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XBox Economics

Old 05-20-02, 11:26 AM
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XBox Economics

Interesting article on the economics of the XBox and Microsoft's struggle to turn a profit with the console:

http://red-mercury.com/mmceo/mmceo_current.html
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Old 05-20-02, 11:51 AM
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Interesting article. This paragraph is particularly scary when paired with the rumors that Sony and Nintendo might cut the price point on their software from $50 to $40:

If, on average, every XBox owner buys 7 software titles over the life of the console (a reasonable estimate), that's $35 per console sold that the first party gets without investing a penny more in development, manufacturing, or marketing. That's nice to have, but in light of all of the costs involved, it's not going to pay for extra hardware expense and still turn a profit...Even if Microsoft's kickback is closer to $10, Sony and Nintendo can bring that down by starting a software price war. Sony and Nintendo are perfectly happy to let you believe that they are selling their hardware at a big loss. They are even happier to let Microsoft believe that. Sony and Nintendo both know that software sales are for profits, not for hardware subsidies.
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Old 05-20-02, 12:15 PM
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Old 05-20-02, 12:46 PM
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Nice picture. If Sony and Nintendo drop the software price point M$ could be in real trouble. I would love for this to happen because then it is so much more affordable to own both the cube and PS2. I already plan on buying the cube soon if for no other reason than the kids games and resident evil. One thing though, why is metroid prime $60 at gamestop.com? Isn't that a bit high for a game?
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Old 05-20-02, 01:00 PM
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Originally posted by s}{ammer
Nice picture. If Sony and Nintendo drop the software price point M$ could be in real trouble. I would love for this to happen because then it is so much more affordable to own both the cube and PS2. I already plan on buying the cube soon if for no other reason than the kids games and resident evil. One thing though, why is metroid prime $60 at gamestop.com? Isn't that a bit high for a game?
I will never understand why anyone would want less competition. If Microsoft wasn't one of the biggest, most profitable companies in the world and it did, in fact, drop out of the game console market, just what do you think would happen to those "more affordable" prices without any competition? That $60 game price for Metroid Prime would become a lot more common. Why do you think PS2 is now $200? Because Sony was feeling generous? Right....

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Old 05-20-02, 01:01 PM
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Probably one of the best articles I've read on this subject...

I'm sure there are ways for MS to save it's console though, like, say... making PC games run on the Xbox... just like that, they jump ahead in the number of titles available by a few thousand titles. Then again, I doubt they could make money of games being sold by 3rd party companies... so they would sell more consoles at a loss while not making any money from software sale, sounds like a great way to get on top and lose a few billions in the process.

As much as I like the Xbox and it's the only of the 3 I would consider buying (while not doing so), it's a good thing for them that MS is loaded because they will probably never make a profit.
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Old 05-20-02, 01:17 PM
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Originally posted by Tamrok


I will never understand why anyone would want less competition. If Microsoft wasn't one of the biggest, most profitable companies in the world and it did, in fact, drop out of the game console market, just what do you think would happen to those "more affordable" prices without any competition? That $60 game price for Metroid Prime would become a lot more common. Why do you think PS2 is now $200? Because Sony was feeling generous? Right....
My own reason is simple. I know for a fact that MS is not out to share the console business. Anyone who believes this is blind. MS will not stop until they are beat or until they destroy or buyout all the competition. Am I enjoying the price wars that are starting, oh yeah, do I want MS to survive this, no way.
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Old 05-20-02, 01:40 PM
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That's not a news article, it's an editorial by the CEO of a company that makes software for Sony hardware and it stinks of an anti-MS slant. I find it interesting that Sony spending $1 billion on a new plant is written off like it's nothing, while MS using off-the-shelf parts - which was supposed to be a cost-saving move - is treated as a death blow. And basically, the whole article comes down to "I don't know any of their actual numbers and costs, but since MS lost money so far, I'm sure they will continue to lose it forever. Yeah, Sony's games division lost money their first year too, but that's not worth talking about."

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Old 05-20-02, 01:52 PM
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Originally posted by ipkevin
That's not a news article, it's an editorial by the CEO of a company that makes software for Sony hardware and it stinks of an anti-MS slant.

Huh? According to the website, they make software for the Palm OS. Where did you get the info that they make software for Sony hardware?
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Old 05-20-02, 02:11 PM
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Originally posted by s}{ammer


My own reason is simple. I know for a fact that MS is not out to share the console business. Anyone who believes this is blind. MS will not stop until they are beat or until they destroy or buyout all the competition. Am I enjoying the price wars that are starting, oh yeah, do I want MS to survive this, no way.
Of course Sony is more than happy to share the console business. They would never want to dominate the industry. They are not in this business to maximize profits. They are in this because they love you, the consumer, and want you to be happy. If the Sony shareholders don't like it, too bad! Give me a break! Sony is a multi-billion dollar mega-corporation just like Microsoft. They both want to kill each other and the best thing for consumers is if they both survive and prosper. Competition is what keeps prices down. If you want Sony to win then you must be a stockholder because that's the only way you might benefit from that scenario. Without competition there is no price war!
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Old 05-20-02, 02:23 PM
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Originally posted by Tamrok


Of course Sony is more than happy to share the console business. They would never want to dominate the industry. They are not in this business to maximize profits. They are in this because they love you, the consumer, and want you to be happy. If the Sony shareholders don't like it, too bad! Give me a break! Sony is a multi-billion dollar mega-corporation just like Microsoft. They both want to kill each other and the best thing for consumers is if they both survive and prosper. Competition is what keeps prices down. If you want Sony to win then you must be a stockholder because that's the only way you might benefit from that scenario. Without competition there is no price war!
Hmm, did I say anything about being behind Sony? I happen to own a PS2 and will soon purchase a GameCube, but I never said that I wanted only Sony. In fact, I said I enjoyed the pricewar going on didn't I? As long as Sony or Nintendo are on top MS can't strongarm everyone in the console business. If MS want's to keep making the xbox I am fine with it, I just hope they never get bigger than either of the other companies we have to choose from.
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Old 05-20-02, 02:32 PM
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Originally posted by s}{ammer


I just hope they never get bigger than either of the other companies we have to choose from.
No, actually you said this "do I want MS to survive this, no way."

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Old 05-20-02, 03:44 PM
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Originally posted by Grimfarrow


Huh? According to the website, they make software for the Palm OS. Where did you get the info that they make software for Sony hardware?
Sorry, I should've said they make their Palm OS software with special consideration for Sony hardware, such as the Sony Clie PEG-N710C, which was the subject of this love letter posted on their website:

http://www.red-mercury.com/N710Cperformance.html
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Old 05-20-02, 03:47 PM
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Originally posted by s}{ammer
If MS want's to keep making the xbox I am fine with it, I just hope they never get bigger than either of the other companies we have to choose from.
So you agree with me after all. Competition is good. I knew you would see the light...
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Old 05-20-02, 04:08 PM
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Competition is good, and this is a good time to be a gamer. I just hope the competition trickles into the software.
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Old 05-20-02, 05:57 PM
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Competition is good. Buy-outs are bad. What do you think would happen if the X-box was on top? Microsoft would start buying everyone out! Microsoft's existance in the video game industry is not as part of competition, but rather a threat to it. If you think Microsoft entered this industry to play nice, you are blind my friend.

Tamrok - Sony is only a multi-million dollar company while Microsoft is a multi-billion dollar company

Even if Microsoft steps out, there will still be competition. If Nintendo or Sony decide to raise their systems to $1000, then some one will come out with a $200 and take the industry. Game developers are going to make games for consoles that sell (or in X-box's place, consoles heavily financially backed).
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Old 05-20-02, 06:30 PM
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Originally posted by joshd2012
Sony is only a multi-million dollar company while Microsoft is a multi-billion dollar company
Sony's Market Cap on the NYSE is 53 billion, Microsoft is 292 billion, while Microsoft is 6 times the size Sony it's hardly a 'multi-million' dollar company (unless you count 53 billion in that category). I'm sure somebody will point out that Sony is worth more if you factor in Japanese Stock market worth (I'm not sure how all that works).
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Old 05-20-02, 06:35 PM
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Another interesting article, $1 billion towards "X-Box Live":

http://www.msnbc.com/news/754693.asp?cp1=1

If that's a move to save the console Microsoft is in trouble in the console arena (IMHO). If I'm going to play against people I much prefer to have them in the room with me (taunting is no fun when you can't see them). They'll have a long way to go to make up $1 billion for the on-line portion of the system.
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Old 05-20-02, 07:05 PM
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Originally posted by joshd2012
Competition is good. Buy-outs are bad. What do you think would happen if the X-box was on top? Microsoft would start buying everyone out! Microsoft's existance in the video game industry is not as part of competition, but rather a threat to it. If you think Microsoft entered this industry to play nice, you are blind my friend.

Tamrok - Sony is only a multi-million dollar company while Microsoft is a multi-billion dollar company
I don't believe I ever stated that I wanted Microsoft on top. I believe what I said was that competition is good and nobody should be pulling for Microsoft to fail. I will say again that Sony (and Nintendo) have the exact same goal as Microsoft. To be the undisputed market leader with the power which that entails. You are naive to believe otherwise. All of these companies are in this business to make money, plain and simple. To believe that Sony (or Nintendo) is somehow more honorable and have only the consumers best interests at heart is laughable. As I stated before, the best thing for consumers is to continue to have three strong competitors without one company having a commanding lead.

As for Sony not being a billion dollar company, I believe someone else already corrected you on that point. 'nuff said...

Last edited by Tamrok; 05-20-02 at 07:08 PM.
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Old 05-20-02, 09:34 PM
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Homer Simpson - Last year Sony made $134 million dollars http://www.sony.co.jp/en/SonyInfo/IR...statement.html while Microsoft made $7.346 billion http://www.microsoft.com/msft/ar01/h...10-k/item6.htm. Worth is trivial compared to actual performance.

Tamrok - I never said that you wanted Microsoft on top, but I just made light of the consequences if they were. It may be true that Sony and Nintendo want to be the only one in the market, but only Microsoft has the capital to actually do it. Bill Gates has enough money to buy out Sony and Nintendo but can't because stock holders won't let him. If Microsoft was on top, being bought out by Microsoft wouldn't look so bad.
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Old 05-20-02, 11:47 PM
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Would Sony sell out it's PC game unit?I don't think so.With all thios price wars the consumers are the ones gaining!I hopr the software price wars begin soon, cause the softwares are very expensive in my point of view!
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Old 05-21-02, 12:08 AM
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Originally posted by joshd2012
[B]Homer Simpson - Last year Sony made $134 million dollars http://www.sony.co.jp/en/SonyInfo/IR...statement.html while Microsoft made $7.346 billion http://www.microsoft.com/msft/ar01/h...10-k/item6.htm. Worth is trivial compared to actual performance.
That's a swell fact but doesn't mean anything with your original statement of buying out the competition (which is why I posted in the first place). If Microsoft wanted to buy Sony they would have to pay on the order of 53 billion not what their profits were the previous year. Granted they do have (or could easily get) the $54 billion but it's not as easy as buying Sony for $134 million. Theoretically they could move on just the console but if we assume Sony is making money I wouldn't see Sony doing that. Buying out Sony might be an interesting move for Microsoft anyway, they'd do quite well integrating Windows with my Receiver, TV, and DVD player.

By the way, I do like Microsoft (built my company on their technology) and I do own an XBox, GameCube, and PS1 (likely a PS2 soon with the price drop).

Also, I'm not a financial analyst, I only play one on DVDTalk...
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Old 05-21-02, 07:17 AM
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I doubt MS would want to buy all of Sony, then they would have a lot of technology they weren't interested in. If they made a move it would be for the games division. They did try to buy Sega and Nintendo though didn't they?
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Old 05-21-02, 07:29 AM
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I will never understand why anyone would want less competition. If Microsoft wasn't one of the biggest, most profitable companies in the world and it did, in fact, drop out of the game console market, just what do you think would happen to those "more affordable" prices without any competition? That $60 game price for Metroid Prime would become a lot more common. Why do you think PS2 is now $200? Because Sony was feeling generous? Right....
I agree. I have been saying this for months. Why do we have $199 consoles right now? COMPETITION. Sony WILL do the exact thing you accuse MS of trying to do....continue to dominate the market and eliminate all competition. Believe me people, the other side of Sony is just as dark, underhanded, greedy, and cutthroat as you accuse/know Microsoft to be. No company is out to look after your best interests. If XBOX is gone by the time PS3 arrives, you can kiss the days of $199 consoles and $40 software away forever. It's simple......Videogaming is great right now because of COMPETITION. Plain and simple.

Even if Microsoft steps out, there will still be competition. If Nintendo or Sony decide to raise their systems to $1000, then some one will come out with a $200 and take the industry.
What?????? THEIR IS ALREADY COMPETITION IN PLACE!!!!!!!! Stop trying to bury it and send it to an early grave. Just like the Japanese gamers, some of you are more than content to stay with one console for the rest of your life. That's fine. But to slander the other console to hell and roll your eyes at formidable competition....it makes no sense. And the fact that you try to argue against competition makes even less sense.
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Old 05-21-02, 07:37 AM
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You know why the PS2 is at $199 right now? Because they have sold 30 million PS2s (more than PSXs at the same time) at this price. By droping the price, they open the system up to a whole new market. More people can afford to get the system now, and make more money for Sony. Its supply and demand. Why did Nintendo and Microsoft drop their prices? Competition. They can't be the same price, or more expensive (respectively) in this industry and continue to sell consoles. My arguement is not against competition, but against the fact that Microsoft will compete. Microsoft is here to dominate the industry, not compete in it. Why do you think they are accused of a monopoly? Because they played fair with their competitors and competed with them?

EDIT: I almost forgot. Think about this. Microsoft is on top of the video game industry. Naturally, their stock price goes way up. Sony, who had been the top for years is now second, or even worse third. Their stock price goes down. Enter in the buy-out with stocks. Think of this as another possible AOL buys out Time Warner scenerio. It can happen very easily.

Last edited by joshd2012; 05-21-02 at 07:42 AM.
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