Xbox 360 To Profit Next Year, Says Bach

An anonymous reader writes "Robbie Bach, president of Microsoft's entertainment and devices division, has stated he expects the company's console business to finally break even some time in 2008. After years of losses from the games division, this would be a significant breakthrough for Microsoft's efforts in the games industry. '"Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate," he said, admitting that "costs are a little higher than we'd like." Microsoft doesn't expect to make a profit on hardware alone, but "we'll probably be gross margin neutral on that over the life cycle of the product, and try to break even on that."'"

Disapointing

[HappySqurriel (1010623)]

Should it be news that a company is going to break even or start making money on a product line?

I understand the loss leader strategy, but it seems a little insane that a company has to wait several years before they can start making money on a product.

Re:Disapointing

[Quila (201335)]

Long-term vision is so rare these days that people are surprised when they see it.

Short-term Wall Street thinking wouldn't have allowed this. They'd say the XBox division was running a loss for 12 quarters straight and demand they stop the cash drain.

Re:

[HappySqurriel (1010623)]

Long-term vision is so rare these days that people are surprised when they see it.

Short-term Wall Street thinking wouldn't have allowed this. They'd say the XBox division was running a loss for 12 quarters straight and demand they stop the cash drain.

Long term vision is not what I would call the XBox or XBox 360 ... A vision does not take 7 years to finally break even on a yearly basis after you have lost $6 Billion. As far as a return on investmet, the XBox brand may finally break even as a whole after 10

Of course, everyone wants instant gratification

[Maximegalon (1003655)]

"A vision does not take 7 years to finally break even on a yearly basis after you have lost $6 Billion."

First off, your numbers are off. The classic xbox launched 11/01. Work may have started earlier but you don't earn sales until the product comes out. Profitability is expected in 06/08, not 11/11. So you are off by 3.5 years when you say it took them "10 years" to make a profit.

Also, the last stat I saw said an estimated 5 billion lost, not 6 billion. Finally, the hardware is now making a prof

Re:

[rtb61 (674572)]

How is the M$ stock going against it's record high, somewhere between a half to a quarter of what it was when they started the whole xbox failure.

How much has the xbox hurt the M$ pc games division. Not only has it lost money but it is also causing other divisions to loose money. Does the xbox account for a licence fee of the windows operating system, or has that been written off as well. When they are talking about being in profit, is that overall or is that just for that year and overall they will still

Re:

[frakfrakfrak (1049468)]

Long term vision is not what I would call the XBox or XBox 360 ... A vision does not take 7 years to finally break even on a yearly basis after you have lost $6 Billion. As far as a return on investmet, the XBox brand may finally break even as a whole after 10 years making their profit 0% after 10 years (a pretty awful return) so investors would be right to be angry at Microsoft.

Yeah, that's great, but what about 15 years down the road? Or 20? In 20 years, who knows if Windows will still be the cash cow

Re:Disapointing

[Endo13 (1000782)]

Um... I would actually say they're doing pretty good to be making a profit that quick. According to Wikipedia it took Amazon.com [wikipedia.org] about 8 years to become profitable. And this [XBox] was just one branch of a much larger company; MS as a whole has still been quite profitable for their shareholders in the meantime.

And hasn't their X-Box Live been profitable from the start?

Re:

[Blakey Rat (99501)]

What bothers me is the fanboys using the amount of profit Microsoft makes as a justification of how much better Sony and/or Nintendo consoles are. As if I, as a consumer, give a rat's ass what the Xbox costs Microsoft to make... that's their problem, not mine.

"Yeah, Xbox 360 might have better graphics than Wii and PS 3 but, uh, ... uh... Microsoft doesn't make a profit!"

Re:

[Applekid (993327)]

If a console isn't generating [enough] profit, it always runs the risk of being abandoned. That's usually bad for gamers*.

That said, it's unlikely Microsoft would abandon XBox even if it didn't make a profit next year or even the year after. It's there simply to be in the market. The justification is likely the same as Windows: get enough people familiar with the platform and nobody will even consider the alternatives.

The statement is nothing more than to pacify the shareholders on the recently news that Mi

Re:

[xero314 (722674)]

As if I, as a consumer, give a rat's ass what the Xbox costs Microsoft to make... that's their problem, not mine.

it becomes your problem when you have a significant library of games and nothing to play it on because Microsoft decides to stop losing money and gets out of the console business. I'm not making a prediction, just pointing out that a companies profitability is important to the consumer.

Yeah, Xbox 360 might have better graphics than Wii and PS 3 but, uh, ... uh... Microsoft doesn't make a profit!

Allow me to fix this for your "Yeah, XBox 360 might have better graphics than Wii and about the same as the PS 3 but, un ... uh... Microsoft nor Sony make a profit on their current console sales."

Re:

[xero314 (722674)]

Holy shit, MS rigged their Xboxes and 360s to self-destruct if they ever got out of the console business?

They didn't have to, the tend to fail on their own with out self destruction, like all consumer electronics do eventually. To problem comes in when you have to find a replacement for your broken one. Or when the next generation comes out and you don't have ANY backward compatibility since MS stopped making consoles. It's still all hypothetical, but their success in the market certain effects their consumers.

Re:

[treeves (963993)]

My 7 year old son won an XBOX 360 w/ 12GB HD and we've been using it for a couple of months and recently it started freezing up in the middle of play. Any suggestions for hardware defects to look for?

Re:

[JebusIsLord (566856)]

The warrantees are good for a full year... send it back. They'll even pay for shipping.

Re:

[bigman2003 (671309)]

1-800-4MyXbox

I have returned 3 of them, and my current box is making strange fan noises.

I think the 360 is an awesome game system, but the hardware failures are killing me. The fact that the Elite wasn't the die-shrink was a little disappointing. And the failure rate must be killing Microsoft. I figure they have spent at least $50 just on the shipping of my boxes alone.

I will say that the last experience I had with their support was fantastic. They have a very quick and easy self-help phone tree...no, it

So really...

[Tarlus (1000874)]

Nintendo seems to be the only company who is actually generating a profit from their system. And the demand is still so high that they predict it'll be selling out like hotcakes till 2008.

I wonder if MS and Sony are learning anything from this... Not to say that breaking even would be a major financial loss to (especially) Microsoft, but are they really concerned one way or another about this?

Re:So really...

[twistedsymphony (956982)]

to be clear MS is already making a profit [techspot.com] on each Xbox 360 console sold, and has been since last November (I'd be willing to bet they're making a killing with the Elite version)... 2008 simply marks the point where the Xbox division as a whole finally gets out of the red, most of that is making up with losses from the Xbox 1 which IIRC never made a profit on a per console basis.

Re:

[brkello (642429)]

I sure hope they are learning things but that they aren't thinking about following that model. Nintendo really lucked out that their controller was a big hit. It was a huge risk and it is paying off...good for them. But I also like what the Xbox360 and PS3 are doing. I like that they are trying to put cutting edge technology in to their boxes. It allows for a lot of graphical and AI improvements. Really, anyone can make a motion sensing controller now that it is known that people enjoy that sort of th

Re:

[Endo13 (1000782)]

I think you're missing part of the lesson to be learned from the Wii. That being that innovation in gameplay (not necessarily just in designing a radical new controller to change/enhance gameplay) can be a much better investment than simply more power and nicer graphics. In other words, it's good if games look nicer, but games have already looked pretty good for a few years now and there's a point where better gameplay is just a lot more valuable than better graphics. Most of this burden generally falls on

So...

[casualsax3 (875131)]

... their games division is going to make +$5 billion between now and next year? I think he meant to say "in 2008 we expect that we will stop hemorrhaging cash out of every orifice."

As much as I hate Microsoft...

[Vrejakti (729758)]

...I have to admit, they've made a lot of smart moves getting into the console industry. The original XBox faced many difficult challenges in gaining sales. However, they learned much from where things went wrong, and came out strong with the launch of the XBox 360. Perhaps their biggest advantage has been the availability of the XBox 360 at retailers during the times of Wii and PS3 shortages. Even if they haven't made a profit up to this point, the amount of market share they've picked up along the way leaves them with a very bright future.

Re:

[drinkypoo (153816)]

Perhaps their biggest advantage has been the availability of the XBox 360 at retailers during the times of Wii and PS3 shortages.

I agree on the Wii tip, but the PS3? There were shortages for about two weeks and then it began sitting on shelves. Lonely. Alone. With no one but a bunch of other PS3s to keep it company. Many people didn't even bother to come get their preorders!

Re:

[Applekid (993327)]

I'd take issue with that biggest avantage. I'm not convinced that 360 availability in lieu of the Wii (and PS3 for, what, those two weeks?) was really that significant.

I don't think people looking for a Wii and what it brings would be ok picking up a 360 instead. Likewise, people in the market for a PS3 aren't going to be satisfied with a 360. People don't want "a video game system", they ask for systems by name.

Then again, maybe I should have asked a mall Santa Claus what the kids were exactly saying.

Re:

[drinkypoo (153816)]

I don't think people looking for a Wii and what it brings would be ok picking up a 360 instead.

I don't have any statistics, so use the appropriate amount of salt, but I both know people personally and even remember comments here on slashdot where numerous people have said that they purchased an Xbox 360 because they either couldn't find a Wii or couldn't afford a PS3. The Xbox 360 has been the winner of MANY purchases simply by default.

Is that the biggest reason? Hell no. The biggest reason is that they

Lessons

[hansamurai (907719)]

Microsoft and Sony are learning something this generation, mostly that throwing the most powerful hardware you can buy at the consumer sells systems, but not at the rate you could be if you lowered your costs. I think we'll see a change in at least one of these juggernauts next round.

As for profiting, good for them, but seriously, just keep delivering good games and people will buy your system. I don't own an Xbox 360 but there's a few games coming out this year (GTA, Halo, Mass Effect, Burnout) that have me considering. I've owned a Wii, and it was great, then the supply of games I was interested in fell off, so I sold it to my brother in law. I'll probably buy another when the games I want to play start coming, mostly just Smash Bros. at the moment.

Re:

[drinkypoo (153816)]

Microsoft and Sony are learning something this generation, mostly that throwing the most powerful hardware you can buy at the consumer sells systems, but not at the rate you could be if you lowered your costs. I think we'll see a change in at least one of these juggernauts next round.

I think that in the future we're going to see the various manufacturers/developers taking different strategies. Sony is the only company I'm puzzled about. Microsoft has already demonstrated a willingness to spend enough money

Re:

[Kelbear (870538)]

3rd category?

Fast and innovative.

It's not all that hard to imagine. The Wii itself isn't spectacular, it's main goal is being cost-effective with a small budget. It's the controller which is bringing the innovation and the controller has already been applied to various other applications.

No reason why there can't be a fast and innovative category. Nintendo could do it themselves if they want to expand in that direction. Nintendo said it plans to compete using innovation instead by performance benchmarks. Bu

Re:

[drinkypoo (153816)]

I suspect that Nintendo's next system WILL be fast. Maybe still slower than the competition, but closer than this one.

Innovation doesn't have to ditch the tried and true. Just like how new games aren't always good, and games that just do the same stuff with better execution can be a hit.

by definition, the same stuff with better execution isn't innovative. it's just another iteration.

Re:

[Kelbear (870538)]

Sorry, that was my bad. My brain must have blinked.

What I should have typed is "Innovation isn't the only benchmark for quality in gaming."

Re:

[drinkypoo (153816)]

What I should have typed is "Innovation isn't the only benchmark for quality in gaming."

Well, I agree with that. There are several metrics by one which can measure. Innovation is definitely ONE of them, because let's face it, while many of us (including me) do enjoy some of the tried-and-true, we're also often looking for a new experience.

We've pretty much gotten to the point where most games won't benefit from more impressive graphics, though. They could look more real, but it wouldn't improve the gamepl

Re:

[meringuoid (568297)]

I think that there is room for an expensive, powerful console. I just think Sony overestimated how expensive "expensive" could be.

I think part of the problem Sony has hit here is that their competition isn't really the 360 or Wii. It's a PC, or an upgrade to an existing PC. Reasoning like: 'if I were to buy an Xbox instead of a PS3, what would I miss out on? If I instead spent the difference on getting a better video card and more memory in the new PC I'm going to buy anyway, what would I gain?'

Sony's b

Re:

[theStorminMormon (883615)]

I think we'll see a change in at least one of these juggernauts next round.

I'm not as sure. Nintendo's strategy is working so far, but I don't think either MS or Sony is likely to try and compete in the "fun" gaming category. (Read: budget category.) As a general rule margins are higher in the high-end regions (see: Dell v. Alienware) and I think the real problem is that MS and Sony have failed to really capture the excitement of gamers out there. I mean the hard, hard-core gamers (the ones who call the

Hardware Repairs

[alvinrod (889928)]

I recall reading an article a short while ago that suggested one of the main reasons that they're currently not profitable is because of the extended warrenty that they offered and the number of console replacements that they've had to make. I don't know how prevalent the problem is, but I've heard stories of some people having to send the console in for repair three or more times. I'm not sure how much of this is true, or if it's just Sony or Nintendo fanboys trying to rip on Microsoft.

I do believe that the main problems are faulty DVD drives that result in a scratched disc due to a missing component in some of the drives by a certain manufacturer and either a solder point failing or some component on the motherboard becoming unseated after the board warps slightly due to cooling related issues. I don't know if the Elite solves any of these problems by adjustments to any of the components, but I'd like to think that as they transition to 65 nm chips, they'll solve some of these other issues as well.

I haven't seen any hard figures, but I'd have to say that based on what I've read, the Xbox 360 is running into some of the same problems that the PS2 had, namely cheap hardware that fails early in the products life cycle. The disc drive on my PS2 has recently started to go bad, but I've had it for several years, but if it had happened early on Sony wouldn't have covered it. At least Microsoft is providing some good customer service. I think that everyone could save some money, however, if they'd spend more time designing and testing the product to begin with and not buying the cheapest parts available.

Re:

[hibiki_r (649814)]

Good customer service? I guess you never had to call them yourself. They'll argue with you about having to pay for the box, about your console being in warranty, and lie about what you're getting back. I have friends in their second replacement already, because the repaired box they got lasted a whole two weeks!

And, if your console's problem is not 'it doesn't work', they'll probably tell you that they won't replace or repair anything. The drive is going bad and sounds like a vacuum cleaner? It fails to rea

Re:

[by Anonymous Coward]

Don't you ever equate the pathetic 360 hardware with the PS2 again.

There are 110 million PS2s out there and they have been running for the past seven years without reports of units dropping dead. Never have people reported problems with PS2s outside of DVD lasers that eventually got dirty or needed to have the focus adjusted with the nob inside the machine. It was not until the massive 360 defect problems started to become public that we suddenly starting hearing stories where, amazingly, 360 owners claimin

Re:

[tgd (2822)]

And they'd be even less profitable if the replacement units had year warranties instead of the warranty ending at the end of the first unit's year.

They're going to be profitable because of everyone who has replaced one a time or three under warranty now having to buy new ones.

My second warranty replacement died last weekend. Now I'm out of warranty.

Worst part is, even if I buy a new one I have to beg them to refund my XBLA purchases so I can get them on the new box... or spend $100 buying them again, too.

Th

Re:

[cgenman (325138)]

I'm a huge fan of the 360, so take this as you will. But that thing does fail more often than it should. In addition to what you've listed, you can add power supply failure as a major problem.

I went through 3 PS2's and 2 PS1's in their lifespans, and I got in pretty late on the PS1. I wouldn't be suprised at all if the first batch of 360's didn't last more than two or three years average for even casual gamers. Hardcore gamers: expect to replace a few.

I don't even want to know what PS3 fail rates are go

Good news

[Sciros (986030)]

Well, things are going according to plan it seems. Microsoft knew they'd lose a lot on the Xbox generation but would position themselves for profit in the next, and that's exactly what they've done.

Microsoft has LOTS of money, and can afford to make long-term investments that are in the billions-of-dollars range. Keyword: investments; they are not just throwing money away here. Their business model seems to be working, so good for them. (As long as it means I get to play good games on my 360 ^_^ otherwise I don't care)

I wonder what position SONY is in... is SCE looking to break even on the PS3 at *any* point in the future? Maybe, maybe not... the money they've spent on marketing alone, coupled with the losses on each console... the PS2 is probably covering a lot of that but I doubt it's anywhere near all of it.

Re:

[Sciros (986030)]

Paid for itself = break even. From then on = profitable. So you've answered your own question.

Don't take what I said as a "dig" at SONY. The fact of the matter is, both Microsoft and SONY are fully capable of just saying "screw it we're bored of the gaming industry" and kill off that whole branch of business if they decided it's nothing more than a liability. SCE was something like $2 billion in the red at the end of the 2006 fiscal year. So, it's a genuine concern on my part. I believe SCE has more than

*MIGHT* break even

[vux984 (928602)]

Microsoft doesn't expect to make a profit on hardware alone, but "we'll probably be gross margin neutral on that over the life cycle of the product, and try to break even on that".'"

"Probably be gross margin neutral" ... "try to break even on that"

Unless, they have to lower hardware prices in response to pressure from a desparate Sony division.
Or sales continue to drop off, and not get picked up next christmas. Xbox had a GREAT christmas 2006 simply because PS3 and Wii were nowhere to be found -- next chris

Same Story For The Past Six Years

[by Anonymous Coward]

Every year whoever is the latest person to be running the Xbox stuff says 'next year we will finally break even.'

The failure rate on Xbox 360s somewhere in the 30-40 percent range - and right from the latest quarterly report Microsoft indicates that having to extend the warranty period for current 360 owners and the cost of replacement units is a huge cost. The move to 65nm has been moved back to later this year and it remains to be seen if that will finally keep the 360s from failing. It has been a year an

Re:

[MobileTatsu-NJG (946591)]

"The failure rate on Xbox 360s somewhere in the 30-40 percent range..."

I seriously doubt that number.

Re:

[MobileTatsu-NJG (946591)]

"I don't doubt it at all. I've seen so many reports and first-hand accounts of Ring of Death 360s that I'm surprised any of them work."

You've seen 5 million reports? You've talked to the other 50% that have operational units? You think ANY company would have a defect rate that high and NOT stop production until it's fixed?

"And still people defend Microsoft. I don't get it."

And people still attack Microsoft sans-common sense. I don't get it.

Re:

[Rakishi (759894)]

And people still attack Microsoft sans-common sense. I don't get it.

Welcome to human psychology, it's always the other guy whose an irrational zealot and never you.

Re:

[MobileTatsu-NJG (946591)]

"Welcome to human psychology, it's always the other guy whose an irrational zealot and never you."

Well... I suppose you've got a point, depending on which way public opinion swings. Still, though, accusations of irrational zealotry can be combated with evidence or rationale that doesn't rely on characterizations of people/companies that only Warner Brothers would be suited to animate.

Yawn @ the blatant PS3 fanboy.

[by Anonymous Coward]

Kindly provide well founded evidence for the following of your claims:

- 30% - 40% failure rate of the XBox 360

- That failing elite units are a common occurance, more so than just the standard defect rate for any other electronic hardware

- That Bluray production prices have dropped "dramatically"

If you'd kept out the pro-Sony stuff, you could well have squeezed your pro-PS3, anti-MS troll post through, however the pro-Sony stuff is absolutely laughable, to suggest the PS3 has any chance at all of breaking even in the next few years - even if it starts selling is a complete joke. The fact that the PS3 loses far more per unit sold than the 360, and sells far less games per-unit as well as not making anything from it's online service demonstrates how utterly daft your claim is.

I'm not sure what you're on about when you suggest the 360 has extremely highly priced peripherals either, the 360 controllers are actually the cheapest out the lot, here in the UK a 360 wireless controller can be purchased for £19.99, a Wii-mote for £24.99 and a PS3 Sixaxis for £27.99. The 360 HD-DVD drive can be purchased with the premium console together for less than the PS3, in fact the only addon for the 360 that is rather extortionate is the wireless adapter which is a fair point.

XBox live is indeed pay for, congratulations on recognising that, but it's also a much better service, the term "you get what you pay for" really couldn't be more appropriate, pay nothing and get shite, pay something and get a decent service, seems like a fair compromise.

You do have some valid points, but unfortunately they're points that don't have anti-PS3 counter-arguments. It's not as if the PS3 is exactly default free when it also suffers overheating issues (which I'd argue is worse, at least MS' consoles outright fail so you can get them replaced, good luck getting an intermittently crashing PS3 replaced - you just have to live with it).

The irony of your closing statement is rather amusing, of all the players in this generation that are having to look at closing shop in the console business it is undoubtedly Sony, with the uncertainty as to whether they can turn a profit or even aquire a feasible userbase. Whilst Microsoft is starting to make money with the 360 and their general gaming division, Sony is beginning to lose it, and lose it fast.

Standalone Blu-Ray readers at $300 now

[SuperKendall (25149)]

That Bluray production prices have dropped "dramatically"

That Blu-Ray pressing costs have fallen is pretty obvious just from the number movies and games pressed - with greater numbers comes lower costs.

However we have evidence not only of cheaper disc production costs but also cheaper drives - Pioneer has announced a $299 external Blu-Ray drive (reader, DVD writer only). That's much cheaper than any external Blu-Ray drive sold to date. It's easy to imagine by next year even consumers could buy an externa

Just like Linux desktop?

[mangu (126918)]

Every year whoever is the latest person to be running the Xbox stuff says 'next year we will finally break even.'

Maybe they are assuming they will break even when the Linux desktop dominates the market? Perhaps it's all planned: when Microsoft doesn't dominate desktop computers any more they will monopolize the gaming industry. </tongue in cheek>

Xbox live &c?

[MaliciousSmurf (960366)]

Correct me if I'm wrong, but aren't they making a huge pile of cash off of XBox Live? I thought the idea was to sell the console below cost, and make money off of games and services. So whether or not the hardware is making money isn't really news?

Good to know

[BlueFiberOptics (883376)]

"Xbox 360 To Profit Next Year, Says Bach" It's always good to see a world famous musician forecast when Microsoft's XBox division will become profitable.

Re:Poor Microsoft!

[MooseMuffin (799896)]

You think its easy to build dvd drives that loud? Its not like they just buy drives off the shelf, none of them can meet their required noise level. They have to go to each dvd drive manufacturer and pick through their defect bin by hand to ensure that every 360 has that trademark sound. And we 360 owners reap the benefits. Clearly, my 360 must be super fast and powerful if its louder than my car.