MS doubles loss in Xbox division
05-13-03 | 03:55 PM
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From: Space Junk Galaxy
MS doubles loss in Xbox division
REUTERS[ TUESDAY, MAY 13, 2003 08:29:52 AM ]
LOS ANGELES: Microsoft Corp. lost nearly twice as much on its Xbox, games and consumer hardware businesses in the most recent quarter than it had a year earlier, according to a regulatory filing on Monday.
Redmond, Washington-based Microsoft said that its Home and Entertainment division lost $190 million before taxes, write-offs and other charges in its fiscal third quarter ended March 31, compared with a loss of $97 million a year earlier.
The division's quarterly revenue fell to $493 million from $943 million a year earlier.
LOS ANGELES: Microsoft Corp. lost nearly twice as much on its Xbox, games and consumer hardware businesses in the most recent quarter than it had a year earlier, according to a regulatory filing on Monday.
Redmond, Washington-based Microsoft said that its Home and Entertainment division lost $190 million before taxes, write-offs and other charges in its fiscal third quarter ended March 31, compared with a loss of $97 million a year earlier.
The division's quarterly revenue fell to $493 million from $943 million a year earlier.
05-13-03 | 04:13 PM
#2
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People bash Nintendo for not going online, but look at how much money you have to lose to support an online network right now. It may pay off in the future, but who else but Microsoft can lose 200 million on something without batting an eye.
05-13-03 | 05:12 PM
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I wouldn't pin it all on Live. They're still selling each box at a steep discount and I imagine that's what accounts for the bulk of their loss.
Granted, XBox Live is a very expensive investment, but Nintendo doesn't have to do Live, they can do something like Sony where they just make adapters available and let the developers handle the online component for their games. Done that way, it's actually profitable. They've sold 500,000 adapters at $40 and their cost on those can't be much more than $10. And how many copies of Socom did they sell? Compare that to how many would have sold if there was no online gameplay.
Granted, XBox Live is a very expensive investment, but Nintendo doesn't have to do Live, they can do something like Sony where they just make adapters available and let the developers handle the online component for their games. Done that way, it's actually profitable. They've sold 500,000 adapters at $40 and their cost on those can't be much more than $10. And how many copies of Socom did they sell? Compare that to how many would have sold if there was no online gameplay.
05-13-03 | 05:45 PM
#4
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Uh... Nintendo did make adapters available. They just didn't make any games themselves. (currently, only PSO uses it). And if Nintendo itself isn't going to support their own peripheral, what makes you think the 3rd parties are going to invest in the next ROB the Robot?
Sony probably distributes some kind of developers package to help their developers integrate online gaming. Also, I have to believe the profit margin on a PS2 game is a lot more than a GCN game, as far as copies sold and whether it'll be worth it for a company to setup online servers.
Sony probably distributes some kind of developers package to help their developers integrate online gaming. Also, I have to believe the profit margin on a PS2 game is a lot more than a GCN game, as far as copies sold and whether it'll be worth it for a company to setup online servers.
05-13-03 | 06:10 PM
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MS keeps saying they are in it for the long haul, but they can't be happy about this. That's a no brainer, any time a business loses $$$ it's not a good thing.
The XBox was already selling at a loss to begin with even at $300.
I still don't think they took into account how much the loss of GTA would affect them. I know you can't pin it on that one bad decision, but not having the biggest game on your maching doesn't help.
The XBox was already selling at a loss to begin with even at $300.
I still don't think they took into account how much the loss of GTA would affect them. I know you can't pin it on that one bad decision, but not having the biggest game on your maching doesn't help.
05-13-03 | 06:23 PM
#6
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A lot of it is definitely live. The rumors were $1-2 billion to set it up and market it, and they're only charging $50 a pop which is great for gamers but no where near what they'd have to charge to make a profit this generation. This is exactly why Nintendo is staying out for now (though they could at least allow peer to peer connections). They don't have the money to take those kind of losses.
However, this means nothing for MS. They just want to gain market share this generation, pretty much regardless of the loss.
However, this means nothing for MS. They just want to gain market share this generation, pretty much regardless of the loss.
05-13-03 | 06:34 PM
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Originally posted by Josh Hinkle
They just want to gain market share this generation, pretty much regardless of the loss.
They just want to gain market share this generation, pretty much regardless of the loss.
Nintendo might not lose a lot of money but they are losing a lot of the market share with the Gamecube this generation. Microsoft just needs the market share for now, they can get profits later. It's like amazon.com. They didn't make profits until a few years after they started up. Now they are the only "Big" online store. Everyone else has gone under.
05-13-03 | 06:46 PM
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From: Space Junk Galaxy
Where exactly is MS going to make money? In 2005 the new systems are going to be introduced and the money losing cycle starts all over again. The money is supposed to come from selling games. But looking at the sales charts, MS is not selling very many. MS thought the price cut to $199 would boost game sales, but that didn't happen...
05-13-03 | 06:51 PM
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Originally posted by evenflowddt
Exactly.
Nintendo might not lose a lot of money but they are losing a lot of the market share with the Gamecube this generation. Microsoft just needs the market share for now, they can get profits later. It's like amazon.com. They didn't make profits until a few years after they started up. Now they are the only "Big" online store. Everyone else has gone under.
Exactly.
Nintendo might not lose a lot of money but they are losing a lot of the market share with the Gamecube this generation. Microsoft just needs the market share for now, they can get profits later. It's like amazon.com. They didn't make profits until a few years after they started up. Now they are the only "Big" online store. Everyone else has gone under.
You have a point there. But the question remains; How much of the market share do they to garner to make an impact? I'm not sure but I read somewhere, may have been on CNN.com, that Microsoft only has something like 12-13% of the market share this generation. How much more can they gain? Another 5-7%? Will 5-7% make be enough to make a difference? And with two big franchise games being announced as PS2 exclusives ( GTA and Metal Gear) for their next upcoming incarnations, will Microsoft have the games on the XBox that will get them the expanded user base they need?
That also raises the question; Is Microsoft too far behind to be a major player for the next generation and how many "return customers will they have? That might be one thing alot of people aren't taking into account. How many people out there may abandon the next XBox generation, feeling frustrated by the inability to play big name game titles, for a Nintendo or Sony machine?
Interesting questions...
Last edited by Captain Harlock; 05-13-03 at 06:54 PM.
05-13-03 | 07:45 PM
#10
DVD Talk Legend
Its not Nintendo they need to get market share from its Sony. the Xbox has got a foothold on the industry, but to make profits you have to have the user base of the PS2. Xbox will be a big money loser its entire life, but what Microsoft hopes is to get PS2 gamers to jump ship to their console next generation and steal away Sony's user base.
It will be well worth losing a billion dollars this generation if they can make multiple billions the next one.
The big question is can they. They really need to build up a solid group of developers and get some big time exclusives to position themselves for success.
The way things look now though Sony may end up wiping out all competition next time out. If the PS3 continues to be successful and they take away Nintendo's handheld market they may end up being the only game in town. Of course we are years away from knowing what will happen.
It will be well worth losing a billion dollars this generation if they can make multiple billions the next one.
The big question is can they. They really need to build up a solid group of developers and get some big time exclusives to position themselves for success.
The way things look now though Sony may end up wiping out all competition next time out. If the PS3 continues to be successful and they take away Nintendo's handheld market they may end up being the only game in town. Of course we are years away from knowing what will happen.
05-13-03 | 09:27 PM
#12
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MS will not make money this generation and I do not see a way for them to do it next time either. The hardcore gamer might own an Xbox but the casual gamer is where the money is.
Nintendo makes money because they sell a bunch of their own titles and they cut corners on the hardware side by limiting features to make the hardware more profitable for them also.
Nintendo makes money because they sell a bunch of their own titles and they cut corners on the hardware side by limiting features to make the hardware more profitable for them also.
05-13-03 | 10:18 PM
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Originally posted by Groucho
Amazon.com is not a good analogy. They weren't the only online store losing money...EVERYBODY was. They just lost less of it than everybody else.
Amazon.com is not a good analogy. They weren't the only online store losing money...EVERYBODY was. They just lost less of it than everybody else.
Anyway. The return customer question is a good one. I have both an X-Box and a GC. I would DEFINITELY sit out (as it stands now) on the next XB. Maybe go for Sony. But Nintendo comes first. I can't live w/o their first party games.
05-13-03 | 11:22 PM
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isn't it a little early to decide which systems to buy next time around?I bought a PS2 and haven't used it more than 3 or 4 times since I got the Xbox. GTA3/VC are great games but who says it will be the best in genre next time around? That True Crimes game looks like a GTA killer to me. If it's done well there might be a bunch of people buying xboxs for that game or halo 2/doom 3. There is way too much time between now and next gen to decide that you will skip one and buy the other.
05-14-03 | 04:00 AM
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Originally posted by s}{ammer
isn't it a little early to decide which systems to buy next time around?I bought a PS2 and haven't used it more than 3 or 4 times since I got the Xbox. GTA3/VC are great games but who says it will be the best in genre next time around? That True Crimes game looks like a GTA killer to me. If it's done well there might be a bunch of people buying xboxs for that game or halo 2/doom 3. There is way too much time between now and next gen to decide that you will skip one and buy the other.
isn't it a little early to decide which systems to buy next time around?I bought a PS2 and haven't used it more than 3 or 4 times since I got the Xbox. GTA3/VC are great games but who says it will be the best in genre next time around? That True Crimes game looks like a GTA killer to me. If it's done well there might be a bunch of people buying xboxs for that game or halo 2/doom 3. There is way too much time between now and next gen to decide that you will skip one and buy the other.
05-14-03 | 07:35 AM
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They are loosing money on the systems. Its been like that from the start. If the loss is bigger, more people may be picking up a x-box. I know a lot of people who have bought one to accompany there PS2. to play on live and get some of the other x-box games. It would be intresting to see how many x-box's sold then and then now
capt
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05-14-03 | 08:16 AM
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From: NYC...no longer! Collegeville, PA
Originally posted by Josh Hinkle
A lot of it is definitely live. The rumors were $1-2 billion to set it up and market it...
A lot of it is definitely live. The rumors were $1-2 billion to set it up and market it...
Anyway, what is accounting for the additional loss is actually increased sales of their console. The Xbox is statistically a gamer's second or third console of choice, depending on who you ask, and so they don't make as much on the software as say Sony would, because the ratio of games bought per console is lower for the Xbox than for the PS2. It would be interesting to see this statistic. But generally, if someone buys an Xbox they are only buying the exclusives, like Halo, and at one point, Splinter Cell. For PS2, the games are either exclusive or in most instances have an exclusivity period, so gamers would buy for the PS2. Therefore, they would have purchased more titles for their PS2 than their Xbox.
MS needs a) more exclusive titles, which they are working on; and b) a re-engineered, more cost efficient console, which they are also working on. Expect their losses to plateau once these two happen.
Jeremy
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05-14-03 | 09:18 AM
#19
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Losing money for MS is nothing new. I think they are still losing money on MSN which includes Hotmail after all these years. Windows, Office and their Server apps pay all the bills and make the cash.
The management thinks that X-Box and entertainment is the future and is willing to lose money on them for years. The management at MS is as good as you can get and knows that on some things you need to lose money for years before making a profit. Jack Welch said that GE lost money on plastices for 10-20 years before it finally became a money maker.
The management thinks that X-Box and entertainment is the future and is willing to lose money on them for years. The management at MS is as good as you can get and knows that on some things you need to lose money for years before making a profit. Jack Welch said that GE lost money on plastices for 10-20 years before it finally became a money maker.
05-14-03 | 11:11 AM
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Microsoft XBox: A game of pitfall?
Commentary: The game's not over, but the score's lousy
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 12:08 AM ET May 14, 2003
LOS ANGELES (CBS.MW) -- Is Microsoft's Xbox business a game of Pac-Man or Pitfall?
A year-and-a-half and about $1 billion have passed since Microsoft introduced the Xbox video game system in North America. But despite continually falling hardware component prices, Microsoft still can't eat the competition. Unlike Sony, its main gaming rival, the Redmond, Wash.-based software titan is still losing money on every game system it sells.
And it seems to be getting worse. Microsoft lost $190 million from its Xbox games and hardware operation in its most recently reported quarter. That's more than twice the loss in the same period a year earlier. Sales were cut nearly in half to $493 million.
"Losing money on every transaction and making it up later on the games is a good story line, but it only works for so long," says Jonathan Eunice, software market analyst with Illuminata Inc. "They have to show that Xbox eventually returns value to Microsoft."
Even if Microsoft (MSFT: news) couldn't find a better investment than Xbox, the company could more than double its annual dividend with all the money it's plowed into online gaming so far.
At least some of the Xbox losses are attributable to game piracy, which is a larger problem in Europe than the company is willing to acknowledge, says Richard Doherty, analyst with Envisioneering Inc. He says it's very easy for kids to buy one Xbox game and make five clones of it, using a personal computer.
This week, Xbox was dealt yet another big blow. Electronics giant Sony (SNE: news) and No.1 games publisher Electronic Arts (ERTS: news) announced plans at the annual E3 trade show in Los Angeles to jointly take aim at Microsoft's online gaming operation. EA will make a number of new games exclusively for Sony, and the companies announced an online sports gaming partnership.
Analysts say the reason Sony and EA teamed up partly due to Microsoft's onerous partnership terms, and the fact that Microsoft competes with EA and its other gaming partners by publishing its own game titles and running its own online gaming platform.
"There's an ongoing shift in momentum for Xbox," Eunice says. Software developers are questioning whether they can make a lot of money from it. The insularity of the Microsoft gaming business makes the gaming companies want to go with another alternative."
David Hefford, group product manager for Xbox, said in an interview this week that he's very confident about Microsoft's market approach. Unlike Sony, he says Microsoft provides game publishers with server farms, managed security services, billing services -- everything they need. He says that Sony has it "all wrong."
Perhaps. But it is not clear that Microsoft has it all right.
Some large institutional investors have disliked the Xbox business from the start, says David Pearl, managing director and portfolio manager at Steinberg Priest & Sloane Capital Management in New York, a firm that manages $1.5 billion in mutual, pension and private client accounts.
Pearl, who owns both Microsoft and EA stock in his company's portfolio, does give Microsoft the benefit of the doubt, though. He says he thinks Xbox is a smart bet, whether or not Microsoft dominates, or if the company would be more profitable right now without it.
"The personal computer is a maturing market. If you are Microsoft, you have to find new growth areas," Pearl says. "Where else do you put your money?"
Only a handful of companies have the resources to lead the technology several years down the road, when home entertainment, personal computing and Internet technologies intersect, says John Taylor, analyst with Arcadia Investment Corp. in Portland Ore. He says Xbox should be a long-term winner -- even though his firm owns shares of both Sony and EA.
"To be a major convergence player, you have to pay to position the company ahead of time," Taylor says. "Rightly so, Microsoft views the piece of real estate between the TV and the floor as a critical thing to control in the next five to 10 years. And there are cost that will be incurred in order to get there."
Taylor says there seems to be more hand wringing about Sony's profit and loss in the gaming business than Microsoft's. While Xbox is a not critical to Microsoft business, he says that PlayStation generates about 60 percent of Sony's operating profit -- even though it generates less than 15 percent of sales.
Microsoft seems to have turned a corner with Xbox recently, Doherty argues. Last year, the company lost about $200 on each $199 Xbox it sold. Due in part to cheaper hard drive and other components and an increase in the number of Xbox suppliers, the company is close to breaking even on each game system sold, he says.
He adds that the company overtook Nintendo last year to become a solid threat in the game console market, behind Sony.
Microsoft had said early this year that it would have between 9 million and 11 million Xboxes in homes worldwide by the end of June, the company's fiscal year-end. Hefford said this week that the company will fall "comfortably" in that range.
New and potentially profitable Xbox game titles are in the works. At the E3 show, Microsoft announced Halo 2, the sequel to the best-selling Xbox game ever, as well as a sequel to the ever-popular Doom series. The company is expected to come out with about 100 new releases between now and the holiday season, compared with 65 games over the same span of time last year.
Microsoft now has about 300 games on the market, vs. 400 written exclusively for the Playstation 2. A year ago, a dearth of new titles was as stumbling block for Xbox sales. Many of the best games came out on Playstation before they were available on Xbox.
Going head-to-head vs. the EA/Sony venture, Microsoft also announced plans this week to start a new head-to-head online sports league in August, called XSN Sports. Much like a fantasy sports team, participants can log on to a Web site to check league scores and statistics.
Microsoft has a history of starting as an insignificant player in product niches such as Internet browsers and database software, only to become a market force after refining its product three or four times.
At this point, the bet on the company's stock is that Xbox will eventually follow that pattern.
Commentary: The game's not over, but the score's lousy
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 12:08 AM ET May 14, 2003
LOS ANGELES (CBS.MW) -- Is Microsoft's Xbox business a game of Pac-Man or Pitfall?
A year-and-a-half and about $1 billion have passed since Microsoft introduced the Xbox video game system in North America. But despite continually falling hardware component prices, Microsoft still can't eat the competition. Unlike Sony, its main gaming rival, the Redmond, Wash.-based software titan is still losing money on every game system it sells.
And it seems to be getting worse. Microsoft lost $190 million from its Xbox games and hardware operation in its most recently reported quarter. That's more than twice the loss in the same period a year earlier. Sales were cut nearly in half to $493 million.
"Losing money on every transaction and making it up later on the games is a good story line, but it only works for so long," says Jonathan Eunice, software market analyst with Illuminata Inc. "They have to show that Xbox eventually returns value to Microsoft."
Even if Microsoft (MSFT: news) couldn't find a better investment than Xbox, the company could more than double its annual dividend with all the money it's plowed into online gaming so far.
At least some of the Xbox losses are attributable to game piracy, which is a larger problem in Europe than the company is willing to acknowledge, says Richard Doherty, analyst with Envisioneering Inc. He says it's very easy for kids to buy one Xbox game and make five clones of it, using a personal computer.
This week, Xbox was dealt yet another big blow. Electronics giant Sony (SNE: news) and No.1 games publisher Electronic Arts (ERTS: news) announced plans at the annual E3 trade show in Los Angeles to jointly take aim at Microsoft's online gaming operation. EA will make a number of new games exclusively for Sony, and the companies announced an online sports gaming partnership.
Analysts say the reason Sony and EA teamed up partly due to Microsoft's onerous partnership terms, and the fact that Microsoft competes with EA and its other gaming partners by publishing its own game titles and running its own online gaming platform.
"There's an ongoing shift in momentum for Xbox," Eunice says. Software developers are questioning whether they can make a lot of money from it. The insularity of the Microsoft gaming business makes the gaming companies want to go with another alternative."
David Hefford, group product manager for Xbox, said in an interview this week that he's very confident about Microsoft's market approach. Unlike Sony, he says Microsoft provides game publishers with server farms, managed security services, billing services -- everything they need. He says that Sony has it "all wrong."
Perhaps. But it is not clear that Microsoft has it all right.
Some large institutional investors have disliked the Xbox business from the start, says David Pearl, managing director and portfolio manager at Steinberg Priest & Sloane Capital Management in New York, a firm that manages $1.5 billion in mutual, pension and private client accounts.
Pearl, who owns both Microsoft and EA stock in his company's portfolio, does give Microsoft the benefit of the doubt, though. He says he thinks Xbox is a smart bet, whether or not Microsoft dominates, or if the company would be more profitable right now without it.
"The personal computer is a maturing market. If you are Microsoft, you have to find new growth areas," Pearl says. "Where else do you put your money?"
Only a handful of companies have the resources to lead the technology several years down the road, when home entertainment, personal computing and Internet technologies intersect, says John Taylor, analyst with Arcadia Investment Corp. in Portland Ore. He says Xbox should be a long-term winner -- even though his firm owns shares of both Sony and EA.
"To be a major convergence player, you have to pay to position the company ahead of time," Taylor says. "Rightly so, Microsoft views the piece of real estate between the TV and the floor as a critical thing to control in the next five to 10 years. And there are cost that will be incurred in order to get there."
Taylor says there seems to be more hand wringing about Sony's profit and loss in the gaming business than Microsoft's. While Xbox is a not critical to Microsoft business, he says that PlayStation generates about 60 percent of Sony's operating profit -- even though it generates less than 15 percent of sales.
Microsoft seems to have turned a corner with Xbox recently, Doherty argues. Last year, the company lost about $200 on each $199 Xbox it sold. Due in part to cheaper hard drive and other components and an increase in the number of Xbox suppliers, the company is close to breaking even on each game system sold, he says.
He adds that the company overtook Nintendo last year to become a solid threat in the game console market, behind Sony.
Microsoft had said early this year that it would have between 9 million and 11 million Xboxes in homes worldwide by the end of June, the company's fiscal year-end. Hefford said this week that the company will fall "comfortably" in that range.
New and potentially profitable Xbox game titles are in the works. At the E3 show, Microsoft announced Halo 2, the sequel to the best-selling Xbox game ever, as well as a sequel to the ever-popular Doom series. The company is expected to come out with about 100 new releases between now and the holiday season, compared with 65 games over the same span of time last year.
Microsoft now has about 300 games on the market, vs. 400 written exclusively for the Playstation 2. A year ago, a dearth of new titles was as stumbling block for Xbox sales. Many of the best games came out on Playstation before they were available on Xbox.
Going head-to-head vs. the EA/Sony venture, Microsoft also announced plans this week to start a new head-to-head online sports league in August, called XSN Sports. Much like a fantasy sports team, participants can log on to a Web site to check league scores and statistics.
Microsoft has a history of starting as an insignificant player in product niches such as Internet browsers and database software, only to become a market force after refining its product three or four times.
At this point, the bet on the company's stock is that Xbox will eventually follow that pattern.
05-14-03 | 11:31 AM
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Originally posted by al_bundy
The management thinks that X-Box and entertainment is the future and is willing to lose money on them for years. The management at MS is as good as you can get and knows that on some things you need to lose money for years before making a profit. Jack Welch said that GE lost money on plastices for 10-20 years before it finally became a money maker.
The management thinks that X-Box and entertainment is the future and is willing to lose money on them for years. The management at MS is as good as you can get and knows that on some things you need to lose money for years before making a profit. Jack Welch said that GE lost money on plastices for 10-20 years before it finally became a money maker.
)also, imo, nintendo may very well go the way of sega.
05-14-03 | 01:03 PM
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Microsoft seems to have turned a corner with Xbox recently, Doherty argues. Last year, the company lost about $200 on each $199 Xbox it sold. Due in part to cheaper hard drive and other components and an increase in the number of Xbox suppliers, the company is close to breaking even on each game system sold, he says.
05-14-03 | 01:06 PM
#23
Retired
IDK, the rumors were they were originally losing $200 on each console at launch when it was selling for $299.
A $100 drop in costs over the period (which would account for the $200 loss at the current $199 tag) seems reasonable to me.
Plus they say "last year" meaning 2002, costs have like dropped further since then, and they probably are losing less than $200 in the present.
A $100 drop in costs over the period (which would account for the $200 loss at the current $199 tag) seems reasonable to me.
Plus they say "last year" meaning 2002, costs have like dropped further since then, and they probably are losing less than $200 in the present.
05-14-03 | 01:07 PM
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From: Space Junk Galaxy
Originally posted by al_bundy
Losing money for MS is nothing new. I think they are still losing money on MSN which includes Hotmail after all these years. Windows, Office and their Server apps pay all the bills and make the cash.
Losing money for MS is nothing new. I think they are still losing money on MSN which includes Hotmail after all these years. Windows, Office and their Server apps pay all the bills and make the cash.
Yes MS hopes the Xbox will become "The Entertainment System", but what all these articles are pointing out is how exactly is this going to happen when the losses continue to mount every year for the Xbox? How is the Xbox going to become "The Entertainment System" when it hasn't even made a dent into the PS2 juggernaught?
05-14-03 | 01:15 PM
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Originally posted by CreatureX
...How is the Xbox going to become "The Entertainment System" when it hasn't even made a dent into the PS2 juggernaught?
...How is the Xbox going to become "The Entertainment System" when it hasn't even made a dent into the PS2 juggernaught?
imo, it has already made a "dent". at least in the mindset of people that MS is a viable player in the home entertainment industry (and not just in computers).