Xbox Q1 Losses Up From Last Year

[Qroach]

Because I am very sure that this is simply wrong. The two PlayStations started to break even, and make profits, much sooner than two years AFAIK.

Well you can feel free to look for old articles confirming this, I'm not going to bother. I've seen articles in the past that showed Playstation 1 and playstation 2 were still sold at a loss wihtin the first two years they were on the market.

The common practise is to sell your hardware at a loss for the first while - then break even, and then making a profit on each unit sold.

That's correct, but you need to reach critical mass before that happens. In some cases it will take longer, and you can still plan for that. MS has already planned to not break even until year 4 or 5...

 

[Tuttle]

"MS has already planned to not break even until year 4 or 5..."

The tired old everything is all part of MS's 'Big Plan' rationalization.

Even die-hard windows fanatics have got to get tired of that one.

 

[cthellis42]

Microsft budgeted for significant losses over the course of 5 years, with year 4 possibly breaking even. We're at year two right now! rght into XBox 2 for your information.

Makes you wonder about Xbox2, though... I mean, if they're wanting to start profiting at the 4-5 year mark, they can't go the same route and put out a console worth much more in parts than their asking price, ne? That would kinda reset their counter again. I think in some ways they were expecting Live to catch on more than it has (since it's much profit for them, and recurring charges) to balance out other factors, but it hasn't caught on to the degree they hoped.

 

[Magnum PI]

nobody says nintendo is doomed ? from time to time there are some people claiming that nintendo is doomed as a console maker: because gamers are shifting away from nintendo console especially toward xbox and that nintendo would have no choice but to stop making console and make games for sony's and MS's.. and FUD like that..

don't you remember that ?

 

[Fox5]

It is not common practice to sell consoles for a loss, the gamecube was the first nintendo system ever sold at a loss. I doubt the genesis was sold at a loss either. I think the 'selling at a loss' thing is something sony and microsoft brought in to justify losing millions on consoles.(and it worked for sony, but so far not for microsoft)
BTW, PSOne didn't start selling extremely well until it was out on the market for like 2 years.

 

[Sonic]

Interesting conversation going on here. Initially it may be the best idea to sell hardware at a loss if it means it will sell at the price. The Saturn was released at $399 and was making SEGA about $30 per each one sold. The problem was that it would never sell at that price. Then the price was lowered to $299 and what do you know SEGA is selling more but also losing a lot more per console sold. Sad thing is, SEGA didn't have the deep pockets to cover for the hardware division's losses. It's a method SEGA screwed up on early on and only one of the reasons the Saturn was considered a failure in North America and Europe. Others were things such as marketing, lack of killer games, lack of support not from 3rd parties but for 3rd parties, and so on.

Microsoft's method is interesting in that they're just trying to get their foot in the door. They've made a lot of right decisions in regards to how to market the machine, 3rd parties, and other neccessary things that are vital to a console's success. What they are doing wrong is throwing cash at all the things where a bit more clever thinking could be done to achieve the same results. Still, they are spending a lot with future products in mind. I'm sure they realize it would be foolish to just up and leave the Xbox venture and have stockholders and the general public confused. They're in it for the long haul it seems and they will keep spending until they get a bigger piece of the pie where they can make a bit more money. I would expect the losses to shrink this year as mroe and more games will be sold. Even if they drop the price of the Xbox and sell millions more this is the year the sweet spot in their software sales will start hitting.

Simply said: Microsoft is made of money. They're throwing it at the console industry and are achieving results. They're not making a dime yet, but it seems to me they really don't care about it until future products roll around. If they still fail to make money with a future product (Xbox2) then they may fall out and decide to let the industry go.

 

[Qroach]

Tuttle,

The tired old everything is all part of MS's 'Big Plan' rationalization.

If you dont' beleive things they clearly told investors, then that;s your decision.


Magnum,

nobody says nintendo is doomed ? from time to time there are some people claiming that nintendo is doomed as a console maker: because gamers are shifting away from nintendo console especially toward xbox and that nintendo would have no choice but to stop making console and make games for sony's and MS's.. and FUD like that..

don't you remember that ?

...and as I said before, who here has said that?

 

[Qroach]

As usual, Sonic sums it up nicely.

 

[Magnum PI]

...and as I said before, who here has said that?

i won't waste ther necessarily time to look for the threads where it was said and the ppl who said it. i remember it and i'm sure most of you fellows who frequently goes here can remember it if you really want..

 

[Qroach]

That's the thing. Nobody here has come out and said nintendo doomed for the reasons you mentioned. Many people have said why they thought MS would do better than Nintendo this generation, for one reason or another, but it was just the way you interpreted what was said as "nitnendo is doomed".

A perfect example is almost every argument about what nintendo is doing, a nintendo fan always chimes in at some point and says "Don't worry, Nintendo isn't going anywhere" even though not one person suggested the company was doomed or going away.

 

[gmoran]

MS didn't plan on breaking even after only two years in teh consle business cybermerc. They knew it was a 5 year up hill battle to find a place in teh market. Xbox losses are supposed to increase! They are still losing money on the console, but less than when they started. The fact loses are going up, is because they are selling MORE consoles at a loss. Cybermerc, I really don't think you're the most objective person around, specifically when it invovles nintndo or MS, but it actually is a viable business. Obviously you've never heard of spending money to make money, and you also forget that taking a loss on teh hardware is common practice.

I find it beyond belief that people still think it is reasonable for MS to completely bankroll Xbox. Xbox will not make a profit because the market is much tougher than MS expected: they thought they could charge more for Xbox as a premium product but quickly had to fall in line with PS2 pricing.

What Xbox has proved, is that its business model doesn't make money unless it can dominate the market. However MS subsisiding the Xbox completely has created an artificial market, which has had a negative impact on Nintendo, a company that for years has been able to make a real success (i.e. make money) out of the videogame market.

There is also this lie that people perpetuate: to make an impact in the videogames market you have to lose money for the first generation (its an investment). Actually Sony made lots of money on PS1. Its only MS, who's business model is based on utilising off the shelf components, which therefore maintains a high price throughout the product life (avoiding high initial investment), which will lose money if priced at the levels traditionally usual for consoles.

However the prize for MS if they suceed is the multi billion console market. And a new monopoly, where the price of entry for "would be" multinational competitors, will be $40 billion in the bank? Where competition is based on who can stand to lose the most money subsisiding their console.

 

[cybamerc]

Qroach:

> Microsft budgeted for significant losses over the course of 5 years, with
> year 4 possibly breaking even.

Initially it was 2004 (year 3). Won't happen.



bukima:

> Have some proof of this?

Of course he doesn't. Quincy is a clueless troll. Pay him little attention (but feel free to mock him).

PS2 (that's hardware, not the overall business) was profitable after approx. 1.5 years on the market.

http://www.gamemarketwatch.com/news/item.asp?nid=1900
http://www.sony.net/SonyInfo/IR/financial/ar/2002/file/e_ar2002_02.pdf

Due to the way Sony's business was organized back then and the early nature of the internet I couldn't immediately find any info on PS1 but Sony's investment into the game business was much smaller back then. I can't imagine Sony losing money on PS1 for very long.

Nintendo hasn't sold a console at a loss prior to GameCube. I very much doubt that Sega was selling Mega Drive/Genesis at a loss either.

 

[Nick Laslett]

The PS2 Hardware was being sold at a profit from June 2001. This was confirmed in an article published in the Financial Times with the Sony CEO at that time.

That would be 15 months after the console debuted in Japan.

 

[Qroach]

Cybermerc,

Initially it was 2004 (year 3). Won't happen.

Yeah and you've been so right until this point with all your foolish predictions Excuse me if I don't trust aything you say at all!

Of course he doesn't. Quincy is a clueless troll. Pay him little attention (but feel free to mock him).

Are you mornic or something cybermerc? The first link you posted says NOTHING about the hardware becoming profitable. The second link you posted was for the fiscal year 2001 which ended in march 2002. In the article Kutagari (CEO) states the following:

"Our success in reducing costs has enabled PS2 hardware to become profitable in the latter half of the year under review, which has contributed to an over all increase in profit."

When he says year under review, he's talking about the FISCAL year for 2001. The PS2 was released in Japan on the 4th of March 2000, and Kutagari is I'm sure including christmas sales and the fall season as that's the time when they sell the most units, so I'm sure he's talking abotu the final fiscal quarter which would put it much closer to 2 YEARS then it is 1.5.

I was wrong about saying under 2 years, but it's closer to the 2 years I mentioned. Then again Sony basically didn't have any competition during that time frame. You really can't count dreamcast as the competition, since it was starting to die off before the battle heated up.

Nintendo hasn't sold a console at a loss prior to GameCube. I very much doubt that Sega was selling Mega Drive/Genesis at a loss either.

More bull. AFAIK This has always happened for a while at the start.

 

[Johnny Awesome]

It's pretty simple really - the video game market was an established mature market when MS entered the fray with Xbox. They have to spend money to get marketshare if they want the ultimate prize. If you want Sony's level of success you need to model their business plan. If Sony wants MS level of profitability with Live they will have to model the Live plan. Which they will be doing next generation, IMO. Both corporations are learning from one another.

I still think MS will break even in year 3 and make money in year 4 and 5 on Xbox. They're starting to get to a critical mass of games that make the system pretty attractive at even $179, although it probably won't really gain steam until it hits $149 or lower.

 

[London Geezer]

It's pretty simple really - the video game market was an established mature market when MS entered the fray with Xbox. They have to spend money to get marketshare if they want the ultimate prize. If you want Sony's level of success you need to model their business plan. If Sony wants MS level of profitability with Live they will have to model the Live plan. Which they will be doing next generation, IMO. Both corporations are learning from one another.

I still think MS will break even in year 3 and make money in year 4 and 5 on Xbox. They're starting to get to a critical mass of games that make the system pretty attractive at even $179, although it probably won't really gain steam until it hits $149 or lower.

now thats what i call being optimistic.... i mean it's your opinion and your entitled to it, but come Xbox2, MS will see that the Xbox1 was just billions thrown down the toilet no matter how big of a market share they will have, which won't be very big really, it's not big now and unless a miracle happens, it's not gonna get very much bigger if at all before Xbox2, at which point they can have another go at throwing money down the drain to catch up the PS brand (name recognition and all) and in some cases the Nintendo reputation/position (being profitable)....

 

[gmoran]

but it actually is a viable business. Obviously you've never heard of spending money to make money, and you also forget that taking a loss on teh hardware is common practice

In what way is Xbox a viable business? The hardware is not competitively priced, and because they had to buy "off the shelf" components, they get little reduction in price (relative tp PS2 and GC) over the consoles life. So they lose money on every unit sold. While Xbox is not selling sudfficient games to cover this loss in license fees. Neither situation looks like being resolved over the next 3 years. It is unlikely Xbox will turn a profit in any of the remaining years, let alone sufficient profit to cover the previous accumulated losses.

What you really mean: because Xbox is technically excellent, and if MS continue to subsidise it, then eventually it should gain sufficient traction over one of its iterations to become the market leader. At such a point in time, its PC based roots and DirectX API, will tip the balance in its favor with publishers, such that it will then achieve market dominance. MS will then have another monopoly market under their belt, and all the money they lost on successive generations of Xbox will indeed become worthwhile.

 

[Phil]

gmoran:

excellent post, as was the one before. I was already replying to london-boy, but your post nicely covers it (refering to especially the second paragraph).

Considering what is at stake for both Sony and Microsoft, I can see the dilemma especially MS is facing now fighting an uphill battle with the marketleader, but also that it is necessary if they hope to be there for the final showdown (which I agree will be much more than just the gaming industry).

The question is, is Microsoft doing things right - or is there no hope left and their current businessmodel a complete waste?

 

[gmoran]

If you want Sony's level of success you need to model their business plan.

They are not modelling Sony's business plan: The PS beat its immediate competitor as a technical product (both in terms of performance and simplicity of design), and had a 16 month advantage in the market over its other competitor.

MS, are at this stage heavily subsidising, without hope of reasonably recouping their losses, simply to grab some market share and brand presence.

See, not the same business model at all.

 

[gmoran]

gmoran:

The question is, is Microsoft doing things right - or is there no hope left and their current businessmodel a complete waste?

I think you misunderstand me; I think MS's business model is reasonably likely to succeed over the medium term. A console model based around PC technology is very attractive to developers and publishers. If you can stand the losses, then eventually the company you are competing with, will slip up with the proprietry technology, or the advances gained from proprietry tech will run into diminishing returns. So as long as you can bank roll it to that point, you should eventually succeed. At which point either/or games sales will subsidise high hardware costs throughout the lifecycle or you can charge higher for the hardware as you no longer have competition.

My beef, is that video games consumers think this is good, A situation akin to turkeys looking forward to chrimbo (or thanksgiving).