M$ has repeatedly said that it is expecting to lose $2billion over the next few years, and has had to drop the prices od the unit a couple of times since its launch to shift the units. Plus, with the extra costs of constantly remodifiying the boxes to stop the Xbox-linux crowd etc. etc.
Microsoft has taken a big gamble by putting the amount of money that it has into the Xbox, and hopes that its unit will the THE home entertainment system of the future. It is common knowledge that they are banking on losing money selling the units to recoup their losses with the sales of games, but with the recent winning battles by the Xbox-Linux crowd, and M$ losing every 'closed box DRM encryption' battle so far, maybe its a gamble that will seriously cripple the company in the future....
Its going to be interesting to see how this turns out
-- 7 string electric violin + live loop samplers
To the extent that MS' video game division looks like it's bleeding money, it augers poorly - in Joe Public's mind - as to the XBox's future.
Where'd you get that idea? "Market and mind share", as you put it, may be a major part of the video game industry but they're not going to be affected much by accounting details.
'Joe Public Gamer" doesn't give a rat's ass what Microsoft's profits are. He cares about the games. He cares about what kind of reviews the xbox and it's games get on his favorite web sites (gamespot, gamespy, penny-arcade, etc..). When Joe Gamer goes to decide whether or not to buy an xbox or a ps2, the last thing he's going to do is compare Sony and Microsoft's earnings the past quarter.
Microsoft's success depends on them being able to keep the xbox in the spotlight long enough to get companies to make a lot of really good games for it (especially for xbox live). Their profits now don't matter. Public or not.
Aw crap, ninjas!
> It's amazing to me that MS is able to get away with the same thing without its competitors screaming more loudly at the US government.
What exactly are they getting away with ? Losing money isn't a crime.
There isn't one single corporation not trying to gain market shares by playing with prices, in order to increase demand for their products. Most companies also accept losses to parts of their operations in hope that the profits of others will more than make up for it. Selling X-Box at a net loss isn't a big deal if you can make up for it with the games, subscription fees etc. Gillette is practically giving away the razors, but the price on the blades borders to extortion.
I think your concern would be valid if in fact what Microsoft is doing is the de facto standard for the gaming console market; you start of selling the consoles at a huge "loss" (i.e. you write off the development costs the first years) and then you practically break even on them. Sony isn't selling PS1 at a loss now, I assure you. But the main income is the games. Microsoft gets royalties for each and every title, without them having to lift a finger. Of course they can afford to get rid of the consoles at a loss.
Oh, I can't help quoting you because everything that you said rings true
As the story at the Register points out, any other business with ventures losing money like Xbox and MSN would kill them off as clearly bad business decisions.
A company willing and able to sustain hundreds of millions of dollars poured down a holes that are peripherally related to their core business of PC software, for years at a time, is crazy.
A company willing and able to do that against large, established business like AOL/Time Warner and Sony is downright scary.
A normal business, run to increase profits, would look at the margins on Office and Windows and simply jack up their prices. It's an iron-clad guarantee to increase profits at MSFT. There is virtually zero price elasticity of demand for Windows and Office and MSFT management owes it to their shareholders to optimize profits by taking advantage of their stranglehold on the market.
[Note: I don't own any MSFT.]
"Provided by the management for your protection."
If they spent $500 million on marketing, that would have bought approximately 2 million machines completely. Why not give out a million and a half machines free, then you have a market share already, and then you get games guaranteed. Of course I'm not in marketing, but if somebody gave me a free game system, I'd be very willing to buy games (probably a lot) to play on it.
Not quite sure about Nintendo but Sony sells at a loss as well. It's part of their bus. plan. All the money is "earned" from the software.
(Sponsored by cheeseSource for President 2012)
Yes, I know that, but maybe the US should implement such a law...
If a huge company like that just spends tons of money on a certain product, and sells it a lot cheaper than it's competitors (who need to make profit of it) the competitors will be out of bussines. Wich isn't only bad because a lot of people will loose their job, but this way the big company can make his product a lot more expensive and there would be no need to improve it significantly...
Oh sure they're selling consoles at the nice, cheap price *but*... ...does X-Box have Vice City?
Despite Microsoft's attempts Sony is really keeping its grip on the console market. People are still choosing PS2 over the technically superior X-Box - why? Because PS2 has the killer apps, and that's really what counts.
Comment removed based on user account deletion
You are missing the point. If I start a company tomorrow it will need some capital to get going. There very, very few businesses that you can go into and start producing and selling immediately. There are even fewer businesses that you can enter and make a profit instantly. Most new businesses lose money for a time while they make capital expenditures and get their product developed and marketed. These new businesses also have to get funding from their founders, investors, family, or whoever. So really, there is not much difference between MS taking a loss in a new market like video game consoles and me starting my own console company and losing money.
That being said, there are laws in the US against price dumping. Price dumping is intentionally undercutting your competition to put them out of business. I believe it is pretty hard to prove. However, in the console market, MS is certainly not undercutting b/c they are still higher priced than Nintendo and the same as Sony. Microsoft has been forced to this price point by competition.
used by cash-rich companies against cash-poor competitors. There's really nothing unusual about it except that it's Microsoft. Take Blockbuster video and Hollywood video, for example. When they try to crack a new market (region), they basically do the economic equivalent of carpet-bombing. They open stores every TWO BLOCKS in some cases. The reason is: even if there's a mom-n-pop video store only a mile away, they want to make sure you walk/drive past three of their stores before you reach their competitor. If they divert enough customers, their competitor goes out of business. Then, they close down their excess stores, because they've been losing money like crazy by having way too many stores in a small area. But in the long-term, they make money, because without competition, you can charge whatever you want and make it all back.
Much as MS abuses the law in many many other areas, this is just a (shitty) business practice you see every day.
Wrong. I'm saying the government shouldn't subsidize project losses in a profitable company. The full $177m should come out of MS's piggy banks, and I'd bet MS isn't paying much.
You're missing the bigger picture here. I'm assuming that you're referring to be able to write off losses from taxes (which is the government letting the people KEEP our money, not the government giving back money, subtle but important difference). The purpose of writing off losses is to promote economic growth.
You seem to have some need to punish success, but the purpose of government is to serve the people, INCLUDING Microsoft. If Microsoft is successful with XBox, that means more American jobs are created at the expense of jobs in Japan. This is exactly what the American government should be doing.
Sometimes it's best to just let stupid people be stupid.
No its not legal.
America has so called anti dumping laws.
However they get only applied if a non american company tries to sell for dumping prices inside of the US.
E.g. Korean car manufactors selling 30% cheaper than US car manufactors or VCR crafting companies regulary got a punishment import tax.
The US puts taxes at will on any kind of product if they think their own industrie soffers from forreign laws. E.g. genetic manipulated Soja needs to be noted as incridience in european food(by law). Europeans as majority do not buy genetic manipulated food. Feeding animals with genetic manipulated food is not allowed, as it gets to difficult to prove its absence in the final products (like ham). Result: US is threatening europe with a tax war since years just because Soja sales droped in Europe.
However: what is legal and what not, all over the world, is final descided by a US court.
Silly situation.
angel'o'sphere
Cost free eBook I read (by iBook/Kobo/Amazon/ObookO/Gutenberg etc.): "The Green Odyssey" by Philip Jose Farmer.
Keep it open, stupid
This directly opposes Focus on getting better games. While one or two good games might come from Joe and Tom working in their bedrooms for 8 months straight, most of todays games are massive efforts and the cost for playing helps to ensure that only those who are truely serious will play. Don't get me wrong, I'd love to get my mitts on a dev kit cheaply, but games today are way more complex than the average person/small team can effectively deal with.
Manufacturing Xboxes that defeat region encoding and macrovision with small modifications would cause sales to skyrocket
Me thinks that your definition of "skyrocket" and M$'s definition of "skyrocket" might be orders of magnitude different. Who in the US (general game playing population) gives a flip about region encoding? Sure, beating Macrovision might be interesting and sell a few more boxes, but it's a GAME BOX, those features have no interest to GAMERS. This is especially accute concerning M$, since even as you mentioned they have made little inroads in Japan, and after all, isn't getting those hot Japanese titles months before they come here one of the primary reasons that the hardcore gamers care about region encoding.
Microsoft needs to switch to AMD or Transmeta chips, which pack more power for the buck, run cooler
Uh, which AMD chip runs cooler? Which Transmeta chip packs more power for the buck? Do you know the details for M$'s agreement with Intel to know if they could truely save money by switching. Could the other two companies afford to offer prices as low as Intel could?
Also, this will allow them to use cheaper graphics coprocessors by using a cheaper, more powerful main CPU
Isn't this bucking the trend? Aren't games systems moving towards ever more powerful graphics subsystems with modest increases in cpu performance. Sony gets away with using a ~300mhz (IIRC) cpu, I don't think that the console makers are too stressed out about raw CPU performance.
but if Microsoft takes these suggestions, their Xbox division will be well on its way to profitability
They need to produce better games than Sony and offer the user a better experience for the buck and most importantly, they need market share. The power of the last point is elegantly illustrated by Sony. PS1 was the market share (though long money losing) vehicle that allowed Sony to start cashing in once PS1 was established thus smoothing the road to much quicker profitability on PS2.
It's all an investment.
How much do you think Microsoft lost on Internet Explorer through its first three or four versions?
How much did that end up costing Netscape?
Of course, even taking the dynamics of the bubble into consideration, Sony has much deeper pockets than Netscape ever did...
Eloi, Eloi, lema sabachtani?
www.fogbound.net
EVERYBODY does this, especially Apple. How many times has the "They're supported by hardware sales" argument been invoked against x86 OS X here? How much do you think Apple is losing on the iApps or movie trailer hosting? How many other companies are shelling out for research that won't bear fruit for another few years? This is perfectly normal corporate gambling, except that MS is doing it in the market instead of the lab.
The dynamic you are talking about is NOT due to MS being a monopoly. It is because MS has more than one product line.
If Pepsi has a bad year, they still get to rely on taco bell, pizza hut, and doritos to make it through the year. Thats not a crime, its called diversification.
Sony does the same thing, they have TVs.
You don't think MS could go to IBM, Intel, AMD or any other manufacturer and wave money in their faces, and get them to design a new processor from the ground up?? And while I'm responding to your post, how is Sony going to IBM an example of *sony* innovating? IBM is doing all the grunt-work...
"Money talks..."
Here's the crime:
Windows: $2.48 on $2.89revenue = 85% margin
Office: $1.88 on $2.38 revenue = 78% margin
Servers: $.519 on $1.52 revenue = 35% margin
<fact>I know a lot of companies that would literaly kill to get those kinds of margins!</fact> <sarcasm>But certainly windows is a bargain at their prices.</sarcasm>
THIS SPACE FOR RENT
Otherwise Sony (being the only vertically integrated of the three companies) would be the only one able to sell their console at a low price.
Look, I hate MS as much as anyone, but romaticizing Sony or Nintendo as good guys is a pretty biased view.
If people really cared about the good guys winning the console war, people would've bought more Dreamcasts. Since they didn't win, you just have to go on which one has the games you want.
Besides, we're not talking about Wal-Mart selling drugs below cost to drive the local competition out of business; we're talking about a "give the razor, sell the blades" pricing model here.
There's a world of difference.
Scott
They are pouring money into several divisions because of long term strategies, not for immediate profit. Their goal is to build dominance in these new (for MS) areas, regardless of whether they make money on it now or not, by spending extreme amounts on marketing etc.. In other words, the losses in those divisions are so big because MS can easily afford it, and they think it will be a worthwhile investment in the end.
MS is required to post a financial report by the SEC. The SEC defines how often this has to occur (2 times a year I think). If your business plan lasts longer than this period you are going to post short term losses and gains that have no meaning outside the larger context.
If I open a new comic book store, I have to pay 1st months and last months rent (2x rent), Buy shelves, inventory, register, computer, business license, phone installation, internet installation, website setup costs...
Now I start to sell comic books at the going rate. Can the comic book store up the street call foul because I'm operating in the red at this very moment? I won't have all that start up stuff paid off within the next 6 months (when a public company would have to file a financial report). I won't have it paid off in a 12 months. I'll be lucky to be operating in the black in 18-24 months. I'm not cheating, I just have a business plan that lasts longer than the SEC filing period.
=Shreak
I respect the fact that MS is showing a willingness to nurture their product for the long term rather than giving up at the get-go just because it failed to change the playing field over night.
**>>BELCH
Sure, MS could ask for a new chip, but they won't. As I mentioned in the original post, part of their leverage is the fact that DirectX and other specific x86-related development environments port over to the XBox so easily. Developers, developers, dev... [ducks]
Sony is cooperating with IBM on the chip design. IBM has the fab plants necessary to make Cell chips in the amounts Sony needs. IBM can leverage some of Sony's R&D. Seems like innovation to me.
Besides, they're not going to turn away from all the legwork they've done to get Intel and AMD 'Palladiumizing' their CPUs. Particularly if the next XBox is a 'convergence' device that downloads movies and other media. The temptation to crack into what is essentially a PC will be great for many users.
If Jesus wants me it knows where to find me.
Common, if you're gonna hit microsoft on this practice, you're going to have to hit Nintendo, Sony and the late-great Sega on it as well. They all sell their consoles at a loss in order to hit the consumer's impulse buy range. The only real difference here is that Microsoft has deeper pockets with which to do this with. It gives them the ability to market superior hardware while hitting the same impulse buy zone. And yes, it also creates hideously large loss numbers.
As for putting Sony and Nintendo out of business, somebody really isn't in touch with the real world. First, the XBox is nearly dead last in console sales. That differential will decrease over time, but unless Sony and Nintendo do something incredibly stupid or MS incredibly brilliant, that's not likely to change in this round of the console wars. Second, Sony is a big boy. It has a diversified market beyond gaming. Their products have global reach and ideal penetration within their respected markets. Sony isn't going anywhere. Nintendo, on the other hand, has a far smaller foundation and hasn't exactly been making stellar decisions as of late. They haven't had a great console since the SNES, and the Gameboy is STILL their principle source of income. They're more likely to kill themselves off rather than be a victim of any MS "dumping" campaign that everybody else also seems to be engaged in.
But it's just another day in the anti-MS neighborhood, I guess...
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Well--- Who is ignorant on genetics?
;-)
The genetic molecules really are the blueprints for the enzymes, antibodies, and other protiens that build every facet of the food. And BTW, I don't buy the ecological argument against GMO's but I so think that there is a public safety issue.
For example: Some people are alergic to peanuts. The allergy is actually a reaction to certain protiens in the food itself. These protiens are built based on the structure of the DNA (DNA -> RNA -> protiens). Now if you take the gene responsible for this allergy and move it to say, corn because maybe you get better pest resistance, what happens when someone eats a piece of cornbread and dies of the allergic reaction? This is the fundamental public safety issue. If it affects, say one person in 500, that would have a minimal ecological impact, but the public safety issue would be pretty severe. Basically one could no longer controll allergies well by avoiding certain classes of foods.
The other argument against GMO's in food is an economic one-- companies like Mon$anto are trying to proprietize what is fundamentally a commodity market-- food. They want to license the food to farmers, particularly in the third world. In this way, they seek to controll the very food supply we all depend on, and that is a very dangious issue too. The battle against GMO's is the same as the battle for open source software.
Which is why I am all for Linux on the XBox
LedgerSMB: Open source Accounting/ERP
"Documents filed with the US financial watchdog show that Microsoft's Home and Entertainment division, which includes the Xbox, lost $177m (£112m) in the three months to 30 September.
"The documents also reveal that five of the seven divisions of the company are operating at a loss. "
Could you possible sensationalize this article anymore? "XBox falls from orbit, kills wife and kids!" The XBox did not lose $117 million. The Home and Entertainment Division did. Not only that, Five other divisions of Microsoft are also operating at a loss, not that those deserve mentioning.
Jeez, Taco, can't you screen these articles just a tad bit better?
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