joltaddict

Nobody has a business model that keeps them in the red for over a year except Microsoft? Really? Did your magic 8 ball tell you this or is this another one of your "I believe it because I do" arguements?

ScandalUMD

There is no clear measure for these things because none of these companies disclose their manufacturing costs.

We don't know if Microsoft has been able to build cheaper Xboxes. We don't know how much it cost them to bundle two Sega games with their console.

It's clear however that Xbox software sales can't possibly have made up for the estimated $150 they were losing on each console at launch, the $500 million ad budget, and the output required to buy companies like Rare and Bungie. It's unclear how the $2 billion Xbox Live network will ever pay for itself.

Microsoft still pulled down profits because Microsoft is the biggest company in the world. Whether Microsoft is feeling these losses or whether they are out to buy video console dominance, even if they never make money on it is unclear.

We don't know how much Xbox lost. People tried to figure this out from reports on Microsoft's Home division, but MS may have moved many Xbox related investments around to head off stories of massive MS losses on the Xbox. The console certainly hasn't been a darling of MS investors, and has been berated by financial analysts.

In its original plan, Xbox was not to break even until 2004. Sales have been weaker than expected, and Microsoft has used expensive tactics such as the price cut and the bundle to stay in the game. Many Xbox fans now say MS intends to make money on its next console, but how can that system recoup the losses on Xbox while being a loss leader itself for several years?

Sony's profit margin last year was slim, and analysts said they would have been in the red if currency fluctuations hadn't worked in their favor. This is in spite of a tremendously successful Playstation 2 as well as a big box office hit in Spider-Man. Sony's business is so diverse, however, that this tells us almost nothing.

It's possible that PS2 is still a "loss leader" for Sony, but, more likely, whatever losses they were eating on hardware were made up by strong sales of games like MGS2 and Final Fantasy X.

There's no way to know for sure, because Sony doesn't itemize its diverse enterprises. However, if a console as successful as PS2 is still a drag on its parent company, why is anyone in the console business at all?

Nintendo has the least diverse set of interests. They have the Gamecube and they have the Gameboy. Like the other companies, they don't separate these businesses when they report their finances. However, the Gamecube was widely accepted as being designed for cost-conscious manufacture at release, and Nintendo announced several months ago that they had found a way to cut their costs significantly.

It was widely suggested that the new process would allow a small profit margin at the current price mark, but, of course, nobody knows the actual manufacturing cost of any console.

However, Nintendo announced record profits for the last fiscal year, the year in which GC launched. In spite of the strength of the GBA, it is difficult to imagine GBA alone making that much money, if the Cube was losing money for Nintendo.

Since the end of the last fiscal year, Nintendo has enjoyed strong sales of Smash Bros, Eternal Darkness, Mario Sunshine, Star Fox Adventures, Metroid, and Zelda, all titles published by Nintendo. Hardware is certainly a loss leader, but if Nintendo was still leading losses after that string of software, it would have to be almost inconceivable for any console ever to break even.

The obvious conclusion, whether or not you deem it as an "I believe it because I do" conclusion, is that consoles must have the ability to make money, or nobody would make one. And they certainly don't make all their money in their last couple of years, when their technology is outdated and consumers are already looking to the next thing.

If it took two years for a successful console to stop losing money, Sony and Nintendo wouldn't be able to stay in the game, because it would take at least that long again for the console to recoup the initial losses, and then it would be time for the next thing.

There is no way to separate Nintendo's console money from their Gameboy money, but I have to conclude that their consoles make money, because Nintendo's numbers are too strong to support any other conclusion.

joltaddict

And once again, I ask, how does losing less equal not losing anything? What does any of that have to do with Nintendos business model?

If it was so widely reported show me. They announced manufacturing costs were approaching break even. So what? Im gonna announce the sky is blue.


They publicly attributed that to a strong yen and real estate investments. If you need a link Im sure I can hunt one down.

I not saying theyre not. But its a fact that no console (not even the PSX) made money the first year it was out. Its a cumulative model that builds on licensing and 1st party software OVER TIME. They expect this. Its not a bad thing. You dont need to go into hysterics and refuse to believe it.


Its like you almost get it.

Yes they do. All of the consoles for the last few generations have not only made up all the costs but partly funded the next gen. All in the end cycle of the life of the product.


I dont even know what youre trying to say here. Nintendo and Sony dont make long term investments? Please clarify.

ScandalUMD

Well, for starters, Microsoft is losing so much that it will never make enough money to cover what it already lost. But Nintendo and Sony aren't losing money anymore.


Gaming news doesn't stay online forever. Do a search; there was a thread about it here.


No. Capcom attributed its losses to bad real estate investments, and outside analysts attributed the fact that Sony reported a profit instead of a loss to the strong yen.

The strength of the yen certainly helped Nintendo, but it would be contradictory to your thesis to suggest that this was sufficient to make that year better than the two years before, when, as you postulate, N64 would have been reaping its benefits.

The PSX was very slow to get off the ground. Final Fantasy VII was really the game that made it for Sony. The PS2 and GC were intended to cover those hardware losses with software sales pretty quickly.

It may still take a year or more to start breaking even on each piece of hardware; certainly this was the case with PS2, and it probably is the case with the Gamecube. However, Sony and Nintendo cover the hardware losses with software profits.

Microsoft has allowed larger hardware losses, and has put out other sizable expenditures towards Xbox. For example, laying out the scratch to buy Bungie pretty much neutralizes any gains from Halo. Halo sales aren't covering the deficits on Xbox hardware because they have to cover the cost of Bungie.


The way you describe it, these things would never make any money. How, in the midst of this treadmill, has Nintendo managed to ferret away $6 billion in cash? Strong yen and real estate?

Sony has been operating on narrow margins. They couldn't afford to put up a "long term investment" on the magnitude of Playstation or Gamecube because they have to report profits every quarter.

Playstation is now a staple of Sony, and Gamecube is a huge chunk of Nintendo's business.

At most, Sony and Nintendo could endure small short term losses with large eventual gains. What they lose on the hardware, they have to make back on the software. Since the tech bubble burst, investors have little tolerance for "short term" losses with eventual gains.

al_bundy

http://www.walmart.com/catalog/produ...A86796%3A86798

Why are you so sure that MS is losing a ton of money on each piece of hardware? If you can get a similar spec PC for $299 then MS can surely build something like the x-box for a little over $150.

ScandalUMD

A Via C3 is not an Intel Pentium 3, and the video card is an 8 MB no-name nothing, which is a far cry from the Nvidia chip that is the most expensive component of the Xbox. The specs on that computer are certainly not comparable to the Xbox.

joltaddict

The Xbox is made of expensive stuff and the Cube is made of rubberbands and paper clips.
You cant have it both ways.

Trigger

I'm still staying out of this arguement, but I want to point out that it costs more to make electronics smaller... that's why laptops are more expensive than desktops. Also, the video card in the Nintendo Cube isn't a no-name chip, it was made by a company that was bought by ATI - which is as big of a company as nVidia. Furthermore, you don't know what the most expensive component of the Xbox is anymore than you know how much any component in the box costs, period. That's all I have to say - I have no opinion (well, maybe I do but I'm keeping it to myself) on which one is losing money and whether the story in the original post means anything or not. You guys can keep at it - I just felt that these comments weren't based on anything.

al_bundy

They don't make P3's anymore. If they did they would sell at retail for next to nothing. About the same as a VIA c3. And the nvidia chip isn't the same. My Geforce 4 card has 128MB of RAM just on the card itself. Not 64MB shared like the X-Box. But the chip is pretty much the same and it being a year old doesn't cost a lot to produce. Take away the modem and some RAM from the walmart PC and you have the approximate specs of an x-box.

All three consoles are showing their age already and aren't really hi tech anymore. Nvidia is going to start selling the geforce FX next year and ATI is already selling the 9700 Pro cards. Both are much better than the ones found in the x-box and GC.

joltaddict

What are you talking about?
http://www.googlegear.com/jsp/Produc...oryCode=010403

al_bundy

The prices are a rip off. You an get them cheaper elsewhere. And the P3 in the x-box is more like a celeron than a real P3.

http://direct.mwave.com/mwave/ProdCE...k=ProdCEL.hmx?

You can get a 1GHz for $40 online. And that's retail.

jeffdsmith

Correct me if I'm wrong but I thought the P3 in the xbox had an enhanced instruction set for gaming similar to "MMX" back in the day.

Thus is would be a special order chip which would increase it's cost significantly.

al_bundy

I've read it's a modified P3 with less cache. Most P3's came with 256KB of cache. A few later ones came with 512. I heard the x-box version came with 128. They may have added a few instructions from MMX2 that ships on P4, but I doubt it. Big difference between the 2 is that MMX cannot do floating point and MMX2 can. The MMX instruction set on teh P3 is a superset of the original MMX that shipped on P2's that can do some floating point and matrix math at the same time. Floating point math is a biggie in 3d games. But I don't see why they would order a special P3 when MS could just force the developers to write their transform and lightning code to the nvidia chip which is much better suited to the task. And the fact that the P3 is still based on a 20 year old instruction set that was never meant to be used to run 3d games.

The nvidia card is a modified Geforce4, but with less memory. With the x-box it's very easier for MS to force developers to write their games to use the transform and lightning engine on the nvidia chip rather than their own which will utilize the CPU. Nvidia has been trying to do this for several years on it's own with only some success. If the games utilize the video chip features then it negates the need for a fast processor. When 3d first came to the PC the CPU did almost all the work and the 3d chips back then just did the rendering.

And since most people are playing on regular TV's, you don't need anything as powerful as on PC since the resolution is a lot less. I play PC games on 1280x1024 on a 19" monitor. TV's with the exception of HDTV are less than 640x480.

joltaddict

Way to admit youre wrong.

Captain Harlock

The modified P3 chip is probably a way for Intel to squeeze a little more profit out of the "back end". Which means essentially they can continue making the P3's for the X-Box with a slight modificatoin, but at a lower cost than the P4. Kind of like if you made something that cost you 1 cent but then sold it for $1.00. I'm not Intel's accountant, so this is only speculation on my part.

I read in GamePro a while back that one of the biggest problems was that Microsoft was using "off the shelf" parts. Because they had to pay a second party for the parts in the X-Box that was going to drive the costs up a bit. I'm sure alot of people have heard that the X-Box was initially selling at a loss. The console was said to cost approximately $350-375 to make, but Microsoft wanted to keep the price at $300. Same as the PS2 at the time. The one thing that MS has going for them is that the console market doesnt' fuel most of their profits.

al_bundy

Earlier this year CNBC said the exact opposite. They said that using off the shelf parts will let MS easily upgrade the hardware every year if they wanted to.

jeffdsmith

They may choose to alternate suppliers of interchangable parts (DVD-ROM, DD Decoder, power supply, etc) but they certaintly arn't going to do any upgrading.

MS has chosen a structure in which they are reliant on other companies to drive down the cost for them. Obviously this works because of competition and pressure put on MS. (To a certain degree)

However, it does not work on companies such as NVidia and Intel, and perhaps others. (I don't know what they have in there.) I'm sure that there are many agreements in place to avoid MS from getting screwed, but as we have seen, theseagreements don't always work out all the time. (See NVidia)

Gallant Pig

Do you still think they are paying $370 per console still Jeff?