I dissagree on ms profits. I think they will be profitable with XBOX business this year. How Zune plays into their profitability is another story but the xbox business itself should prove to be very profitable very soon.
Try again!
http://www.gamespot.com/news/6154809.html
However, Microsoft entertainment and devices division president Robbie Bach today said that's about to change. In a presentation at the company's Financial Analyst Meeting 2006, Bach said the gaming division is expected to lose the company money once again for fiscal 2007, but that it will turn in a profit for 2008. If that happens, it would be the first time the gaming part of Microsoft's entertainment and devices division posts a profit for a fiscal year.
They originally thought they would have a fiscal profit in FY 2007 (ending June 30th, 2007) but then had to alter that to FY 2008. And the 2008 is only a fiscal year profit, not a profit for the generation.
I repeat, MS doesn't expect to even making a fiscal profit until 2008, let alone a profit this generation (i.e. balance out the negatives with the positives). And MS has a LOT of debt from this generation to counterbalance to break even.
For fiscal year 2005, it posted a loss of $485 million. For fiscal year 2006 (which ended June 30, 2006, and included the launch of the Xbox 360), it lost $1.26 billion.
It is absolutely certain MS will post a loss for FY 2007. So by summer 2007 MS will have lost about 2B since the summer before Halo 2 shipped (this is why MS 'only' lost $485M in FY 2005).
As for Zune, it is a low overhead device (they make profit on the device and it is designed/manufactured by Toshiba to start with). Even Robbie Bach has said that Zune losses for the Entertainment divisions would not be dramatically negative. It is palpably obvious that the Xbox is the driving force for losses in the Gaming division seeing as they lost $1.26B in FY 2006 without Zune.
Anyhow, ignoring FY 2005 losses, starting in FY 2006 (when the Xbox 360 launched) MS is already in the hole $1.26B from FY 2006 in addition to millions more from FY2007. We don't know how much it is, but MS has already warned investors there would be a loss. Considering (a) the 65nm process shrink is behind schedule and (b) MS had to delay a lot of software this year, that in turn impacts profit (Too Human, Mass Effect, Forza Motorsport 2, and so on) it is not unlikely that MS will have a significant loss in FY2007.
And even if it is meager, $1.26B of debt entering FY2008 is huge. Think about that for a moment, if MS wants to break even by FY 2010 (June, 2010) they need to earn:
FY 2008 $420M
FY 2009 $420M
FY 2010 $420M
MS has
never earned a fiscal year profit from the Xbox division. And to break even with the Xbox 360 generation they need to do that not once, not twice, but three times--and earn $420M in profits each time.
To put this into perspective you need only look at
Sony's FY2003 and FY2004 profits.
FY 2004 $1.54B (2004 CY consoles: 81M units)
FY 2003 $833M (2003 CY consoles: 69M units)
MS isn't nearly on pace for those sort of console install bases numbers -- or exclusive support in Japan and Europe -- that Sony had with the PS2. Similarly MS will be facing much harsher competition from Wii and the PS3 than the PS2 ever did with the Xbox or GCN.
Personally I think the Xbox 360 can break even for this generation. But it will take the entire lifecycle of the device to do so.
They surely won't profitable this year with the Xbox 360, and won't break even as a division for the generation cycle until after 2009.
So launch early just neuters sales and reinforces the image that MS cannot create a stable, profitble business -- and more importantly -- isn't allowing cash strapped publishers (EA, Ubi, Activision, Tecmo, Capcom, etc) cash out on their investment in the platform. If MS is always deep sixing their platform with the "next, biggest, bestest thing" before people can make a sizable profit to fund the next transition they will begin avoiding the platform. Sega is an expert at this (ask Peter Moore) and Nintendo, in their own way, has created an equally hostile environment to publishers in the past. Ultimately money speaks, and investor pressure, publisher pressure, and demand from consumers for a quality product that is significant better, and more valuable in end product, than what they have speaks.
Pc developers are used to constantly improving hardware. It's just a matter of applying that workflow tothe console space.
I know you don't PC game, so let me tell you how the workflow goes: They don't do it!
DX9 was released in Fall of 2002; first meaningful DX9 game was FarCry in Spring of 2004 and after that Half-Life 2 in Fall of 2004. Oblivion, Winter 2006, was the first game to require DX9 and have a featureset built around the DX9 API.
Having a stable, constant platform to expose and exploit has its benefits. When you get "faster" hardware around the corner every 2-3 years the motivation to exploit the hardware dwindles. Case in point, dev cycles are now 2-4 years. You are going to get 1-and-Done game development on a platform. The value of the platform goes down because its longtern return faulters.
From a consumer point of view it is similar to pc, but cheaper and without the headaches
Similar to the PC market... which is... dieing in most regards in terms of traditional games. One huge reason is the upgrade cycle. Perfect Example is you buy Battlefield 1 in 2003 and it plays great on your new Ti 4200! Battlefield 2 comes out in 2005 -- 3 years later -- and the stupid game won't even run on your Ti 4200 at all.
People have a reasonable expectation that their console will last them 4-6 years worth of gaming. PC gamers have the expectation that their $400 video card will play games at high levels for 2 years and then need to get a MB, CPU, Memory, and GPU upgrade to play the next big game. Telling console gamers every 3 years, "If you want to play Halo 4 you have to get an Xbox 2.5" will kill the casual, mainstream audiance. Your other posts indicate you understand the force of the casual market (the PS2 sales are proof of such), so transititioning the PC oriented model makes no sense. It will even burn a majority of enthusiests because they invest knowing they have years of gaming ahead. When you tell them, "In 2-3 years your investment is obsolete" and that the library will be cut by a new console + all the really great games will be out on this much better console... spells DC to me.
not to mention that the system would still have games made for the system for 6 years and developers could rely on that customer base being there to buy their games.
That is a major assumption. And I would argue wrong. Where are you going to create this install base from? And why will consumers stay? Or why would consumers jump to the other console? Basically it would come down to the console who released first, 2-3 years ahead of the other, getting the bargin market and undercutting prices.
So flip the question on you: Should Sony release the PS4 in 2010 and MS wait until 2013 for the Xbox 3?
Obviously not.
Sony would have 40M-70M units sold (ala PS2) because of defacto exclusives and controlling the entire market. Every developer and publisher would be geared to support their platform and software. Chicken-Egg. Customers bring Publisher Support; Publisher Support bring Customers.
The Xbox 3 would be a 3DO or Dreamcast. Major publisher support would not follow because the PS4 would have a HUGE market. Performance would be irrelevant, especially when PS4 games are pushing Cell2 to the max and developers are just barely utizing the Xbox 3 (see: Xbox 1 launch, PS2 launch software). And even worse the PS4 would be (a) MUCH cheaper and (b) have a MASSIVE lineup of budget titles.
You still think MS should launch in 2013 and cooperate with Sony and allow them to go in the 2010 slot?
If so, how is MS going to make a profit when others in that position (Sega et al) were not?
To those that want the absolute best they would buy the newest (more expensive) one.
And in 2005 with the Xbox 360 we saw that that was less than 3M total consumers worldwide. Best is always a balance of performance, software, and value. A couple million kids buying $600 new console won't sway much support when you have a 3 year old platform getting 3rd gen games that are awesome and the system has 1,000+ games and the new one has 20 launch games and 17 or ports.
And all Sony would have to do in such a situation and say, "We will be launching in 18 months [Japan] our PS5 with full backwards compatibility and it will be 2x faster than the Xbox 3".
Game Over.
Ps- Thanks for letting me tee off!
And I didn't even need to mention Apple!