Xbox Division Slips Back into Loss

Despite general news that Microsoft's revenues were up last quarter, the Xbox division slipped back into the red with a $164 million operating loss. From the article: "The operating loss in the division also dropped year on year, falling to $164 million from $204 million, which could be seen as very positive - but can equally be interpreted in light of the fact that the previous quarter, ended on December 31st, saw the division post its first quarterly profit since the launch of Xbox."

Comments

Here's what I think

[Will2k_is_here]

Recent sales are low because everyone is anticipating XBOX2. Why not?

Re:Here's what I think

[Rayonic]

"Recent sales are low because everyone is anticipating XBOX2. Why not?"

Because people play games and not machines?

Tell that to the Sega Dreamcast.

Re:Here's what I think

[shadowzero313]

I'd say it's because the only killer app for xbox in the last year or so has come and gone. If people wanted to get halo 2, they would have within a month of it launching. Those who didn't buy at launch were either convinced for it or against it relatively soon after, so now halo 2 is the same as most games for sales. Now that the big event has passed, the market for xbox games is settling back down into it's old behavior.

Re:Here's what I think

[ZephyrXero]

There are two reasons why Dreamcast "failed". They didn't have a DVD player and PS2 did (the first year of PS2 sales in japan were almost exclusively for the dvd functionality and not the games). The other, main reason it's no longer with us is the Saturn. The Saturn was such a horrible failure that it put Sega billions of yen in the hole. The Dreamcast would have had to be extremely popular to pull them out, but it didn't take off quite as fast as they hoped/needed. Since you usually don't take a loss on software, it was only natural for them to switch to a software only company. If it weren't for the Saturn, we'd probably still be playing new DC games and hearing rumors about its successor coming out this fall :(

Re:Here's what I think

[NanoGator]

The Dreamcast had a respectable user base when the PS2 came along, it was cheaper, and the graphics on it were better than what was typically shown on the PS2 for it's first and second generation games. Granted, it is doubtful the DC would have beaten the PS2, but if Sega had more money I bet you it'd most definitely be around today.

As for the DVD player, I agree that had a strong effect on getting the PS2 off the ground, but realistically speaking that is NOT what's carrying the weight of the system. I would be REALLY curious to see if the XBOX remote control that enables DVD playing was sold with a lot with the 1st year of its sales.

Frankly, I'm saddened by the death of the Dreamcast. It was the first real hardware I truely appreciated from Sega. The others really felt like they cut too many corners. (Well.. maybe not the Genesis. I didn't like that machine a whole lot, but by the time I came on board the SNES was out.)

Re:Here's what I think

[Bigthecat]

There is a third major reason: Piracy. It is well-known that the Dreamcast employed their GDROM system with a gigabyte of storage that at the time couldn't be burned by the home user market. Unfortunately, most games developers didn't actually fill their GDROMS, so one could be duplicated easily and burned to a CDROM. Add that to the fact that to pirate games all you needed was a bootdisk, no other modification, and the Dreamcast had a thriving market for pirated games. Having looked for a second hand Dreamcast not too long ago, I found that the majority of consoles selling either openly came with so-called 'backed-up' games, or a 'free gift' of hundreds of games. On top of the other reasons, the Dreamcast really didn't need this to kick it in the guts.

The console wars continue

[SpartanVII]

I guess they have priced themselves out of any profits. I bought my XBOX for $300 back in November '01 when it was first launched. At that time, those $300 got you the console and one controller. These days (last time I checked), for $150, you can get an XBOX, two controllers, and one or two games. The console wars have driven down the price from what used to be an arm and a leg to something much more affordable in an attempt to sell more and more units.

Re:The console wars continue

[StocDred]

If you're impressed by paying only $150 for all of that, imagine what $50 can get you in Sega Genesis equipment!

Xbox has been a financial struggle for Microsoft since Day One. The $150 bundles are SOP for all the consoles once we get a few years into every generation.

Re:The console wars continue

[Rousterfarian]

Sony makes profit off of their system at a nice healthy $149. They also outsell the Xbox each and every month.

Halo 2

[skyman8081]

Sales are low because everybody already bought Halo 2.

But not everybody's buying Turf and the other new map for said game.

Somebody doesn't understand seasonality...

[ComputerSlicer23]

but can equally be interpreted in light of the fact that the previous quarter, ended on December 31st

Okay, let me explain this to you. Christmas is the biggest, baddest ass time of year when it comes to retail business. I want to say like 35% of all retail business takes place in the month of December.

Game publishers try to get their best games out around Christmas seaons, because they know it's a great way to have a block buster game.

If X-Box has equalled the quarter that had Christmas during any quarter that doesn't have Christmas in it. Either they did something incredibly wrong during Christmas, or they did something incredibly right during the non-Christmas quarter.

There's a reason they seasonally adjust all retail numbers when doing economic analysis. It's because not all quarters are equal.

Kirby

Re:Somebody doesn't understand seasonality...

[dtfarmer]

If you assume that their growth continues at that pace, the xbox division will be consistently profitable in roughly 4 years.

So, nine years to become profitable sounds good to you? And how many more beyond that will it take just make back what they've already lost over the last ~5 years? (R&D began well before launch remember...) What makes you think that growth rate from one quarter's results will hold over 4 years? Is growth always positive, and if so, where's my Microsoft Bob?

It will be interesting to see how those figures change after xbox2 launches; they've got to be dumping a fair amount of money into R&D for that unit...

Interesting that you assume a) they will have no R&D after they launch (what, no xbox 3?) and b) the xbox2 launch will be immediately good for the bottom line (xbox1 launched losing an estimated $120-150 per unit sold, we have no idea about pricing for xbox2 yet, but you would hope they learned their lesson the first time around - luckily since they print their own money, they were easily able to shake off the losses unlike Sega)

Basically, this article comes as absolutely no surprise to me. In fact I basically summarized it over two months ago. $84 million profit in one quarter versus the billions lost in the others is not a win. Until E3 shows me different, I'll still be betting on MS to place or show in the next generation.

Re:Expenses developing the new console?

[xenocide2]

Well, they're not exactly one time expenses, since those are usually investments in hardware and machinery. This was more of an investment in Sameus Blackley, and as it turned out, he didn't think too hard about computers. Yes, PC hardware rapidly evolves, but that doesn't mean your parts drop in price because manufacturers will push performance up to make up for it. Somehow, MS and Sameus were convinced that PC hardware was on some other plane of commoditization compared to the console systems you're used to. They seem to have learned their lesson somewhat, with a general system design that basically sounds like what Nintendo called the GameCube.

The one thing that the X-Box did was inform the PC developers how shitty a gig it was. Developers took one look at the potential sales on X-Box, compared them to the PC and recognized the PC for what it was: a mismash of technologies preferred by early adopters and a market incapable of competing on price, even compared to the X-Box.

Pressure

[warmgun]

From what I understand, Microsoft's plan was to take a hit with Xbox so they could get a user base and then recoup their losses with a profitable Xbox 2 (360?). So this puts a lot of pressure on their next console. If it tanks, remains #2 or #3, or just has a lukewarm response (which is likely), I don't see why Microsoft would stay in for another generation.

PS I thought the Xbox was supposed to be the key to Bill's wet dream, convergence. What ever happened with that?

Re:Expenses developing the new console?

[bVork]

The Xbox did more than just convince some PC developers to start supporting consoles. The Xbox was the final thing necessary to push me over to gaming entirely on consoles. I was absolutely sick of the six month upgrade cycle you need to follow to run the latest PC games, and suddenly there were (nearly) all of the PC games I wanted to play, on a $300 console!

The one thing that worries me about the design of the Xbox 360 is the removal of what you mentioned as being a flaw with the original... the PC hardware. I wonder if we'll see less PC ports on Xbox 360 due to its hardware design. Personally, I quite enjoyed being able to play Morrowind, KOTOR and other ports on a $300 console rather than a $1500 PC. Sure, no port has been perfect, but I'll take a large amount of tradeoffs at that price difference.

But I guess the major thing, more important than the hardware, is the profit versus effort. Even if it takes more effort to port a PC game to completely unrelated console hardware, it will be done if they think there will be a profit. In other words, the sales will drive the amount of PC ports. I can only hope that PC-to-Xbox ports have sold well enough this generation to convince developers (or rather, the suits that direct the developers) to port their in-development titles to the upcoming console.

Re:Expenses developing the new console?

[FidelCatsro]

This is exactly why the Xbox is a problem for MS , They didnt sway many hardcore console gamers , They bit straight in to their own PC-Gaming market.
The Xbox to me is a console i could never understand , Its loud , ugly , large and is basicaly an x86 pc (which makes hacking easier so that is a plus ). It really featured non of the things i love about console gaming,Most of the A1 title games are PC ports or PC games in console form, oh and i didn't like halo.

This machine did not appeal to me , I am unashamedly a console gamer. I do my Pc gaming on Wine or native linux or mac and thats rare ,only for a few games really (morowind , NWN and UT(99,2k4))

Thus the Xbox held no appeal to me , I may be tempted to get an xbox360 as i could do with another ppc box to hack away at , The games i doubt will intrest me as they continue to focus on PC style games mainly i suspect .

The only money that has ever been in the Home console market has come from games , Hardware is near unilateraly a loss for companys (The other question i have strongly in my mind , is the xbox seems like MS abusing a monopoly to push into the new market).

Re:Microsoft had said this would happen

[justforaday]

...they don't expect to make a steady profit with the Xbox until 2007.

And since they've stated that they're EOLing it in 2007, I guess their ultimate plan is to NEVER make the xbox profitable. How did these guys make so much money again?

And people worry about Nintendo...

[Staats]

... but at least they make a profit! Sure Microsoft has huge pockets and could lose money like this forever if they wanted to, but a company can only do this so long before stockholders want to see some improvement. Remember that hardware sales equal a loss, software sales equal a profit.

Look to see Microsoft try to make more games and sell cheaper hardware with 360.

Meet the decline

[rAiNsT0rm]

This is the beginning of the big gaming decline ver. 2. Having lived through the first gaming implosion in the 80's all of the stars are aligned for a second one. And isn't it amazing how cycles always go in 25 year increments... almost to the day this will again.

Nintendo is the only one staying out of the hardware arms race and will smartly stay alive and strong through this one. The sheer costs of R&D of Sony and MS's continual losses as well as their R&D costs are going to be the downfalls along with rehashed games and themes ad nauseum. Hopefully nintendo will really bring gaming back to accessibility and fun as they are claiming and get this industry back on track.