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XBox (Games) Microsoft The Almighty Buck

Xbox Division Down $4 Billion 100

Posted by Zonk from the ouch dept.
Forbes, in a long article about Microsoft's monetary situation, drops the news that the Xbox division is $4 Billion in the hole over the last four years. From commentary on C|Net: "That's a lot of money, even for Microsoft, which Forbes also says has a war chest of $40 billion in cash. Just before Thanksgiving, Microsoft will launch its next-generation console, the Xbox 360. The early word is that the 360 will also start its life as a loss leader, though Redmond insists the new box will soon be a moneymaker. Either way, it's got a long way to go to get back to even, and though Microsoft is a rich company, it surely doesn't want the Xbox 360 known as an albatross around its dividend-paying neck."
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Xbox Division Down $4 Billion More

Xbox Division Down $4 Billion

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  • I'd just like to be the first to say that I hope the Xbox 360 is just as successful as the original Xbox.

    • Re:Best wishes! (Score:3, Interesting)

      by RootsLINUX ( 854452 )
      Agreed. With less consoles, developers can spend more time developing games and less time porting games to multiple different consoles. On the otherhand, if M$ retreats from the market and the major players get down to Sony and Nintendo, unless a balance is maintained between the two, we may see a monopoly, which is not a good thing for anyone except greedy CEOs and stockholders. But I hate "console exclusive" games because I don't want to buy a console just to play one or two games I can't play anywhere el
      • Yeah, I'd like to see Nintendo do better. I have both a GameCube and a PS2--currently the new slim PS2, but I previously had one of the original ones. The GameCube is a far nicer piece of hardware than either model of PS2. Some of the games are much better, too.

        Ultimately, though, Nintendo just don't seem to be able to deliver enough games with enough variety; and it's generally harder to find GameCube games in stores than to find PS2 games. I wonder why?

        Right now I'm dreading that the lineup for the Ninten
        • Kids love Gamecubes. I mean, let's face it, that's what Nintendo is going for.
          Their current games seem to be either gimmicky "Donkey Kong Jungle Swing" type of games, or rehashed "Pokemon RedishBlue: Pearl Edition" games.
          Where are the games with cool ideas and substance?
          Where are the games like Yoshi's Island, where they took the platformer genre and mixed things up?
          Where are the games like Mario 64 where you got incredible environments, great puzzles, enormous replay value, and cool controls?
          All their gam
      • See, I kind of think the opposite. I wish the consoles were more different, because then we'd get more types of games. I'd rather developers not port at all, because a port probably won't take advantage of much of anything that makes a particular piece of hardware unique. If a console only has one or two exclusive games that I can't get anywhere else, well, that's just not a good enough reason for me to buy that console. I'll just play it at a friend's house, or maybe rent the console for a weekend or somet
    • Heh, it would be better if it was 360 times the loss.

    • Re:Best wishes! (Score:2, Insightful)

      by Minced ( 871651 )
      I am sure stock holders don't view the X-box as a success, it is a financial nightmare.

    • Re:Best wishes! (Score:2, Funny)

      by Oz0ne ( 13272 )
      That was the first time I've ever laughed out loud reading slashdot.

    • Too bad I don't have mod points, I think your post is funny.

      But seriously, the Xbox was successful in a way. It drives down the profitability of those who wish to sell turing-complete devices that don't run a Microsoft OS, and to accomplish that 4 billion is a bargain. One significant threat to Microsoft is that someone might someday decide to sell a game console with vga or dvi output and a usb port, and that can run firefox, open office, and an email client. Suddenly, people find they can do 90% of w

      • What about the PS3? It'll run Linux, so it *Should* be able to do that...

        • We can only hope.

          Really, this is only a threat to Microsoft if it is shipped by default as an easy-to-use drop-in PC replacement. Realistically, the masses aren't going to use Linux unless all the system administration and configuration details are well hidden. Also, no one wants to write email or surf the web in front of their TV, unless they are one of the few with high-resolution plasma displays or similar. From wikipedia, it doesn't look like PS3 is going to have DVI or VGA output. It does have US

          • My guess is the PS3 will 'run Linux' the way the PS2 does--as an expensive crippled add-on option that's very little use. Sony don't seem to realize that open platforms are a good thing, and the PS2 Linux was no exception.

            (The PS2 had USB and Firewire, then just USB in the later models. It seems like at some time Sony thought it might be more than a console, but they gave up on the idea.)
            • It was probably the 32MB of RAM limitation that caused them to drop the idea (of the PS2 being more than just a console), it's not quite enough. I've got one of the Linux kits and I love it, I just wish that Sony had done a general release of it at the later $99 price. Let people turn idle big PS2's into cheap web browsing/e-mailing/file storing machines to serve alongside the family PC.

          • the PS3 does have HDMI so I suppose an HDMI to DVI dongle is possible. There is/was a VGA cable for the PSfoo standard multi-out connector


      • your wish is granted! Too bad the kit was a limited release. I haven't tried compiling OO on it, though I do have AbiWord. use NTSC out, not DTV or VGA which are also supported.

      • I know it's par for the course (or at least thought to be) but isn't selling a product below cost an anticompetitive practice (dumping)? Shouldn't the FTC or whatever handles that look into the issue?
        • I know it's par for the course (or at least thought to be) but isn't selling a product below cost an anticompetitive practice (dumping)?

          No, I think it's more complex than that. I can't remember what other issues are involved (comparison to other products in the category?) but it's not just selling below cost. Also, don't forget that MS is an American company, competing against two Japanese companies. Allegations of dumping are almost always nationalistic/political, and, even if it was dumping, the FTC wo

  • Microsoft vs. Nintendo (Score:5, Informative)

    by popo ( 107611 ) on Wednesday September 28, 2005 @04:00PM (#13669594) Homepage

    Now might be a good time to point out the frequently bashed Nintendo, smallest of the 3 console makers -- is profitable.

    Personally (I own both a GameCube and an Xbox) I always thought there was no contest in graphics quality between the GC and the Xbox. The antialiasing on the GC *destroys* the Xbox.

    Hardware geeks constantly tell me that Xbox has fantastic antialiasing capabilities, but my answer is always: Show me.

    Take SSX on the the GC vs. the Xbox: the Xbox version is full of jaggies. The GC version is smooooth.

    Anyway ... I ramble.

    The point: GC was a fantastic console, wound up 3rd in overall sales -- but from a financial perspective was a clear winner.

    • Dragging down MS by not buying Xbox games (Score:2, Interesting)

      by Anonymous Coward
      I'm pretty similar to you, except that my console of choice for gaming is the PS2. My Xbox just sits on the side mostly playing audio CDs and the occasional DVD.

      Both of us have in effect contributed to the $4 billion loss by not buying many (or any) Xbox games, beyond what was in the original bundle.

      I'm happy with that. I suffered at the hands of MS for years (no choice of O/S at work), so in my small way, this is payback.
    • Nintendo might be frequently-bashed, but it sure isn't on this site. Almost every games article contains some mention about how Sony and Microsoft may have gotten X wrong, but by God Nintendo always got X right.

      In short, I question the very premise of your comment. Where is Nintendo frequently-bashed?
    • Yep, SSX has terrible aliasing on the Xbox. So does Jade Empire. For an example of a game with good antialiasing see Ninja Gaiden.

  • Expected to lose $5B (Score:3, Insightful)

    by GoNINzo ( 32266 ) <GoNINzo.yahoo@com> on Wednesday September 28, 2005 @04:11PM (#13669698) Journal
    I seem to recall a news article back in the day that said that Microsoft was going to risk five billion dollars on it's entry into the marketplace, but I can't find it anymore. However, I did find this article [com.com] about how they expected to get into the black in 2004. I wonder if investors will examine that when they only just now were profitable in Q4 of last year [com.com] for the original xbox. And that's just for that quarter, not recouping the losses before that.

    I think that microsoft expects nintendo and sony to just disappear after they take over the marketplace. They are trying to apply the same PC monopoly idea. However, it's not like that, the market is entirely different. There's room for multiple platforms at the top. So it's going to be interesting. Short term, the consumer should win due to the price wars. But long term, we might end up losing if it's just one company there.

    • I'm wondering if the best thing that can happen to Microsoft is that it starts to take over all manner of digital home appliances and a Government forces it to be split up into little pieces.

    • Nope... (Score:3, Insightful)

      by badasscat ( 563442 )
      I seem to recall a news article back in the day that said that Microsoft was going to risk five billion dollars on it's entry into the marketplace, but I can't find it anymore.

      Not sure what you were reading, but the figure I saw repeatedly was "as much as" $2 billion, such as in this article here [com.com].

      $2 billion was already a chunk of change. Now it's double that, and they never did get into the black. Clearly something is not right at that division, and it really does make you wonder about the financial prosp
      • What they got out of xbox was a change in market and mindshare. Prior to XBOX, the console market had 3 players: Sony, Nintendo, Sega, in that order.

        Post XBOX we have

        Sony, Microsoft, Nintendo, in that order.

        In addition, they've set the expectation that in the next generation, it will either be Sony or Microsoft in the lead, and if Sony is leading, Microsoft will at least be close, and Microsoft will be first to market.

        At $4B, I think Microsoft got itself a bargain to be in this position already.
  • Well, over the last two weeks, as friends have been looking ahead to figure out their finances for the next few months, one thing has started to hit all of them. They don't have $800 for a game system. All of them have 360 pre-orders, and yesterday the last one told us that he's going to go down and cash out his pre-order for the new williams collection release. This last friend was a surprise as he's what I consider a bleading edge adopter. He's the only guy I know that bought a 3DO when it came out at the
    • I'll buy one, but not the ripoff $800 bundle (created by the retailer, BTW, *not* Microsoft, to address a frequent error I see here on Slashdot.) I'll go to the local Target or Fred Meyer early on the day of release and pick one up for $400, along with Kameo and maybe Elder Scrolls 4 if it's out.

      Do you seriously wonder who the hell is buying these systems, BTW? I mean, come on! Just because three of your buddies made a $800 pre-order that they can't pay for, that means *everybody* who did the same pre-or
  • It is worth noting that virtually all game systems in the past have initially been sold at a loss whent hey first hit the market. Eventually via streamlining the manufacturing process, costs come down and the company can actually make a profit selling the hardware. But initially the goal is to A) create as large an installation base as possible encouraged by lower prices, and B) make up for the loss they take on selling consoles through liscence fees from game developers.

    I am just speculating here, but I

    • Re:Sell the Hardware at a Loss (Score:4, Insightful)

      by Dan Ost ( 415913 ) on Wednesday September 28, 2005 @05:00PM (#13670223)
      I am just speculating here, but I would be willing to bet that the XBox division would be a lot closer to being in the black if the XBox didn't tank in Japan.

      There's a tautology for you: "If they had sold more of it,
      they would have made more money selling it"

      Seriously, they never expected to make serious money with
      the original XBox. The whole idea was to lose as little
      money as possible while getting the mindshare to allow the
      XBox successor (which turns out to be the 360) to make
      serious money. The real question here is whether a
      4-billion loss is a reasonable loss for what they've
      accomplished, and we won't know that until we see how
      successful the 360 is.
      • There's a tautology for you: "If they had sold more of it, they would have made more money selling it"

        Well not everyone realizes that the XBox bombed in Japan. All they see is it's relative success in the US and then wonder why Microsoft is taking a loss. I dunno if they would have been in the black by now if the XBox was a success over seas, but I am sure they hoped and expected it to do better than it did.

        Seriously, they never expected to make serious money with the original XBox. The whole idea was
        • Well not everyone realizes that the XBox bombed in Japan. All they see is it's relative success in the US and then wonder why Microsoft is taking a loss. I dunno if they would have been in the black by now if the XBox was a success over seas, but I am sure they hoped and expected it to do better than it did.

          I don't really have any doubt that they would have been closer to their forecasts (and to predictions of a $2 billion loss [com.com] rather than a $4 billion loss) if they'd done better in Japan. They seem to be
        • Well not everyone realizes that the XBox bombed in Japan. All they see is it's relative success in the US and then wonder why Microsoft is taking a loss. I dunno if they would have been in the black by now if the XBox was a success over seas, but I am sure they hoped and expected it to do better than it did.


          I really don't understand the logic behind this. Selling more of a system that you're selling at a loss in the first place is not can to cause you to make more money in fact it'll put you farther in
          • I really don't understand the logic behind this. Selling more of a system that you're selling at a loss in the first place is not can to cause you to make more money in fact it'll put you farther into the red.

            You may be right. The idea is that they take a loss on the consoles but make a profit on the games, but it doesnt look like they got in the black even here in the states until very recently. And that didnt make up for their prior losses. So if they were more popular in Japan, I guess they may have l

      • The real question here is whether a 4-billion loss is a reasonable loss for what they've accomplished,

        Indeed. However, we know the answer to that now: they make 4billion USD pure profit per quarter . The only 2 divisions which are profitible are Windows and Office (there may be a third this last quarter that got a meager couple million profit iirc). Those two divisions make money hand over fist, with absurdly huge profit margins and volumes. And this 4bn pure profit includes Xbox division losses!

        The

    • It's worth nothing that until very recently (past few years), NO game system was sold at a loss when it first hit the market, or at any other time thereafter.

      Nintendo, for one, has only ever shown a loss on a console once, and that was about $10 for a couple of months, well after the intial release date, and this was very recently.

  • Home and Entertainment Division losses (Score:5, Interesting)

    by genedefect ( 845080 ) * on Wednesday September 28, 2005 @04:33PM (#13669882)
    Let us all not forget that the losses for the Home and Entertainment Division as a whole were $4 Billion USD. Not just Xbox. If anything, Xbox only accounted for about $1.5 Billion of those losses and was also responsible for the profit in Q404. Remember, The Home and Entertainment Division also encompesses the loss leading eHome team, DirectX group, Movie Maker, Windows Media Player, Windows Media Connect, Media Center Extender, IPTV, on and on. Out of all of those, Xbox is pretty much the only one generating any significant revenue and has a chance for any significant profit within the next 2 years.

  • Why does it seem that whenever the subject of Microsoft finances comes up, they always seem to have a warchest of $40 billion?

    Is an old figure being reused, are they just breaking even, or do they spend anything over $40 billion on different projects?

    • the $40Billions of cash is a good estimation.
      As a smart company (as far as money management goes), MSFT does NOT keep loads and loads of cash (although some could argue that $40B is already loads and loads...).
      So, they invest most of what they get. Sometime, it pays and sometime not.

      You can find MSFT cash flow easily online:
      http://finance.yahoo.com/q/cf?s=MSFT [yahoo.com]
    • Last year they had a one time $30B special dividend, and bought back $30B of their own stock ... so that's $60B they spent right there ...
    • Their accountants probably just plan to have $40 billion cash on hand for the company. It's a nice even amount. If they always have $40 billion cash on hand, that just means that their accountants are doing a good job.
    • Microsoft probably circulates its money around different divisions for different purposes. The 'warchest of $40 billion' is probably just 'in the event of an emergency' money. That and its probably 'if people start looking at the financials, distract them with this money.'

  • Looking Forward to the 360 (Score:3, Insightful)

    by MiceHead ( 723398 ) on Wednesday September 28, 2005 @04:48PM (#13670059) Homepage
    I'm looking forward to the Xbox 360 for two reasons:

    • Xbox 360 Live Arcade Mushroom Toaster Strudel - In theory, Arcade will allow more small-fry developers to create content for livingroom audiences. The greatest barrier to profitable indie development on the console at the moment seems to be that the only viable way to sell console games is through a retailer, (which often requires the clout and money of a big publisher). Remove that barrier, and -- for what it's worth -- smaller studios have a shot. I believe some indie games have already gone this route for Xbox Live Arcade [garagegames.com]. And MS has already courted one small studio to create content for X360LA [edge-online.co.uk].
    • Windows 360 - The original Xbox was basically a stripped-down-Windows 2000 box running DirectX 8.1, making Windows desktop->Xbox console ports a relative snap. I've read that the 360 will function along the same lines, with XNA [microsoft.com] making that process even easier. This is great for small developers, because it means production for consoles will be within our reach.

    It's currently pretty easy to develop code that compiles for both Windows and Pocket PC. I'd like to be greedy and ask for the same thing for the console.
    _________________________
    www.dejobaan.com - Games and other games.
  • The real test of any model is what happens to it when pushed to the extremes. In the past, the console hardware has usually been a loss leader. The console manufacturer takes a loss on the hardware but makes it up on the royalties paid to them by game publishers on each copy of a game sold. But what are the limits of this? A large console loss means they have to ask for bigger royalties. Asking for larger royalties will scare off potential 3rd parties which is particularly bad if you are not the market lead
    • But Sony's manufacturing costs are likely similar to Microsoft's so I would guess that they will want a bigger cut from publishers who may balk at this.

      First, they will balk. Then, they will spend 12 months preparing the masses for a $10 hike in game prices. Finally, they will twist their mustaches and giggle.
  • They shouldn't have to spend this much money to get their foot in the door. This is just mismanagement, 25% of that four billion was spent on their 500 million marketing budget when the Xbox was first released and then the other 500 million was spent on Rareware. Did they not notice that most of Rare's talent went to form Free Radical and Zoonami? It didn't cost Sony near this much to enter the market, they didn't spend insane amounts of money on marketing and buying companies that stopped making good games
  • Business as usual for Microsoft. They cannot kill themselves with their stupidity and incompetence, because they always have the OS/Office gravy train.

    In my opinion, Microsoft is a shameful example of the corruption of American business. A corruption which is perceived by many worldwide, and undermines the diplomatic messages of our country. I won't go into other examples of this corruption (RIAA/MPAA, software patents, etc.) My thesis is that this single example is damning on its own.

    The collosal econo
    • "People buy their OSs! Their stuff is simple and works! Office is awesome!" the fan boys will shout. Guess what fan boys, Microsoft's cash cows, Windows and Office, were shown by the DOJ as *illegally maintained.* Microsoft lost in court. Whether or not their products ended up becoming decent after 10 years of reworking, Microsoft was proven, in court, to have illegally used their monopoly status to buy themselves the time to get where they are today. In other words, they were allowed to cheat so long that
      • No, not every business in the US is corrupt, but every 'big' business is.
        All the big US companies got 'big' by acting this way.

        We also know that Microsoft writes lousy software. How can you even question that?

        The quality of their software doesn't have anything directly to do with their monopolist status, but that status has allowed them enough time to fix enough bugs, buy enough politicians, and market their lies to people just enough that they somehow feel bad for MS and want to see them succeed.

        Stop defen
    • You need to get your facts straight; you sound like one of those crazy homeless people on the street corner blathering something about aliens.

      Microsoft was convincted of leveraging an existing monopoly to gain an monopoly in another area. They were not convincted of illegally maintaining a monopoly. They have never been held to have a monopoly on office productivity software.

      Using revenue from one product to gain entrance into another area is also not considered leveraging a monopoly position.

      You may or m
    • Ok, this is pretty rant-y and flawed in places (as pointed out by other posters), but do you seriously believe that there is something wrong with a company using income gained in one market to enter another market? That's done every day by companies of every size... it's not unethical, it's not immoral, and it's not "monopolistic." If Bob's Hardware took some of the money they made selling gardening tools to start selling automotive supplies, would you condemn them for it?
      • Nice try, but Microsoft is a monopoly convicted of illegal practices when it comes to expanding between markets. Microsoft, as a monopoly, has to play by different rules than "Bob's Hardware." Or did you sleep through the DOJ's case against Microsoft?

        Again, my disgust is with Microsoft continually failing in ventures like the XBox, but because of their CONVICTED ILLEGALLY MAINTAINED monopoly, they have an unlimited # of lives, unlike "Bob's Hardware." Take away the OS/Office monopoly gravy train, and Mic
        • You need to relax and take a nap, it's good for you.

          If you don't like Microsoft, don't buy their products. It's that simple. There's no point in giving yourself a heart attack over it.
          • You forgot: "Forgetaboutit."

            In my opinion, Microsoft isn't too far off from organized crime, and if you expect people to just "move along" about perceived injustice, why the fsck are you reading Slashdot?

            Ballmer is the one that needs a nap, and probably detox.
          • No, simply not buying their products will not make that big of a difference, as has been shown by the failures they have had so far.

            These failures have had little to no effect on their business, or the way they choose to do business.

            Speaking OUT about things we are passionate about, about things that affect us in our daily lives, about things that may have serious repercussions down the road is very important and should be encouraged.
        • "Hey Butthead, why is he famous"
          "Because he's on TV, dumbass"
          "How'd he get to be on TV?"
          "Because he's famous - now shut up!"
          "Ooohhhh yeah"

          Microsoft makes a product that just about everyone that touches a computer can use. No, not every aspect of the OS/Office, but they can move files around and create documents and spreadsheets.

          If I own a business, do I a) invest in a system that no one knows how to use or b) go with the standard, since I don't have to train people?

          And until there is another company with a
    • terrible MMRPGs,

      Hey, the first Asheron's Call was GREAT!
  • my scheme of buying a new console and used games has paid off

    http://yro.slashdot.org/comments.pl?sid=163693&cid =13669888 [slashdot.org]
  • Question: What do you call Microsoft being down $4 billion? Answer: A good start!
  • If it means protecting and extending the Windows monopoly. Microsoft is not so stupid as many of the posters have claimed in pursuing this strategy. Their goal is quite simple - to protect and expand their monopoly.

    They've succeeded already with PDAs (look at Palm using Windows in its latest Treo), are working hard on mobile phones, and can't afford to miss the console market as the whole 'home entertainment system' could well be the next big growth area and they can't risk missing out on a chance to extend
  • ...they are trying to dominate a market in which creativity should prevail with nothing more than an astronomic marketing budget and bribe money to developers. Microsoft is a corporation that has as its only objective to make money, not good games, and this means pandering to the lowest common denominator.

    The Xbox has nothing special (well *maybe* Xbox live, but if I wanted to play FPS's on the internet I would use a computer instead) and the 360 is just another boring computer too (only distinguishing feat

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