Xbox Division Down $4 Billion

Forbes, in a long article about Microsoft's monetary situation, drops the news that the Xbox division is $4 Billion in the hole over the last four years. From commentary on C|Net: "That's a lot of money, even for Microsoft, which Forbes also says has a war chest of $40 billion in cash. Just before Thanksgiving, Microsoft will launch its next-generation console, the Xbox 360. The early word is that the 360 will also start its life as a loss leader, though Redmond insists the new box will soon be a moneymaker. Either way, it's got a long way to go to get back to even, and though Microsoft is a rich company, it surely doesn't want the Xbox 360 known as an albatross around its dividend-paying neck."

Comments

Best wishes!

[metamatic]

I'd just like to be the first to say that I hope the Xbox 360 is just as successful as the original Xbox.

Re:Best wishes!

[RootsLINUX]

Agreed. With less consoles, developers can spend more time developing games and less time porting games to multiple different consoles. On the otherhand, if M$ retreats from the market and the major players get down to Sony and Nintendo, unless a balance is maintained between the two, we may see a monopoly, which is not a good thing for anyone except greedy CEOs and stockholders. But I hate "console exclusive" games because I don't want to buy a console just to play one or two games I can't play anywhere else. And this next generation seems to be generating those types of games, because the architectures are so radically different between the three platforms, its going to be harder than ever to make porting of games cost-effective. :(

Re:Best wishes!

[Minced]

I am sure stock holders don't view the X-box as a success, it is a financial nightmare.

Re:Best wishes!

[Oz0ne]

That was the first time I've ever laughed out loud reading slashdot.

Microsoft vs. Nintendo

[popo]

Now might be a good time to point out the frequently bashed Nintendo, smallest of the 3 console makers -- is profitable.

Personally (I own both a GameCube and an Xbox) I always thought there was no contest in graphics quality between the GC and the Xbox. The antialiasing on the GC *destroys* the Xbox.

Hardware geeks constantly tell me that Xbox has fantastic antialiasing capabilities, but my answer is always: Show me.

Take SSX on the the GC vs. the Xbox: the Xbox version is full of jaggies. The GC version is smooooth.

Anyway ... I ramble.

The point: GC was a fantastic console, wound up 3rd in overall sales -- but from a financial perspective was a clear winner.

Re:Microsoft vs. Nintendo

[popo]

Ok... before we set about the task of removing your Xbox from your ass, let's address your very-alarmed, very-panicky comment.

What was "stupid"?

A comparison of profitability: One is profitable (Nintendo Gamecube). One is not (Xbox)

A comparison of capability: One has the best anti-aliasing I've seen (Nintendo Gamecube). One has poor anti-aliasing (Xbox)

Step back for a second. Go outside. Have a smoke. Settle down.

I wasn't painting broad strokes about the strategic initiatives and ultimate market domination by either company. You're the one connecting dots here. I wasn't even making an "analysis" as you say. Simply pointing out 1 fact, and 1 observation from a consumer (that's me) perspective.

Chill Joe, Chill.

Expected to lose $5B

[GoNINzo]

I seem to recall a news article back in the day that said that Microsoft was going to risk five billion dollars on it's entry into the marketplace, but I can't find it anymore. However, I did find this article about how they expected to get into the black in 2004. I wonder if investors will examine that when they only just now were profitable in Q4 of last year for the original xbox. And that's just for that quarter, not recouping the losses before that.

I think that microsoft expects nintendo and sony to just disappear after they take over the marketplace. They are trying to apply the same PC monopoly idea. However, it's not like that, the market is entirely different. There's room for multiple platforms at the top. So it's going to be interesting. Short term, the consumer should win due to the price wars. But long term, we might end up losing if it's just one company there.

Dragging down MS by not buying Xbox games

[Anonymous Coward]

I'm pretty similar to you, except that my console of choice for gaming is the PS2. My Xbox just sits on the side mostly playing audio CDs and the occasional DVD.

Both of us have in effect contributed to the $4 billion loss by not buying many (or any) Xbox games, beyond what was in the original bundle.

I'm happy with that. I suffered at the hands of MS for years (no choice of O/S at work), so in my small way, this is payback.

Re:Contrasting

[jclast]

Nintendo makes money in ALL divisions.

Re:Contrasting

[bpd1069]

Microsoft makes money EVERYWHERE BUT console division

Sony loses money EVERYWHERE BUT console division

From the last I heard MS loses money in everything but Office and Windows.

Sell the Hardware at a Loss

[AcheronHades]

It is worth noting that virtually all game systems in the past have initially been sold at a loss whent hey first hit the market. Eventually via streamlining the manufacturing process, costs come down and the company can actually make a profit selling the hardware. But initially the goal is to A) create as large an installation base as possible encouraged by lower prices, and B) make up for the loss they take on selling consoles through liscence fees from game developers.

I am just speculating here, but I would be willing to bet that the XBox division would be a lot closer to being in the black if the XBox didn't tank in Japan.

Re:Sell the Hardware at a Loss

[Dan Ost]

I am just speculating here, but I would be willing to bet that the XBox division would be a lot closer to being in the black if the XBox didn't tank in Japan.

There's a tautology for you: "If they had sold more of it,
they would have made more money selling it"

Seriously, they never expected to make serious money with
the original XBox. The whole idea was to lose as little
money as possible while getting the mindshare to allow the
XBox successor (which turns out to be the 360) to make
serious money. The real question here is whether a
4-billion loss is a reasonable loss for what they've
accomplished, and we won't know that until we see how
successful the 360 is.

Re:Sell the Hardware at a Loss

[badasscat]

Well not everyone realizes that the XBox bombed in Japan. All they see is it's relative success in the US and then wonder why Microsoft is taking a loss. I dunno if they would have been in the black by now if the XBox was a success over seas, but I am sure they hoped and expected it to do better than it did.

I don't really have any doubt that they would have been closer to their forecasts (and to predictions of a $2 billion loss rather than a $4 billion loss) if they'd done better in Japan. They seem to be pretty close to their sales forecasts for the US and Europe, but it is really hard to understate how badly they've done in Japan. They are not even considered a major player there - people talk about them there in the same way we talk about the Tiger Telematics Gizmondo here. I mean, what are you gonna buy, a PSP, a DS, or a Gizmondo? That's how the Japanese feel about the Xbox, and the sales pretty much show that. The system's basically a joke there. It's got less than 1% market share.

I think MS learned some things from this as they're at least paying lip service to the country now and promising to refocus. They put on a big, somewhat pushy show at TGS that I personally think was a bit too "in your face" for the Japanese (even forcing Xbox bags on people right as they got off the train in Makuhari), but that sort of illustrates their continuing problems there. I think they understand that Japan is tough and they understand that they need to do better there, but I don't think they really have any clue whatsoever how to go about doing that. It's amazing to me that such a large multi-national corporation could be so out of touch with such a major market. I mean, just head-hunt some of Apple's guys, or something - there are plenty of American corporations that do well over there. It just requires an understanding of Japanese tastes, which it still seems like MS doesn't have.

Home and Entertainment Division losses

[genedefect]

Let us all not forget that the losses for the Home and Entertainment Division as a whole were $4 Billion USD. Not just Xbox. If anything, Xbox only accounted for about $1.5 Billion of those losses and was also responsible for the profit in Q404. Remember, The Home and Entertainment Division also encompesses the loss leading eHome team, DirectX group, Movie Maker, Windows Media Player, Windows Media Connect, Media Center Extender, IPTV, on and on. Out of all of those, Xbox is pretty much the only one generating any significant revenue and has a chance for any significant profit within the next 2 years.

Looking Forward to the 360

[MiceHead]

I'm looking forward to the Xbox 360 for two reasons:

• Xbox 360 Live Arcade Mushroom Toaster Strudel - In theory, Arcade will allow more small-fry developers to create content for livingroom audiences. The greatest barrier to profitable indie development on the console at the moment seems to be that the only viable way to sell console games is through a retailer, (which often requires the clout and money of a big publisher). Remove that barrier, and -- for what it's worth -- smaller studios have a shot. I believe some indie games have already gone this route for Xbox Live Arcade. And MS has already courted one small studio to create content for X360LA.
• Windows 360 - The original Xbox was basically a stripped-down-Windows 2000 box running DirectX 8.1, making Windows desktop->Xbox console ports a relative snap. I've read that the 360 will function along the same lines, with XNA making that process even easier. This is great for small developers, because it means production for consoles will be within our reach.

It's currently pretty easy to develop code that compiles for both Windows and Pocket PC. I'd like to be greedy and ask for the same thing for the console.
_________________________
www.dejobaan.com - Games and other games.

Nope...

[badasscat]

I seem to recall a news article back in the day that said that Microsoft was going to risk five billion dollars on it's entry into the marketplace, but I can't find it anymore.

Not sure what you were reading, but the figure I saw repeatedly was "as much as" $2 billion, such as in this article here.

$2 billion was already a chunk of change. Now it's double that, and they never did get into the black. Clearly something is not right at that division, and it really does make you wonder about the financial prospects of the Xbox 360. (Note that that's different from marketplace prospects; obviously, MS could keep this money-losing charade up basically forever, though at some point you'd think investors would expect some real returns.)

No doubt they learned some things from their Xbox experience, but we'll see if any of that actually translates to profits. Which is all that really matters in business, in the end.

Re:As an American, Microsoft is shameful

[AcheronHades]

"People buy their OSs! Their stuff is simple and works! Office is awesome!" the fan boys will shout. Guess what fan boys, Microsoft's cash cows, Windows and Office, were shown by the DOJ as *illegally maintained.* Microsoft lost in court. Whether or not their products ended up becoming decent after 10 years of reworking, Microsoft was proven, in court, to have illegally used their monopoly status to buy themselves the time to get where they are today. In other words, they were allowed to cheat so long that they eventually had enough time to put something decent together.

The fact that they illegally used the success of the Windows OS to help them in the web browser market has nothing to do with the quality of their software. I agree they did wrong and I also agree that they got off lightly, but to say that they write lousy software because of that makes no sense.

Why does this shame America in the world? Because we claim to be the land of freedom, justice, free enterprise. Except, of course, we aren't. Microsoft is a stunning example of that.

But what are you really trying to get at? That capitalism, or even the US is corrupt? Give me a fucking break. Corruption will always exist, regardless of the type of government or economy. Do we shoot every houshold dog in the country when one attacks it's owner? No, shit happens. And just because there are some companies in the United States that have behaved unethically is no reason to condem capitalism or the US.