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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."
Of course... This could be an accounting tactic to allow them taxbreaks on their losses.
or is there something actually legitimate about this? Granted there's stiff competition in the home console market, but MS was throwing consoles at people in hopes that they'd recoup their losses with the sale of games. to hear that they're losing money with game sales seems odd to me.
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This is of course, how Microsoft takes over a marketplace. They are eternally funded, and can oulast anyone.
They'll chip away at Sony and Nintendo's profits until even these successful companies can't make a profit.
I wonder why they're trying to pull out of the DVR market. They say that there's no money in it. Maybe. I thinks that maybe it conflicts with their DRM agenda.
Which is exactly what France Télécom did to introduce the Minitel. They gave away the terminals and charged for the services. The Internet in France still hasn't managed to do better in terms of market penetration.
Virtually serving coffee
One of the tactics Standard Oil would employ was to sell oil and petroleum products well below cost, absorbing the loss for the sake of driving competitors to the point of ruin, and then buying their ruined competitors' assets.
Sony is a strong, powerful company. Nintendo is slightly less so. I think, however, that if you were to do a direct comparison, Microsoft has the ability to lose more money and stay solvent for longer than either Sony or Nintendo.
This tactic was found to be in violation of the Sherman act when applied to Standard oil. 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.
The next Slashdot story will be ready soon, but subscribers can beat the rush and slashdot the links early!
You know, I always hear the argument that, although Microsoft's products are arguably poor, their superior business practices (whether legal or otherwise) keep them financially on top.
One interesting thing in the article is that several of their divisions (mobile divices, xbox, msn) are consistently losing money.
So, is Microsoft as a company really good at business strategies? It seems to me that the "$3.5 billion profits from its operating system and software divisions in the quarter" are what keeps it afloat. I doubt any other business could fail quite as much as Microsoft and still survive.
What are you a former AA employee? Did you work on the Enron account?
If expenses > revenue = LOSS
If expenses < revenue = PROFIT
It is that simple. This playing stupid accounting tricks is one of the reason the stockmarket went down so much. The investorers could not trust the numbers the companies where giving out.
That's right - IE is included "Free" with your $299 licence for Windows XP.
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Sorry, I'm only a 1336 h4x0r.
Wow thats kinda the attitude that Sega took. Both Sony and Nintendo MAKE money on their consoles.
The more I learn about science, the more my faith in God increases.
AFAIK it's perfectly legal here.
They make a huge profit on the games, so maybe that's a loophole or something.
The simple answer is: Linux has killed the X-box sales.
Yes. Of course. That's the reason. Everybody that bought an XBox hacked it to run Linux instead of buying games.
Maybe they lost money because:
1) Couldn't break into key Japanese market
2) Expensive, generic hardware that lends itself to piracy (far more likely than, say, Linux use)
3) Ugly machine, shitty controllers (this stuff counts in the console market)
4) They had to pay to get third party developers (ie/ Bungie)
5) They wanted to combine PCs and consoles (in a fashion) but failed miserably on both counts
Obviously, they went in knowing they would lose money. They are losing money in other sectors too (ie/ MSN).
Robots are everywhere, and they eat old people's medicine for fuel.
were we ever wrong when we predicted that they'd take a loss to ensure that they dominated the market.... I mean... if we were any more wrong we'd be uh..... .. . .
...... er.... right on the..... money ... .. ??
Oh god, that woman is John Romero!
$2 bill investment by MS into anything should have a favorable impact on the [present/upcoming] economic recovery (both short-term and long-term).
I have to disagree with all the MS-haters on this one. Personally, I like the xbox, and if the $40 bill company behind it is pouring money into the economy (in one form or another), hurrah for them.
E -- I'm not an economist, nor do I play one on TV.
Actually you are incorrect. If Linux really took off on it the loses would be closer to double that.
They lose around 100$ a unit. Imagine a 100 or 200 unit rendering farm. That's a 10k lose for Microsoft. Multiply this by the amount of cheap businesses that would see this as a viable option.
Yeah, and with such underdogs as Nintendo and Sony in there, we should worry about the increased competition they'll have to face. God forbid they should be forced to lower prices and be competitive!
This is standard practice. To get into the console market, you have to build an installed consumer base. Nintendo did more devious things to take control of the industry when they entered the US market (although they did revitalize it after Atari went bust -- I'd highly recommend this book if you want to know more).
The console market is tough. Only well funded, resourceful companies stand a chance of making it, and currently the ones in the game are not to be pitied. They ALL can take multimillion dollar losses if necessary. This reflects on lower prices for the consumer and higher standards for games, which is how they will remain competitive.
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Overcaffeinated. Angry geeks.
I don't begrudge people their money and I'm not an anti-corporate type. MS may be evil, but not for simply making money. Still, it's good to put numbers like $2 billion in perspective. The state I live in has about 8 million people. We're facing a budget shortfall (two-year budget, compared to MS's five-year plan) of about $2-3 billion, and people are flipping out -- school funding may be cut, roads might not get fixed or else taxes are going seriously up. One can argue about the reasons -- like government spending way too much already -- and it's not really important to my point. I just wanted to give that figure a context: It's a statewide disaster. Or an investment in making a line of video game hardware successful. Take your pick.
MSFT knew they were coming in this console war in at a loss. Xbox was a chance to introduce themselves in the market and understand how the console market works. Maybe towards the end of the lifespan of the Xbox they'll make a profit. But, I assure you, they're already working on their next generation system.
Come their next gen system, they'll know what developers want to see, manufacterers, distributors, and customers. They'll butter up each one, and since each of them will know how MSFT operates, it'll be much easier for them the next time around. PS2 was initially infamous to be a developer's nightmare; new chipset, unknown intruction set, brand new stuff. But now people have gotten used to it, so it became easier with time.
Xbox operating in the console wars at a loss is a new buisness practice. It's not what other companies do. Sony can sell their hardware cheaper b/c that's what they are, a HARDWARE company. Nintendo knows what they're doing b/c they've been dong it for more than a decade. MSFT knows that once they get into the groove of things they'll start seeing profits, large profits. The Xbox is a chance to get their foot in the door.
In the UK the XBOX has now put itself as the number 2 console , ahead of Nintendo's gamecube.
Xbox wins race of the also-rans
http://www.guardian.co.uk/online/comment/story/0,
The reason why non American companies are the only ones ever caught for dumping is because countries like Russia and Japan have a tendency to go way overboard when it comes to dumping goods.
Look at what these countries were doing about 5 years ago with the steel trade. They were dumping steel at such a low cost that US companies like Huntco were getting creamed and having to shut down facilities. The cost of imported steel was so low that after paying to ship it over, process it, and then ship it to the location the imported steel was still way under US rates. The steel was at such a low price that it was almost like the foreign companies were giving it away.
It takes a while, and blatant dumping, for a company or country to get called for it. The steel dumping suits almost did not go through. Microsoft might be dumping their product, but dumping goes on so much that it wouldn't see the light of day. If MS was to be accused of dumping, they would have to lower the price to an insanely low cost.
MSN has never EVER made money. Microsoft is in the ISP buisness for the long haul, believing (just as most students do) that spending money now will incur future profits. Its no different at all. MS thinks that they can be in the "home entertainment" space, maybe branching x-box into a PVR, a satalite box, or something different all together.
It's not dumping. Period.
Microsoft, like every other game console producer, takes a hit on the console. It isn't to put the other guy out of business (though sometimes that's a benefit), but rather, to get you hooked on a specific console. After that, they recoup their loss on the games. After all, who buys a console and then never buys a game? The only significant difference here is that Microsoft is banking on turning the profit in an online system, rather than just games.
Last year, the Sheetz gas station near us was selling gas for $0.95/gallon, significantly less than what they paid for it. It wasn't to kill the competitor, but rather to get people in the habit of filling up there. The money they made from their food, drinks, and various items inside the store made up their loss and they slowly raised the cost of gas to normal rates. I fully recognize that, but you know what? I still shop there and I'm not the only one.
Uhh, no, if you read it you'd notice that of $175 they were making per console, roughly $120 was from the console itself. $55 was from software and accessories.
Sony is not stupid. They do not sell at a loss. Sega sold at a loss and is now defunct as a hardware business. Nintendo sold the Gamecube at a slight loss but most accounts have them as about even now. Microsoft has billions it can throw down the drain, and so it sells at a loss.
Also, just a FYI, when Nintendo sells at a small loss it is almost meaningless to them, and I'll tell you why:
When a game is sold for $50, maybe $20 of it is profit. Of that, typically the console maker gets $5, and the game producer gets $15. However, Nintendo is in a special position in that it makes most of the really popular games for it's own console. Thus, if they sell at a $20 loss (which is about twice what most people estimated), but you buy the Gamecube and a single Nintendo produced game (which I guarantee you will), they've broken even, because they get all $20 of profit.
Microsoft, on the other hand, does not produce the games. Therefore, even if you are nice and say they're only losing $30 per console (which is way below most estimates), they need to sell 6 games just to break even. How many people do you know who have 6 XBox games? I don't know any. Every person I know with an XBox has less than 5 games, and typically has bought a single extra controller. Every person I know with a Gamecube has at least 5-6 games and most of them also buy 3 extra controllers due to the number of good 4 player games.
Something tells me MS is the only company really digging itself into a hole in the console business right now.
-[Blaine]- "'Oh dear,' says God, 'I hadn't thought of that,' and promptly vanishes in a puff of logic."
I've seen several offers here in the UK of 'choose any 4 X-Box games and get a free X-Box'.
Coincidentally walked into my local mall games store today. X-Box used to have a small section (about half the size of the PS2 and a little smaller than GC) at the front of the shop. It's now been relegated to a dark corner right at the back.
On the first three or four versions??? Internet Explorer has never made a profit, only massive massive losses. Why? Because some starry eyed futurist over at Redmond HQ got scared that maybe oneday the web would become a kickass way of building applications. They were terrified that somehow, magically, the dire NS4 codebase would turn into an easier way to write apps than Windows was.
How much did that end up costing Netscape?
It cost them everything.
Rather amusingly, Microsoft made it a self fulfilling prophecy, by destroying Netscape the Mozilla project was born, and what have the Mozilla team done? Why, only gone and built a kickass applications platform based on web technologies! The irony is too great really, if they'd just left Netscape along the old NS4 codebase would never have been scrapped in the way it was, and today we wouldn't have XUL/XBL/RDF Templates and the rest.
Of course, even taking the dynamics of the bubble into consideration, Sony has much deeper pockets than Netscape ever did...
Yes, but these guys are playing with hardware, not software, and hardware is far more expensive than software - it's a similar situation but on a larger scale.
Dumping is discriminatory pricing based on what marketing you are selling in. For example, the Xbox sells for $200 in the US, and $200 (candian) in Canada. Since the Exchange rate is roughly $.63 (?) US dollars to Canadian dollars, Microsoft would effectively be selling for cheaper abroad (Canada) than domestically. The Association of Canadian Console Manufacturers gets upset that Microsoft is "dumping" in Canada because they are charging less in one market that in another. IT HAS ZERO TO DO WITH COSTS OF MANUFACTURING!
Why does dumping occur? It happens much more often in the United States because the US is the hub of the world economy. The US buyer (business or consumer) or has a better selection of goods than any other in the world. This results in more competition and LOWER PRICES. On the other hand, the importer's home country may have much less competition. Correct price setting theory for this importer should state then that they charges less money in the market with more competition (US) than the one with less competition (their home country). Thus, countries that have a higher degree of imports tend to see higher degrees of dumping.
Predatory Pricing is carried out by a company with monopolistic power to maintain or grow its monopolistic powers. Essentially a pricing strategy that reduces price below the manufacturing prices of its smaller competitors. Usually it applies in a case where a large, national firm is going in to drive a smaller, local firm out of business. The presumption is that the monopoly has lower costs than the smaller competitor. This really doesn't apply to Microsoft in this case.
A) We know that Xbox has higher manufacturing costs than Sony or Nintendo.
B) Microsoft is not a monopoly in the Console industry. If anything, Sony is.
Microsoft has one thing going for them-- a big war chest. This allows them to invest massive amounts of money ($2 billion) into growing their business. But, wait a minute, didn't Sony spend $2 Billion in Research and Development on Playstation 2 chip production?
How is this any different? I'll tell you... Microsoft has sold fewer units. Of course they're going to lose money per unit. They simply chose to account for R&D in a different way-- by paying chip (mobo and graphics card) manufacturers to take care of it for them. From a business perspective, not a conspiracy theory perspective, what they're doing is fairly normal for strategists who intend to get their product into every home in the US that has a television.
Microsoft is the only american player in the game.
Don't get me wrong, I'm just as concerned about M$ as the next guy, but it seems to boil down to buying my entertainment from either some big japanese company or some bigger american company. I'm no economist, but isn't it better for my nation if my money stays in my nation's economy?