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Microsoft Games Losses Down, Still Substantial
Even though sales are up on the operating system side of things, Microsoft's games division is still struggling. The Entertainment and Devices division lost $315 million, with sales slipping some 21 percent. That's 22 percent down from last year. The quarter overall saw $929 million, down 21 percent over last year during the same quarter. "Microsoft says the drop in sales came primarily because of decreases in the sale of Xbox 360s. During the quarter, the company shipped a half million consoles, as compared to 1.7 in the third quarter of 2006, that being the first full quarter in which Xbox 360s became available. Sales of Xbox and PC games decreased 44 percent over the company's first three quarters to $393 million, which the company puts hand in hand with the decrease in console sales."
Man, Japanese sales are really picking up!
So, the branch that just released a new major product this year is reporting an increase in sales, and the branch that released a new major product last year is reporting a decrease? That's not news, it's common sense.
This console was released in November of 2005, so I'm really not sure how 3rd quarter of 2006 was the first full quarter they became available.
Is it normal for game divisions a year+ after their new console is released to still be in the red? Given Nintendo recently just reported record profits and Sony's Playstation division is still hemorraging money, it seems like Nintendo's on track to be the last man standing.
What's even more nuts to me is that with all the Live Gold subscribers they're still not making enough to offset losses. Are they still hedging all their bets on Halo 3?
Eggs in 1 basket much?
More Twoson than Cupertino
This is an interesting problem for Microsoft. Yes, we know - they can burn through this money and not lose it, they can take billion dollar losses every year on the Xbox and not care, blah, blah, blah - but sooner or later, profits *do* matter to your bottom line.
What I'm curious about is how the long run of Microsoft's console wars might end up hurting the company overall. It used to be that people stayed on Windows for 3 reasons:
1. It's what the office uses/proprietary apps I need
2. I need Microsoft Office
3. Games
Of all of these reasons, the #1 thing I heard from tech people for why they stayed on Windows - or at least kept a dual booting system - was for the games. Once consoles started on their rise, MS realized that this was a serious long term threat to the monopoly. Hence, the Xbox was born. This way, even if techie people go "Well, I stay with Windows for the games", at least MS would have a console of their own to ply.
Now, they're trying to tie in Windows into this gaming concept. Look at Vista, and the "won't run without an ESRB rating" issue some games have had a problem with - a "safety" issue says Microsoft, but a lock-in system says I. Now their Windows Live, which is the Xbox Live system on Windows - again, another method to try to tie in Windows and consoles, and establish a lock in. Or the "Halo 2 (a game made using Windows 2000 computer hardware level technology) can't run on your computer unless you run Vista with Windows Live", a move that I don't see a whole lot of gamers going "OOooo - I get to pay $200 for an OS to run a 3/4 year old game when I could buy the original Xbox version with a new Xbox from a store for the same price". It's an expensive move that so far, hasn't caught on. They're now trying to tie Vista in the Xbox, hoping to shore up both.
It seems a lot of money spent that, so far, is only costing them more. They lose more money with each Xbox sold. So how to make it up? Charge more on the Microtransactions, which leads to expensive "horse armor" and gamers who rebel against the cost of Guitar Hero II downloads for being way overpriced.
I can give credit to Microsoft for making a decent console (when it doesn't "red ring of death" on people - is that the equivalent of a blue screen of death?), but it seems like they're fighting for a Pyhrric victory. If this is their idea of success, then the rest of the Microsoft company had better hope that this brand of billion-dollar-per-year losing "success" doesn't infiltrate the rest of the company.
Of course, that's just my opinion. I could be wrong.
52 Weeks, 52 Religions with John Hummel
How, in this day and age, can a website have such a short limit on the subject line for a post?
Anyway, nearly a year ago iSupply claimed that Microsoft were making a profit on each console sold. This figure has been repeated ever since then, especially in relation to the PS3's huge loss per console. Yet the figures were weird, the console hadn't changed, no cost reductions applied, and iSupply thought it had gone from a $150 loss per console to a $70 gain. But people were very happy to accept this figure.
Now Microsoft's gaming (and music) division has made a $300+m loss for 500k sold, and presumably they're getting profits from online use, the games themselves (the attach rate is rising), and add-ons. Of course the Zune and other products are dragging them down too, and there's wages and future developments and all that...
Also 500k sold in a quarter, albeit a quiet quarter, is appalling at this stage in the game. You would think that if Microsoft COULD drop the price, they would have, to stimulate demand. But they didn't.
So in conclusion, I suspect Microsoft are still making losses on the 360 console, probably in the $100 per console ballpark. 65nm shrinks are really required - cheaper chips, cheaper cooling, cheaper power supply. I expect the 65nm introduction to coincide with a $50 pricedrop, and a static loss/console rate.
The 360 is supposed to be making a profit. If the estimates for the frequency they would need replacing had been correct. It's that, and the lower-than-expected sales numbers that caused the problem for the machine.
But yes, a dead-in-the-water Zune and associated marketplace are a big factor, too.
"I Know You Are But What Am I?"
Microsoft is embattled in a war for the entertainment market. They've won the office, but they're getting their asses handed to them in the living room and bedrooms of the world. Companies like Sony, Nintendo and Apple are vying for a huge chunk of change that's spent on music, movies and games. A chunk Microsoft wants a piece of.
The XBox is their foot in the door. It's not going to make Microsoft the dominant force in our living rooms, but with consoles taking on a more PC-esque feel they have every indication that their being left behind in a big way. If they don't do something, anything, to get themselves into the market now then when the tide turns and the choice for a home computer isn't between Dell or HP but a PS3 or a AppleTV, Microsoft needs to have their chips in place to have any stake at all in the new landscape.
And for that, they're willing to lose the few hundred million a quarter in the short term.