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."

Comments

War of Attrition

[Applekid]

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?

Re:War of Attrition

[hansamurai]

The difference between Nintendo and the other two, is that Nintendo is a games only company. They rely solely on their hardware and software sales. On the other hand, Sony and Microsoft's consoles are just one division of a much larger conglomerate. And that conglomerate can support the other gaming divisions until they finally do get out of the red, or the stock holders, whatever, demand that division to be sold off or folded. Microsoft's gaming/Zune divsion might have lost 300 million dollars, but the company as a whole took in over 14 billion dollars in revenue. I know it can't go on forever, but Microsoft at least, is committed to this industry, for better or worse.

Re:War of Attrition

[badasscat]

The difference between Nintendo and the other two, is that Nintendo is a games only company. They rely solely on their hardware and software sales. On the other hand, Sony and Microsoft's consoles are just one division of a much larger conglomerate. And that conglomerate can support the other gaming divisions until they finally do get out of the red, or the stock holders, whatever, demand that division to be sold off or folded.

What you say is true, but it didn't answer the question that was asked, which is whether or not it's normal for a console to be in the red at this point in its lifespan.

The short answer is no, it is not normal. And despite your true statement above, that's important. Why?

MS and Sony both got into video gaming in the first place both because they saw how profitable it was and because they saw the potential for even greater profit through using their systems as a trojan horse for other entertainment and software possibilities. Do you think that either company would have launched a console in the first place if they saw the industry as a money-losing business? Obviously not. They did it because they wanted a piece of the action, and they wanted to define where the action was in the future.

The issue is that neither Sony nor MS has figured out how to make a consistent profit in the video games business. MS has never done it, to my knowledge (possibly one quarter with the original Xbox) and Sony does it about half the time. Nintendo always makes a profit. The only question is how big.

If this keeps up, eventually Sony and MS could drag the industry so far down that it's not going to seem worth it to their shareholders or to any of their potential partners, be they publishers or peripheral makers or whatever. Nobody's going to want to be involved in the game business if it seems obvious that it's a money-losing business.

I actually own all 4 previous-gen consoles and would like to own a PS3, but I honestly think that without Nintendo, we would have had another game industry crash by now. They're single-handedly defining the industry right now, in both home and portable systems, and they're proving to everybody how much money there is to be made at it. Without them, you'd have a money-losing industry that would look to anybody on the outside like the industry itself was no longer viable.

It's not about the money - except when it is

[Dark Paladin]

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.

Re:It's not about the money - except when it is

[Frag-A-Muffin]

since the "living room PC" is still a mostly unconquered market waiting for somebody to take it.

Who says there is a market? Small niche market so far, what happens if it stays that way? HP has already stopped making their "living room PC". Maybe they have better foresight than others? I know from an anecdotal stand point, there's no market for such a device in my home :) I want appliances that just do their thing, and do it well, and for a reasonable cost. There's a reason why so many people have DVD players. a) It's cheap and accessible. b) it's dead simple to use. c) There's easily accessible content that can be purchased or rented

Re:1.7 Units Shipped?

[CowTipperGore]

Those must be metric consoles. Anyone know how to convert this to Asspiles or Shitloads?

So do people still think MS sells the 360 4profit?

[bestinshow]

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.