M$ Lost $4,000,000,000 On XBox


Lord Blackadder

macrumors G5
May 7, 2004
13,520
2,557
Sod off
jiv3turkey748 said:
if theyre losing money then why continue to make the xbox...
Because they want to beat the other console makers in sales. M$ isn't striclty about money anymore - its more power over the market in general. They already have more money than they could spend.
 

stoid

macrumors 601
Is that just the console? I thought that MS had made back most, if not all of their losses on game royalties and licensing etc. Or does that $4 billion include money made on games? Either way, the only other large organization that comes to mind that would hardly raise an eyebrow at a staggering $4 billion loss would be the US federal government.
 

iDM

macrumors 6502a
Don't game console producers consistently lose money in console sales because they put technology in the systems worth more then they sell for, in hopes of making high profit margins on $1 dvd's that sell for $50( i know there are other factors) ?? That was my understanding!
 

AlBDamned

macrumors 68030
Mar 14, 2005
2,626
0
stoid said:
Is that just the console? I thought that MS had made back most, if not all of their losses on game royalties and licensing etc. Or does that $4 billion include money made on games?

Yes, exactly. This report could well be only reporting the losses made on the console (est $70 per unit). They also spent $500+ million dollars on marketing in those four years which is likely included in that figure.

It's doubtful that this figure was off-set against game sales and also bear in mind the phrase lost up to $4 Billion.

Without any figures to support this, or investigation into money made back from software sales, this article can be discounted at best as complete speculation and at worst, very sloppy journalism.
 

Savage Henry

macrumors 65816
Yes I know they've got big pockets ....

.... but the games industry is a fast moving and emotive one. If they were in the business of constructing international airports then you can expect nothing but losses in the first half dozen years.

This just shows how much of a clumsy behemoth and out of touch organisation the Microsoft really is. It recognises this as it is making efforts to reorganise itself internally.
 

Sun Baked

macrumors G5
May 19, 2002
14,874
57
Lose money on the basic product, in this case quite a bit, but make up for it in game sales.

Especially since they are probably getting a chunk of every game sold for the box in license fees -- and they are hoping to have a blockbuster game of their own either via their distribution network and/or captive game developer.

Unlike printers and razors, the game box has the "possibility" of being a huge moneymaker/upside profit if they have a single HUGE game -- or a portfolio of games -- that make the gamebox a marketshare leader.

Edit: but a $4 billion gamble is a huge gamble, but not too much considering a new real estate business could cost just as much and only land you a couple/few properties.
 

Lord Blackadder

macrumors G5
May 7, 2004
13,520
2,557
Sod off
AlBDamned said:
It's doubtful that this figure was off-set against game sales and also bear in mind the phrase lost up to $4 Billion.
True, but could games sales make up the several billion lost? Also they apparently don't account for the R&D cost to develop the console in the first place, which was probably none too cheap.
 

Lacero

macrumors 604
Jan 20, 2005
6,639
2
Microsoft screwed up royally when they didn't think further ahead to make sure their library of xbox 1 games could work natively in the xbox 360. Now with only limited support for some titles, they've basically started over again. Idiots.
 

VanMac

macrumors 6502a
May 26, 2005
915
0
Rampaging Tokyo
Lacero said:
Microsoft screwed up royally when they didn't think further ahead to make sure their library of xbox 1 games could work natively in the xbox 360. Now with only limited support for some titles, they've basically started over again. Idiots.
Maybe, maybe not.

If they had taken this approach with their OS a few years ago, Windblows wouldnt be so bad.....
 

greatdevourer

macrumors 68000
Original poster
Aug 5, 2005
1,996
0
Lord Blackadder said:
Because they want to beat the other console makers in sales. M$ isn't striclty about money anymore - its more power over the market in general. They already have more money than they could spend.
Exactly. Once you have control of the market, you can effectively do what you want with it. You're the ones making the money, because you're well known (of course, this didn't work this gen - Nintendo has made more than the other 2 lost combined each quarter for the past 2 years)
 

IJ Reilly

macrumors P6
Jul 16, 2002
17,915
1,466
Palookaville
The referenced article in Forbes is even more revealing. Microsoft has lost $7 billion over the last four years in the divisions outside of operating systems and desktop software. According to the article, those two divisions account for an amazing 140% of Microsoft's profits (they lose money everyplace else). Remarkable, isn't it? They can only make money where they've got a monopoly they can leverage. Otherwise, they haven't got a clue.

The article also describes how hidebound the company has become, and how difficult it is for them to get anything done because of the company's complicated internal politics. They are now IBM, the company they once openly mocked -- lacking a vision, direction and strong leadership.
 

Sun Baked

macrumors G5
May 19, 2002
14,874
57
If the videogames aren't yet profitable, and they were when they bought them -- it's quite sad.

Sounds like they are mired deeply in beauracracy, and legal accountability.

Their directed vision failed under Gates.

When Steve Jobs came back he whacked away at R&D and the workforce, outsource entire divisions, and they now get the same amout of work done on a leaner dollar.

Sounds like MicroSoft needs a massive RIF, heck even a MS-led pseudo-breakup can help out as they reorganize to make every division earn a profit.

The Xbox is expected to be a loss-leader, the video game and game distribution should be a profit center.

Apple knows they will have duds and they've walked away from spending further time and dollars on them, seems like MS can never walk away from a bad idea.

Which is sad.
 

Counterfit

macrumors G3
Aug 20, 2003
8,202
0
sitting on your shoulder
Lacero said:
Microsoft screwed up royally when they didn't think further ahead to make sure their library of xbox 1 games could work natively in the xbox 360. Now with only limited support for some titles, they've basically started over again. Idiots.
Nintendo has done that with every new generation, and yet they're still making money. I think backwards compatibility for consoles is highly overrated.
 

XNine

macrumors 68040
Backwards compatibility in consoles is not only a smart move on the developer, but the consumer as well. Why buy consoles and games you can only play for a couple of years?

The PS3 will play both PSX and PS2 games as well as the new PS3 games. what does this mean to me? I can keep playing through CastleVania: Symphony of the Night and Metal Gear Solid 1-3 every two years as I have a habit of doing. I love Halo 2 (well, the multi-player at least), but if I can't play it on a 360, forget it. I'll definately be getting a PS3 for MGS 4 alone.
 

Phatpat

macrumors 6502a
Jun 15, 2003
903
2
Cambridge, MA
The Forbes article linked from the Inquirer statest

"The Xbox game console is hot, but its division has lost $4 billion in four years and isn't yet in the black. "

Still leaves it open to some interpretation, but to me it sounds like total losses hit $4 Billion max and they have since been working their way towards the black.
 

Schmittroth

macrumors regular
Dec 6, 2003
199
0
NYC, Astoria-Queens
Let us not all forget that Halo 2 made $150 million the day it was released (including pre-orders of course), plus Xbox live and royalites from all those developers cut the deficit considerably. But remember the orginal Xbox was only meant to cut into Sony market share and establish themselves as a viable game console which they've done. I'm guessing the the loss on the 360 will be less but the revenue streams will be much greater. Here is where MS makes back it's green backs. And Halo 2 will play on an Xbox or I'll eat my disc. The amount of firepower the 360 has will be more than enough to emulate the original. Although a patch may be necessary it's nothing new to Mac and PC gamers who upgraded thier OS only to find games didn't work anymore (No One Lives Forever 2 and Panther anyone?)
 

IJ Reilly

macrumors P6
Jul 16, 2002
17,915
1,466
Palookaville
Sun Baked said:
The Xbox is expected to be a loss-leader, the video game and game distribution should be a profit center.
Years of Xbox losses were predicted by an analyst I read a few years back. Turned out to be right. But I think these losses include game console software sales. As the Forbes article says, the company is divided into divisions, of which the Xbox is one. It doesn't appear that game console software is its own division, and these sales don't fit into their enterprise, operating system or desktop software divisions. So I think they're losing money on the whole shebang.
 

edesignuk

Moderator emeritus
Mar 25, 2002
19,077
1
London, England
As others have said, the Xbox was all about establishing Microsoft in the console market, and at whatever cost - lucky for dear old MS, no matter how great the loss, it's still not actually that much of an impact to their over all finances.

I'll see how they're doing another generation or two of consoles down the line before I judge them on this one, this is about long term gain remember.

Spend money to make money....and all that gibberish.
 

IJ Reilly

macrumors P6
Jul 16, 2002
17,915
1,466
Palookaville
edesignuk said:
As others have said, the Xbox was all about establishing Microsoft in the console market, and at whatever cost - lucky for dear old MS, no matter how great the loss, it's still not actually that much of an impact to their over all finances.

I'll see how they're doing another generation or two of consoles down the line before I judge them on this one, this is about long term gain remember.

Spend money to make money....and all that gibberish.
Umm, well, I think that reasoning goes only so far. I think it's fascinating to see how poorly Microsoft does in a market when they're faced with real competition.
 

GFLPraxis

macrumors 604
Mar 17, 2004
7,091
404
No, guys, this is the total losses. I remember adding the numbers off their quarterly profits and got the same negative $4 billion a few months ago, and one of the quarters were positive (a single one) because of the release of Halo 2.

Basicly, the XBox was a $370 system that sold for $300. I think Microsoft expected to make it up on XBox Live subscriptions (five years of XBox Live, a console's life span, is $250), but only a very small percentage of users ended up using it.
 

Schmittroth

macrumors regular
Dec 6, 2003
199
0
NYC, Astoria-Queens
Another point is this 4 billion over 4 years. That may not seem like much but when you see that "Microsoft had $56.4 billion in cash on its balance sheet at the end of the quarter, up from $52.8 billion as of the end of December." Money at CNN 1 billion less per year really doesn't hurt that much when you gain an extra 3.6 billion in 9 months. They can afford to play. At least MS hired a whole lot of Americans and gave them good jobs.
 

Macamus Prime

macrumors regular
Feb 24, 2005
166
0
NYC
I look at it like this;

MS is the monster, Sony is the machine. Sure machines break down, but the MS monster has been bleeding since day one and continues to do so.

MS will do anything to get into the game market. They are bleeding and will continue to bleed money with the 360. They released the 360 as early as possible to get into the market ASAP and establish a foothold of some sorts.

That foothold will mean nothing once Sony's machine hits the market. I see one more console from MS, before they give up.

One more thing, if it wasn't for the XBox, where would the industry be today? As much as most of you hate MS and its monster, I think they changed the industry for the better. MS did give us more choice and woke up other console creators. Do you think Nintendo would have online support for it's Revolution if XBox Live wasn't as successful? Before you all get huffy about this, realize that Nintendo's response to online features was "Connectivity" last year at E3. Where is that now and what's Nintendo's current direction? XBox Live isnt the 1st to market, but it is the 1st successful.

Anyway, MS's approach to the XBox is bad for itself (loss of money, pissing off hardware manufacturers like nVidia) but good for us, in the sense that we get more choice and wakes up the competition to give us better features. More competators, especially ones with deep pockets, makes Nintendo and Sony work harder for our gaming dollars.