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

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

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.

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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

Of course, everyone wants instant gratification

"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 ou

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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

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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 afte

Re:Disapointing

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?

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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 m

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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 sim

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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 profitabil

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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 h

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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?

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

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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

So really...

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...

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.

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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

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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

So...

... 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...

...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.

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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. Al

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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 i

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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 numerou

Lessons

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.

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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

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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 appli

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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 wi

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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."

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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 m

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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 upgrad

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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

Hardware Repairs

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.

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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, be

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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

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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 ha

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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 g

Good news

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.

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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 gami

*MIGHT* break even

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,

Same Story For The Past Six Years

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

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

I seriously doubt that number.

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"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

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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.

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"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 ev

Yawn @ the blatant PS3 fanboy.

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

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 prod

Just like Linux desktop?

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 dom

Xbox live &c?

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

"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!

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.