None of what you said mean that they are losing money on Xbox. Microsoft don't publish costs for Xbox operations, just like any other segment in their reports. In fact by seeing that ~70% of Xbox revenue is from software (which includes Minecraft, Halo, GeoW, Forza) & services (which is built on Azure) someone may think that Xbox profit could be greater than or equal to Playstaion, even at lower revenue.
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Deleted member 86764
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With nearly half the sales of Playstation and software sales being consistently behind and Microsoft selling a more expensive to manufacture console at a cheaper price? Doesn't seem very likely. Would be a miracle if true.
DSoup wasn't saying that. He's saying there's not enough information. There's only one variable of the equation provided and the rest is left to guesswork. And importantly (according to DSoup - I don't follow these financials), it's only XB that MS do this with. Why aren't they as transparent with their XB numbers as they are with their other divisions?
So given not enough information to make an accurate assessment, and given this behaviour is abarrent, and abbarent behaviour only happens with a reason (you want to hide something), it's a good argument that gaming doesn't make MS much money.
PS4 sale ratio to XB1 is 2:1 but you are wrong about software revenue and your suggestion that XB1 is more expensive to manufacture than PS4 is also questionable. Instead of ignoring financial reports try to read them find out what's happening in reality:
Total Xbox revenue in last quarter: $1,668 million
Total Sony's Gaming & Network Services segment revenue in last quarter: $2,365 million
Xbox revenue from shipping 1.4 Million consoles (XB1&360 combined) at 380$ (which is much higher than reality): ~$530 million
G&NS revenue from shipping just 3 Million PS4s at 380$ (which should be lower than reality): ~$1,140 million
Xbox revenue from Xbox accessories, second-party and third-party video game royalties, Xbox Live subscriptions, Xbox Live transactions, first-party video games: ~$1138 million
G&NS revenue from PS accessories, second-party and third-party video game royalties, PS+ subscriptions, PS transactions, first-party video games : ~$1225 million
Actually by adjusting PS4 and XB1&360 average selling price and including PS3/PSV you will find that Xbox software&service to hardware revenue ratio is much higher than PlayStation. I believe that software&service revenue is much more important/profitable than hardware revenue.
That's exactly where I believe DSoup is wrong, since Microsoft reports Xbox finance just like every other segment/product. I asked him about Surface and he had no additional official numbers (eg. net income) from Microsoft.
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Deleted member 86764
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Just so I'm clear, you're suggesting Xbox gets higher software sales?
You can ignore Kinect, but the power supply and "other box contents" do apply.
According to teardowns and BOM analysis, XB1 is more expensive to produce than the PS4.
Also, MS pays something around $9 licensing to the bluray forum.
The PS4 had two revisions since launch that lowered it's BOM even more.
It's time for a new BOM analysis, the one from 2013 is getting dated. But more importantly it's time for MS to come out with a slim revision to lower the cost.
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Deleted member 11852
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As I said in my post, you can derive profitability for most of Microsoft's business from their "selective" financial statements and their SEC filings. While there is a little room for error, the Surface 3 margin is between 19% and 20% so of their $1.05Bn revenue around $200m give of take $10m.
Just because you lack the knowledge to do this does not mean that it's impossible to calculate numbers that Microsoft chose not to publish plainly. Except Xbox. It's why there is, and always has been speculation about the margin on the Xbox business unlike Windows Office, Azure, Surface, Zune and everything else where you can find sound analysis worked out by others on actual margins calculated from Microsoft's own figures - and occasionally Microsoft just state them themselves.
This is part and parcel of reading financial reports. Sony are fairly annoying in that they never publish their fourth quarter figures in isolation, you need to calculate that quarter from the full year and accounting for the first three published quarters. Time consuming it is, rocket science it ain't.
Per console sold? Yes, it seems that Microsoft makes more money from software and services than Sony per console.
You can ignore Kinect, but the power supply and "other box contents" do apply.
That analysis is dated and I heard that Xbox one cost ~50$ less to manufacture compared to PS4 (eastmen should be the source).
Almost everything exists in this reports to do the same for Xbox:
Computing and Gaming Hardware
Revenue: Xbox Platform revenue decreased $703 million or 20%, driven by a 10% decline in total console volume, the transition from Xbox 360 to Xbox One with lower prices compared to the prior year, and lower revenue from second- and third-party video games and accessories. ==> $2,812 million
Cost of Revenue: Xbox Platform cost of revenue decreased $492 million or 16%, mainly due to lower volumes and a lower cost per console sold, reflecting the transition from Xbox 360 to Xbox One. ==> $2,583 million
Gross margin ==> $229 million
D&C Other
Studios Revenue: First-party video games revenue increased $171 million or 79%, mainly due to sales of Minecraft following the acquisition of Mojang Synergies AB (“Mojang”), and the launches of Halo: The Master Chief Collection and Forza Horizon 2 in the current fiscal year. ==> $387.5 million
Xbox Live Transactions Revenue: Resale (mainly Xbox Live transactions) revenue increased $168 million or 42%, due to higher volume of Xbox Live transactions, driven by growth in gaming and entertainment purchases ==> $568 million
Xbox Live Transactions Cost of Revenue ==> +$131 million
estimate (42% increase) ==> $443 million
Studios Cost of Revenue ==> +$104 million
estimate (79% increase) ==> $235.6 million
Gross margin (estimate) ==> $276.9 million, real Gross margin should be higher than this since 79% increase in first-party video games revenue is mainly due to Minecraft while increase in cost of revenue is mainly due to Halo:MCC, FH2 or other new titles. So assuming that Studios CoR increased 79% isn't very reasonable.
Total (estimated) Xbox Gross margin ==> +$505.9 million
Revenue: Xbox Platform revenue decreased $703 million or 20%, driven by a 10% decline in total console volume, the transition from Xbox 360 to Xbox One with lower prices compared to the prior year, and lower revenue from second- and third-party video games and accessories. ==> $2,812 million
Cost of Revenue: Xbox Platform cost of revenue decreased $492 million or 16%, mainly due to lower volumes and a lower cost per console sold, reflecting the transition from Xbox 360 to Xbox One. ==> $2,583 million
Gross margin ==> $229 million
D&C Other
Studios Revenue: First-party video games revenue increased $171 million or 79%, mainly due to sales of Minecraft following the acquisition of Mojang Synergies AB (“Mojang”), and the launches of Halo: The Master Chief Collection and Forza Horizon 2 in the current fiscal year. ==> $387.5 million
Xbox Live Transactions Revenue: Resale (mainly Xbox Live transactions) revenue increased $168 million or 42%, due to higher volume of Xbox Live transactions, driven by growth in gaming and entertainment purchases ==> $568 million
Xbox Live Transactions Cost of Revenue ==> +$131 million
estimate (42% increase) ==> $443 million
Studios Cost of Revenue ==> +$104 million
estimate (79% increase) ==> $235.6 million
Gross margin (estimate) ==> $276.9 million, real Gross margin should be higher than this since 79% increase in first-party video games revenue is mainly due to Minecraft while increase in cost of revenue is mainly due to Halo:MCC, FH2 or other new titles. So assuming that Studios CoR increased 79% isn't very reasonable.
Total (estimated) Xbox Gross margin ==> +$505.9 million
And yet Gross margin isn't profit.
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Deleted member 11852
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How are you calculating the running costs of Xbox division exactly?
Just like your's and other's estimation for Surface:
http://www.computerworld.com/article/2838622/microsofts-surface-turns-first-profit-in-2-years.html
gross margin = revenue - cost of revenue.
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Deleted member 11852
Guest
The figures that Microsoft publish for cost of revenue are incomplete for both products but grossly incomplete for Xbox because it's a much larger business with greater overheads. I don't often link to Forbes but they dip their toe into the problem in this article - which incidentally only tackles the problem for a single console (the Xbox One) and not problem of their Microsoft operating their finances for the entirely of Xbox's existence like it's some black ops division of the CIA.
It's the lack of figures that caused some large Microsoft's shareholders to want to drop several divisions due to lack of profits (note that is before the Xbox One launched, which certainly has not helped matters financially) and it's likely that the bigger investors have more information than is in the public domain. Some folks are saying "no profits" and others (like the above) are suggesting too little profit to be worthwhile, i.e why Xbox has been referred to as a "distraction".
So it's a front? That explains the $5 billion 'loss' of the original XB. MS are funnelling government black ops funding through a public laundering that 'accounts' for the losses. Thus we can see why XB is truly important to MS (US Government).
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Deleted member 11852
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Frankly, it's as good and likely theory as any!
I don't care about this reports and articles which suffers from serious problems and are pretty dated.
Microsoft is investing in Xbox (they bought Minecraft, head of Xbox is now the head of Microsoft gaming, they are investing in windows gaming, etc. etc.), Bing and Surface and Staya Nadella was happy about their last Quarter results and they mentioned Computing and Gaming Hardware segments results alongside cloud division in the same quarter.
You are talking about same company that easily cuts 7,800 jobs and closes it's malfunction divisions . So why should they save Xbox from same fortune if it's performance is as bad as this reports and articles try to describe?
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Deleted member 11852
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With respect, if you don't care about this stuff then bail out of this discussion (or just ignore my posts) because it's wholly relevant to the thread topic: what should Microsoft do next? The possible and probable options will vary depending on Xbox Division as ongoing business having: 1) incurred huge losses 2) incurred some losses, 3) broken even, 4) made some profit or 5) made huge profits.
The question of Xbox Divisions's profitability is one of the biggest mysteries in modern gaming and a lot more people than me would like this mystery to be solved.
It's interesting you see Phil Spencer's change in role to Head of Gaming (is that the official title?) as a positive thing because speaking as somebody who has had additional responsibility heaped upon them, this just meant I had less time to spend on my original job. On the plus side it gave me new perspective and that wasn't always necessarily a good thing for the old job at macro-organisation level. Things that looked like clear priorities suddenly were lower priorities compared to other initiatives.
Just food for thought.
If it helps, I think it was be incredibly bad for the entire gaming industry if Microsoft dropped Xbox (and not replace it with something equally compelling) but money talks.
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No it doesn't.
What happened since that analysis is that the XB1 didn't change at all, while the PS4 had two improved redesigns, the latest have a much smaller board, fewer regulators, half the memory chips on a smaller node, a lower cost heat sink, a lower cost power supply, some glue-logic and controllers integrated in the south bridge. The PS4 motherboard is half the size of the XB1.
If the XB1 have a lower cost today, the PS4 have the same savings along with the above additional cost reductions.
If you read Microsoft annual reports it will report numbers like cost of revenue and gross revenue which will provide what are the rough gross profits of the xbox division. I say rough because gross profits = gross revenue minus cost of goods sold. Cost of revenue and costs of goods sold are sometimes used interchangeably but cost of revenue is usually a more comprehensive number as it will include costs like warranties, repairs and customer service. Neither will help with a net profit number because neither include indirect costs like salary.
Also, xbox platform includes just about everything outside of live transactions which is the revenue generates as a reseller. Its the revenue they generate from selling, games, dlc, music, movies and TV shows. They also don't include their revenue as a publisher (which includes first party titles) and online/search advertising revenue of which some is generated through the xbox.
Using my far from infallible math skills (feel free to correct me) and using some statements from their earnings and annual reports we can generate some figures.
From Annual Report 2104
"Xbox Platform revenue increased $1.7 billion or 34%, due mainly to sales of Xbox One, which was released in November 2013, offset in part by a decrease in sales of Xbox 360."
The xbox as a platform including the 360 and the xbox one generated ~ 6.7 billion in revenue for fiscal 2014.
"Xbox Platform cost of revenue increased $2.1 billion or 72%, due mainly to higher volumes of consoles sold and higher costs associated with Xbox One."
Cost of revenue is roughly $5.0 billion for the xbox platform. So the gross profits (not really) for the platform for fiscal 2014 is around $1.7 billion.
From Q4 2015 earnings
Xbox Platform revenue decreased $385 million or 6%, driven by lower prices of Xbox One consoles compared to the prior year, as well as a decrease in second- and third-party video games revenue.
That would put revenue at $6.3 billion for the xbox platform for fiscal year 2015.
Xbox Platform cost of revenue was comparable to the prior year.
That puts cost of revenue at around $5 billion for fiscal year 2015 which means gross profits would be around $1.3 billion.
It should be noted that these figures are GAAP based. In the 2014 annual report notes there is actually a non GAAP revenue figure broken out for the Xbox platform which is $8.64 billion in revenue for fiscal 2014.
Also, xbox platform includes just about everything outside of live transactions which is the revenue generates as a reseller. Its the revenue they generate from selling, games, dlc, music, movies and TV shows. They also don't include their revenue as a publisher (which includes first party titles) and online/search advertising revenue of which some is generated through the xbox.
Using my far from infallible math skills (feel free to correct me) and using some statements from their earnings and annual reports we can generate some figures.
From Annual Report 2104
"Xbox Platform revenue increased $1.7 billion or 34%, due mainly to sales of Xbox One, which was released in November 2013, offset in part by a decrease in sales of Xbox 360."
The xbox as a platform including the 360 and the xbox one generated ~ 6.7 billion in revenue for fiscal 2014.
"Xbox Platform cost of revenue increased $2.1 billion or 72%, due mainly to higher volumes of consoles sold and higher costs associated with Xbox One."
Cost of revenue is roughly $5.0 billion for the xbox platform. So the gross profits (not really) for the platform for fiscal 2014 is around $1.7 billion.
From Q4 2015 earnings
Xbox Platform revenue decreased $385 million or 6%, driven by lower prices of Xbox One consoles compared to the prior year, as well as a decrease in second- and third-party video games revenue.
That would put revenue at $6.3 billion for the xbox platform for fiscal year 2015.
Xbox Platform cost of revenue was comparable to the prior year.
That puts cost of revenue at around $5 billion for fiscal year 2015 which means gross profits would be around $1.3 billion.
It should be noted that these figures are GAAP based. In the 2014 annual report notes there is actually a non GAAP revenue figure broken out for the Xbox platform which is $8.64 billion in revenue for fiscal 2014.
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And if that dated analysis was always wrong from the beginning why should it be used now?
Math is a part of it, but I think the problem is more your reasoning
you say Xbox hardware = $946 million with 1.4 million shipped which if you do the math works out to be $675 per console.
Now the average xbox1 is prolly ~$325 and xb360 ~$150 (remember these prices will be lower than the RRP price as its the price MS sells it to a shop), say on average $275 per console
So where is all these extra hundreds of dollars of hardware per console coming from? Is everyone buying 7+ gamepads? I think not (*)
then you state MS earns 70% of what sony earns! Mate just thinking about it quickly you would realize 1.4 million for xb1 & 360 combined is less than half of 3 million ps4's shiped (not even counting ps3) you combine this with the lower average RRP of the MS consoles vs sony ones, shows your reasoning or logical is flawed
(*)$275 console & $400 on other hardware, so you're claiming accessories are worth much more than consoles in dollars value but if you look at NPD etc you will see this is in fact the opposite of what they actually report
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