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Microsoft Games Losses Down, Still Substantial

Posted by Zonk on Fri Apr 27, 2007 09:17 AM
from the a-little-bit-lossy dept.
Microsoft Businesses The Almighty Buck XBox (Games)
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."
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  • Wii is "Creaming the Competition?"

  • 1.7 Units Shipped? (Score:4, Funny)

    by VE3OGG (1034632) <VE3OGG @ r a c .ca> on Friday April 27 2007, @09:21AM (#18900019)

    shipped a half million consoles, as compared to 1.7 in the previous quarter


    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.

  • Umm. (Score:3, Insightful)

    by EveryNickIsTaken (1054794) on Friday April 27 2007, @09:30AM (#18900143)
    "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."

    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.

  • War of Attrition (Score:5, Insightful)

    by Applekid (993327) on Friday April 27 2007, @09:30AM (#18900151)
    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 (Score:5, Informative)

      by hansamurai (907719) <hansamurai@gmail.com> on Friday April 27 2007, @09:38AM (#18900265) Homepage Journal
      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 [kotaku.com]. I know it can't go on forever, but Microsoft at least, is committed to this industry, for better or worse.
      • Exactly right... which is maybe why the Wii's different quirky gaming has gained so much ground compared to what's become par for the course with big-budget-but-uninspired games on the other platforms.

        Don't get me wrong, Wii's going to get it's share of stinkers. But Nintendo has the MOST to lose if they do poorly so perhaps that's why they're willing to challenge and shake up the old dogmas. Microsoft and Sony's gaming divisions always have the safety net of the mamma corp (until, like you said, shareholde
        • Sony doesn't have a back up division to rely on. Their most profitable division is their gaming division. Their other divisions do not have the same return or account for as much of their business. They depend on Sony gaming division to float the company. They have as much to lose or more as Nintendo. MS is just in to rock the boat and get their foot in the door. They can lose money indefinately.
      • They should just start giving the consoles and games away for free. Its always worked for them in the past.

      • Re:War of Attrition (Score:5, Interesting)

        by badasscat (563442) <basscadet75@yah o o . c om> on Friday April 27 2007, @12:44PM (#18903573) Homepage
        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.
        • 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 in
    • It does indeed sound like Nintendo might be the only winner this generation. That scares me.

      What if they conclude that gamers only want gimmicky games? The next generation would be filled with crazy controllers and half-assed games to play them with.

      The Wii is great, don't get me wrong. But if I had to pick only 1 console, I don't know if I'd pick the 360 or the Wii, at this point. They offer radically different styles of play. Now that the initial wow-factor has worn off, I play each of them about the

      • It does indeed sound like Nintendo might be the only winner this generation. That scares me.

        What if they conclude that gamers only want gimmicky games? The next generation would be filled with crazy controllers and half-assed games to play them with.

        You needn't be scared.

        The only companies that might make your assumption are shovelware companies. Few other companies are stupid enough to think that "gimmicky" is good.

        Even if we make the assumption that just about every studio decides that gimmicky is the way

        • But what could happen is that companies decide to put out less of their games that cost more to produce. So we could see a hardcore community that will get only franchise games that are sure bets to sell with no new content emerging that isn't casual. As much as I like Halo, I would like to see new franchises emerge, like GoW did last year and Mass Effect will most likely do this year, but there may not be a nurturing environment for it in the future.
          • I can understand why Hardcore gamers are afraid of what you say. We've had the industry to ourselves for two decades, and now our exclusive hold is fading. The attention will not be wholly on us, and there is (as you articulated) the fear that this will coincide with a reduction in games for us.

            I'm more optimistic than that.

            The industry is set to expand, and finally be considered "mass media". To be mass media, it has to be consumed by the masses in every way, shape and form. This doesn't just mean casual g
        • "1) You can use Gamecube controllers with the Wii. If you don't have Gamecube controllers, you can buy the "Classic" controllers."

          Not for a Wii game, you can't. Only the GC and VC ones.

          "2) I've had a lot of fun holding the controller sideways for Super Paper Mario and Excite Truck. I've also had fun playing the original Mario brothers. To each their own I guess."

          Excite Truck it works VERY well for. SPM... Not so much. The main difference being the d-pad, I think. That end of the controller isn't meant

          • Not for a Wii game, you can't. Only the GC and VC ones.


            Super Smash Bros: Brawl uses these controllers, and not the Wiimote.

            I'll concede your point about "filled". It just sounded like you were imagining hundreds of strange controllers. I don't expect this to happen, as even Nitendo is maintaining some connection to the old modes (as evidenced by SSB:B).
      • Having played Super Paper Mario quite a bit, I don't find the sideways orientation awkward at all. The 'A' button is a little awkwardly placed for it, but it's huge enough compared to the other buttons that you can easily reach over and hit it without looking. Personally, I kind of like not having tons of buttons on my controller, I dont have to think about which of the 6 or 8 "action" buttons I need to press to do something.

        Also, I have both a classic controller for the Virtual Console games and a Gamecu
      • The gamers of old are no longer the target audience. Nintendos win may mean we won't see the wealth of games for gamers like the PS2, PS1, and SNES had. No Gods of war, Disgea, Pucille tactics, etc... We may be doomed to shallow minigame collections like rayman, warioware, cooking mana etc... Some are fun like cooking Mama but the majority of us will be bored with them before long. The only hope we have is that non-gamers will buy games at a slower pace and that we will still be more profitable to cater to.

    • Re: (Score:3, Insightful)

      by EMeta (860558)
      I think you forget how many PS2's Sony is still selling. 200k a month, easy. PS2 games are still selling like mad too (for evidence: they still hold the plurality of space on game shelves). And they're making a lot of profit on the PS2's since R&D has long been paid off. Their games division hasn't had a bad quarter yet. Now this may yet happen, but they can afford to wait--even without help from the larger company--for a couple more holiday seasons befoer the PS3 itself turns a profit. They're be

    • Re: (Score:3, Insightful)

      by gstoddart (321705)

      Is it normal for game divisions a year+ after their new console is released to still be in the red?

      If you're Microsoft, yes. New offerings from them are always cash sinks initally.

      They have routinely used their huge cash reserves to get into a new market -- they lose money for several years until they can climb out and make it profitable (or drop the business).

      You can't compete with a company that has more cash reserves than some countries. For them, it's worth it to burn off money and ride out the compet

      • Somehow, it makes me think of Sumo wrestling.

        One of the more amazing things I saw in Japan was a sumo wrestling match on TV. Normally you'd expect the two of them to collied in a Godzilla-esque clash of the titans. I was in awe of how it actually went down.

        This huge guy dodged the other's charge and used his own momentum to send him flying out of the ring. It looked like the winner was going to head on collide with the loser, but he slipped around him and that was that.

        I feel like Nintendo has done the same

    • "Are they still hedging all their bets on Halo 3?"

      Yep [gamesindustry.biz]

      • "Are they still hedging all their bets on Halo 3?"

        Yes.

        Which is so sad. Microsoft's BIG first party game, Halo 3, that is supposed to be their key to winning the console market:

        * Only supports 16 players per game - pathetic compared to the current best console online game Resistance with 40

        * No dedicated servers - Sony and PS3 developers have free dedicated servers for games

        * An archaic P2P networking setup that leads to laggy online play

        * Looks like a slightly upgraded version of Halo 2 on the Xbox

        * And to make things even worse you are forced to pay 60 bucks a year just to play the game online

        Microsoft isn't banking on Halo 3 alone. Plus none of the stuff you stated is confirmed yet. Bungie is known for lying about what will be in their next game. They even lied about working on a Halo 3 game. The P2P networking is obviously not a deterrent because on average about 40,000 people play Halo 2 each day. Let's see resistance pull those numbers 2 years from now.

  • 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 (Score:4, Insightful)

      by suv4x4 (956391) on Friday April 27 2007, @09:58AM (#18900571)
      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.

      You don't really know how it affects their bottom line until you see the whole picture. All of their side business - how much money it made them in.. Windows sales? It's not so obvious is it.

      Integration and convenience provides a natural lock-in effect. Microsoft knows that the way the industry is going, its Windows application lock-in is weaking last few years, and it's a trend that'll continue in the future.

      What they do, all the time, is create plenty and plenty of auxiliary businesses that act like pathways leading in one way or another, to Windows. They can lose billions from XBox 360 every year and not care, but NOT because they've got money to waste, but because it helps them support their Windows market share.

      It's similar to what Google, is doing last few years too. In lots of their free offerings they don't serve ads, Gmail pop3 access, Google News, Google Desktop Search, Picassa etc. So they don't turn profit there, they lose, because there's development and deployment cost for all this. But one way or another, indirectly, it brings you back to searching in Google more often, or watching their ads, which helps their bottom line.
    • One thing to keep in mind is that the Xbox360 is not just a game console, but basically the PC for the living room. You already can buy movies via XBoxLive and things might expand quite a bit in that area in the future. So the thing goes beyond games and that might be why Microsoft is willing to take some loss on the thing, since the "living room PC" is still a mostly unconquered market waiting for somebody to take it.
      • 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

        • Same people who thought there was a market for people wanting the PS2 for the DVD player built in and the PS3 for the Blu-Ray. I was over at a guys house the other week who bought the PS3 strictly for the Blu-Ray.
        • I too think that the "living room media center" idea isn't as imminent as many people have been claiming. For something like this to be really useful, it's going to have to combine everything under a nice, straight-forward interface. That's a pretty tall order, not just designing an interface that can handle that much different stuff, but getting all of the pieces to play together nicely. My stereo, my (3) game consoles, my TV, etc are all provided by different companies. It would have to work with all of
        • From what I can see when I check the status of my friends on XBox Live, the vast majority of them use the Xbox as a media center as well as a gaming machine. Watching movies, listening to audio (though that requires in-chat confirmation) are all common things.

          There is definitely a market for it. Even with my beautiful iMac, I wish I could easily pipe music/video to my stereo/tv setup. Yes, for me, that probably means an Apple TV is somewhere in my future. But for others, it means their XBox is the perfect s
    • What they are trying to do is tap into that whole "media hub" thing Jobs talked about at an Apple conference many moons ago. What they're DOING is crapping out turd after turd (compared to Apple and even smaller vendors, no I'm not an Apple fanboy, I own an iPod is all) because ultimately they are a company with too much money that has gotten lazy and so encumbered with corporate red tape they can afford to rush shit and get it to maybe work eventually as promised.

      Xbox 360 - Relatively low cost front end

    • 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

      Games kept me using Windows longer than I otherwise would have. I dabbled with Linux, trying out WineX (now Cedega), and buying Loki games at clearance sales. Still, I couldn't resist the occasional Windows game, like Grand Theft Auto or Morrowind.

      In the meantime, I got my wife an iPod. I don't consider myself a true "halo-effect" switcher, but the iPod got me looking more clo

  • MS Games, IMO, has little to worry about. They have huge titles coming Q3 and Q4 of this year. I don't see how they could expect to be making money, they haven't released jack since Gears of War.

    Several reasons MS doesn't have to worry (at least about game/console sales):

    • Forza
    • Halo 3
    • Halo Wars
    • Gears Of War 2
    • Ace Combat 6
    • Huxley
    • Spore
    • GTA4

    They haven't released any compelling games, so sales are down. If there aren't games, people don't want to buy the console. That's the biggest problem the PS3 is f

      • No one?

        I'm sure I'm not alone in waiting for a high powered flight game where Over-G failed to deliver. I have always loved the Ace Combat series, and by looking at the gamespot ratings, I'm not alone.

        I'm not so sure about Huxley, but it has me very curious. It is a new premise, a MMORTS on a console. It's something new that has potential to be pretty cool.

        Forza can attarct Grand Tourismo fans that like other 360 games but don't want to give up that franchise without a replacement. It's an importan

  • So do people still think MS sells the 360 4profit? (Score:5, Insightful)

    by bestinshow (985111) on Friday April 27 2007, @10:02AM (#18900643)
    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.
    • They might have lost 300m on 500k sold due to them producing more. They could have made 1mil only sold half and had a 300m loss for the time.

    • Also 500k sold in a quarter, albeit a quiet quarter, is appalling at this stage in the game.
      No, 500k shipped in a quarter. They sold more than that in the USA alone based on NPD numbers. Here's what happened: they overshipped during holiday 2006 just to say that "we hit our 10 million shipped target for 2006" (they actually reached 10.4 million) so lots of retailers had stockpiles of unsold 360s for this quarter.
      • Sony currently has 2 or 3 billion dollars of debt, so no, I don't think anyone would prefer to be Sony right now...

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