Microsoft exec confirms Xbox consoles have never been profitable

[midian182]

What just happened? The Epic vs. Apple trial is giving us an unprecedented insight into the video game industry. In addition to some new revelations, it's also confirmed what we already knew: most consoles are sold at a loss. Xbox vice president of business development Lori Wright said that the division has never made a profit from sales of its hardware.

Epic's lawyer Wes Earnhardt questioned Wright about the Xbox ecosystem and whether it made a profit through hardware sales. "How much margin does Microsoft earn on the sale on the Xbox consoles?" he asked. "We don't. We sell the consoles at a loss," she replied.

Earnhardt followed up with: "Just to be clear, does Microsoft ever earn a profit on the sale of an Xbox console?" To which Wright confirmed, "No."

The exec said that the goal of Xbox was to offer an "end-to-end consumer experience," and that the hardware is "critical to us delivering that gaming experience." That experience, of course, includes lucrative subscription services such as Xbox Live Gold and Xbox Game Pass.

Wright was one of the third-party witnesses called to explain the differences between the game console and smartphone markets. Protocol notes that Epic hoped she could support its argument that the 70-30 revenue split on consoles was acceptable as it's the companies' primary revenue source, while Apple doesn't have justification to charge the same 30%.

Same Microsoft document has a breakdown of hardware revenue / profit estimates for Sony and Nintendo.

Hardware generating a loss for Sony, but profit for Nintendo.https://t.co/hOqyjeKQcv pic.twitter.com/mPBKABWHRD

— Daniel Ahmad (@ZhugeEX) May 5, 2021

Industry analyst Daniel Ahmad tweeted that the PS4 was likely the first Sony console sold at a profit, though the PS5 and Xbox Series X/S will probably become profitable at some point. Nintendo is an exception, having long focused on selling its hardware for a profit.

Earlier this week, court documents revealed the millions Epic paid for its free game giveaways, along with the billions Fortnite generates.

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https://www.techspot.com/news/89574-microsoft-exec-confirms-xbox-consoles-have-never-profitable.html

 

[TheBigT42]

NS! I would be surprised if ANY console manufacturer has ever turned a profit on the console. They make money on selling games and addons.

Why do you think Sony killed Linux on the PS3...Too many non-gamer purchases.

 

[Cubi Dorf]

It may being worth noting that game console is not a general purpose computing device. Apple is declare iPad as computer replacement and it is capable of general computing task. Game console is not. I think this is key difference. This is like Airline industry think they should get to play by the same rules as auto industry.

 

[trparky]

It may being worth noting that game console is not a general purpose computing device.

I've often wondered why that can't be. It is running a version of Windows, right? Why can't it become a living room PC complete with things like a web browser and Microsoft Office if and when you connect a keyboard and mouse to it.

 

[DrSuess]

I've often wondered why that can't be. It is running a version of Windows, right? Why can't it become a living room PC complete with things like a web browser and Microsoft Office if and when you connect a keyboard and mouse to it.

That was true of older consoles they were dedicate machines built for gaming, but if you look at the PS5 and XBox Series X powered with AMD x86 APUs they could easily run linux/Windows with proper driver support.

Most people already have a computer or phone, so a dedicated machine makes more sense to some particularly if it is to be connected to a TV in the living room. Gaming on a PC is nice but if you make consoles more like the PC the users will need to manage them like computers to keep them updated and running properly. A dedicated console with its own ecosystem is self maintaining (***** proof for the most part)

 

[gdavid65]

I've often wondered why that can't be. It is running a version of Windows, right? Why can't it become a living room PC complete with things like a web browser and Microsoft Office if and when you connect a keyboard and mouse to it.

Not sure about most recently.. but previously they both had web browsers on their console.. and both supported keyboard + mouse.. and Office 365 would most likely run too in such a browser (but never tried).

 

[Adhmuz]

It took Sony 3 years to turn a profit on the PS3, it was losing as much as $300 per console at launch primary due to the then $250 Bluray drive. However the PS4 was only a $80 loss at launch and was turning a profit much sooner, to date it is even considered the most profitable console ever, to the tune of over $11 billion. The PS5 is estimated to also be sold at a loss, or at best break even.

Microsoft has the luxury of being Microsoft and can take the hit a lot easier, they've also sold their consoles at a lost historically, never as badly as Sony however, presumably the newest generation is no different.

 

[Cubi Dorf]

I would prefer make payments on game console and not sold at loss if it is meaning to not have to paying subscriptions and extra monies for game. I don't like this model. I think they are do it because parent would not buy $1000 game console for child. by keep initial investment down then parent will buying for child. then they can making monies back later.

 

[Pit1209]

I would prefer make payments on game console and not sold at loss if it is meaning to not have to paying subscriptions and extra monies for game. I don't like this model. I think they are do it because parent would not buy $1000 game console for child. by keep initial investment down then parent will buying for child. then they can making monies back later.

Not just parents but many people were whining before the launch about the cost of the consoles if it was more than $500, probably the same people that spends more than $1k to buy an iPhone every 2 years, this is the world we live in.

 

[Lew Zealand]

Not just parents but many people were whining before the launch about the cost of the consoles if it was more than $500, probably the same people that spends more than $1k to buy an iPhone every 2 years, this is the world we live in.

While that may be true for a few lucky rich people out there, 2 years ago the average iPhone upgrade time was 4 years and increasing.

 

[Watzupken]

I am not surprise at all. New consoles are always out of the money for both Sony and MS, case in point, Xbox Series X and PS5, both are selling for MSRP of 499 USD. If you look at the market now, that money can't even get you a graphic card at that level of performance. Under normal circumstance, that money can only get you a RTX 3070 only. So I am pretty sure MS and Sony are making significant losses at this point. Even as cost go down over time, I think it is also normal for MS or Sony to start to drop prices, or give special bundles. So not surprising they are only kept afloat with the 30% cut on games sold on their store.

As for Nintendo, they are smarter in a sense they don't compete for high end/ shiny graphics. Nintendo hardware generally comes with aged hardware which ideally should not cost them much from a cost perspective. If you have a Switch sorts of specs on a mobile phone, I think it will be selling for less than USD 120 bucks easily considering its using a Tegra chip that is at least 5 years old even though its gone though a shrink to 14nm. The target audience for their console is also different. While I game on my PC, I also own a Switch which I can play with my family that is not into hardcore shooters/ open world games. Even though the graphics are subpar on the Switch, I still enjoyed the games.

 

[Adhmuz]

While that may be true for a few lucky rich people out there, 2 years ago the average iPhone upgrade time was 4 years and increasing.

This may be in part due to perceivable performance having plateaued, the phones are faster year over year on paper, but does the average consumer actually see this in real world use anymore?

As well build quality has reached a level where these devices are just physically lasting longer, my 3 year old phone still looks like new, I only recently upgraded because it cost me nothing, even my 6 year old phone is in great shape in the hands of a relative.

However there will always be the crowd who needs the newest, fastest, shiniest thing they can get their hands on, these people keep the industry moving forward, so love em, hate em, they're a necessity.