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."

Comments

Is this like a movie company's "loss"

[The Evil Couch]

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.

Ooze on over to infest the next marketplace

[Rader]

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.

Standard Oil

[Bonker]

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.

Re:Only $177m? Who cares?

[blaine]

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.