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How Much is Too Much?

Microsoft says it will stick with its Xbox business come hell or high water. But with years of heavy losses behind it the time has arrived to turn a profit. Has it all been worth the effort and how can the company turn its hard won market share gains into actual profits?

Earlier this week, an interview with Microsoft COO Kevin Turner affirmed that Microsoft is willing to stay the course with its videogame business, despite the fact that it hasn't been profitable on an annual basis since the original Xbox launched in 2001.

For some, the reaction to the interview was surely, "'Duh.' Of course Microsoft plans to stick with the Xbox business." That reaction stems from the fact that it's easy to see Microsoft's successes as the lone next generation console on the market. The games library is good, upcoming titles are looking great, Xbox Live is a robust service with many appealing features and Microsoft is insistent that it will move 10 million hardware units by the end of the year.

But all of these successes and admirable plans have come at great expense-greater than Microsoft had expected initially. For fiscal year 2005, Microsoft's home and entertainment division posted a $485 million net loss.

After its third fiscal quarter ended March 31, 2006, when Microsoft posted a $388 million operating loss for its home and entertainment division, Microsoft CEO Steve Ballmer issued an internal e-mail that stated, "…The cost of producing Xbox 360 consoles was higher than expected..."

In fiscal 2006, ended June 30, 2006, the division lost $1.26 billion, mainly due to Xbox 360 launch expenses.

Of course, these losses represent investment-heavy investment that Microsoft hopes to turn into profits by fiscal 2008, the target date that Robbie Bach said the home and entertainment division would turn a profit.

The question is, how much loss is too much? Microsoft's resources for supporting the Xbox 360 business seem unlimited, as other profitable divisions rake in the dough. But would it take for Microsoft to throw in the towel?...more at next-gen.biz...

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TheMART4023d ago

“It's very hard to calculate the worth of a defensive business. I personally think Sony will have a really hard time with the PS3—fewer games at launch, $200 price premium, and yet they're losing more money per console than Microsoft is on the 360. More long-term, imagine no PlayStation 4 and how Microsoft might profit from such an environment.”

Yup it really could happen. PS3 failing like the mighty Nintendo once fell hard. And no PS4. Although I won't wish it. Competition is good. But I truly believe the PS3 will fall so freaking hard. Especially this Christmas when fanboys will say: "Damn here I have Killzone 2/3 CGI stuff but then ingame in Gears of War on this demopod... Why wait any longer? Let's buy the 360 with Gears and a couple of other games!"

I really see that happening, especially here in Europe. Ppl hate Sony for pushing it back to spring 2007

calderra4023d ago

In the 3 months leading up to March, 3006, Microsoft posted a net profit exceeding 3 Billion dollars (counting all divisions). Over the same period, Sony earned something like less than half a billion (counting all divisions again).

If Microsoft is in trouble here, the entirety of Sony is ****ed!

4023d ago
TheMART4023d ago

Listen kid, why do you think you got 3 bubbles?

I just give you a normal situation, you start to shout. That defines a fanboy in denial, defending something that is already sinking.

Be my guest. Nobody thought Nintendo would fail also back then. But they did. Sony was already lying with the PS2, but because Dreamcast ran out of money they won the public. This time it's the other way around. MS has the big bucks, Sony doesn't.

You did know for the first time in 10 years Sony took a multimillion dollar bank loan? That they couldn't release more shares? You know a bank loan and having negative earnings for years already aren't the best signs for such a big company?

BIadestarX4023d ago (Edited 4023d ago )

Dante, everyone is entitled to give his/her opinion without being insulted. Why don't you try for once to reflect any level of maturity if available, when posting comments.

New4Gamers ADMINS, can you please remove one of these guys speach bubbles!

+ Show (1) more replyLast reply 4023d ago
THAMMER14023d ago

If they do not reach 20 million consols sold ver a 5 year span.

Shadow Flare4023d ago

"Microsoft is willing to stay the course with its videogame business, despite the fact that it hasn’t been profitable on an annual basis since the original Xbox launched in 2001"

- That's just plain funny. But from a business point of view, thats REALLY bad business. The only damper to that statement is the fact that it's Moneypots Microsoft behind it so they don't care if they lose some money since they already have loads. Any other company would think, hmm, we've lost loads of money on this. Lets stop.

"Microsoft is insistent that it will move 10 million hardware units by the end of the year"

Ahaha, dream on. But they are refering to SHIPPING 10 million units, not selling. Shipping 10 million is of course possible. But if they think they're gonna sell 10 million consoles by the end of the year, FAT CHANCE. Its already taken them nearly a year to sell 5-6 million consoles. And with the Wii and PS3 launching in a few weeks, they think they are gonna crank up 5 million more sales by the end of the year?

Microsoft had a whole year to themselves and only sold 5-6 million consoles. They're never gonna reach 10 million consoles by the end of the year when they have competition

Balance4023d ago

I don't think you see it. last year every 360 was sold (trust me i waited in line for 14hrs to get one) out. this christmas they will still be the lone next gen machine since the PS3 isn't shipping in large numbers (which the 360 will) along with some killer games and the fact MS now has the 360 is many more markets this year. they were at 6mill this summer they will easily reach 10 after christmas.
they are starting to market GOW pretty hard now and that will sell millions on it own, especially after it comes out and people can play it.
If i were sony i would be worried that about the time they start shipping the PS3 in quanity the Halo juggernaunt will start rolling.

THAMMER14023d ago (Edited 4023d ago )

You forget that there are close to 30,000,000 people waiting for HALO 3. You also forget that there are a large number of 360 available for X-mas and Gears Of war in the most anticipated game on any console right now. 10 million buy the end of this year is very possible with 5-6 already sold.

I know it's hard to be a hater but your getting good at it.

TheMART4023d ago (Edited 4023d ago )

shipping is selling these days. Just-in-time delivery. No one keeps a lot of stuff in stock anymore these days.

10 million will be reached this year. Sony having only 500k out world wide, MILLIONS of people shopping for Christmas searching for next gen consoles only finding 360 on the shelves.

What you'd think they'll do? They want a freaking good Christmas present. In Europe Christmas won't be delayed because Sony say's so. Spring 2007, Sony is f*cked overhere in Europe.

They sold 5 million by the end of June this year. That is in 7 months.
You can't calculate.
Devide 5 mln by 7 months. over 700k a month. Without the actual extra countries like Australia, India etc. included.
3,5 months almost since end of june. That's AT LEAST
3,5 x 700.000. Makes about 2,5 mln. sold already again
5 + 2.5 = 7.5 million units sold by now.

Eat that. Knowing @ Christmas millions of consoles are sold and only 360 is available, count on how much Sony helped 360 to reach 10 million this year by having no units at the shelves!

And don't forget. Sony fans are walking over. I've seen more of them even on this site. Die hard fans. And I've not seen many XBOX/360 owners walking over to the sad side. They won't wait for having a nightmare ingame Killzone 2/3 stuff that doesn't live up to the CGI from E3 2005, they just buy that CGI but then ingame with Gears of War this Christmas

Shadow Flare4023d ago (Edited 4023d ago )

I like that. Probably true too. But i have my own viewpoints

And from my viewpoint, i'll give you 2 reasons why xbox 360 may not sell 10 million by the end of the year

- PlayStation 3 (and Wii) is HERE now. Last christmas, people bought the 360, because no-one knew when the hell PS3 or wii was coming out. But they're out now. So expect alot more people to be hanging on a few more weeks for the PS3 for stock to arrive. Sony did state before that they were planning to ship 1 million PS3's a month. I don't know if thats the same now due to the laser diode shortages, but even if it were 500,000 a month, thats enough to keep people happy and hanging on. Sony's not going to do what Microsoft did and have a 5 month console drought

- Valid point you made with Gears of War. But here's another. Do you think most people actually really want that game? It's another xbox shooter. Yet another. Xbox gamers seem to like shooters. Point in case, Gears of War might appeal to Xbox gamers sure, but it might not appeal to other people, and so might not sell many more consoles

And besides, interest in the 360 is kinda waning due to the hype surrounding the launch of the PS3

http://www.news4gamers.com/...

I think that link tells you all you need to know

TheMART4023d ago

Good discussion. I like it. Your points:

1. PS3 and Wii are not yet HERE. In USA/Japan PS3 will be @ 17 nov. but only 500k total. In Europe only in spring 2007. Wii will be in Japan/USA/Europe with more consoles then PS3 but isn't really the same market. A real gamer will choose between 360 or PS3 or buy them both if they can. Only in Japan Wii could be chosen as they are strange gamers. There former PS3 buyers will get a Wii in mass numbers.

Yeah I heard Sony's positive number of PS3 production before. They would have them up spring 2006. Then they said 6 million would be ready for holidays. That became 500k. Europe has been set back for a half year. So do you still really believe they can get 1 mln. a month if they MOST LICKELY (not certain yet) 500k from the production started about beginning of this month (did it actually?). So 500k in 1,5 month. I bet it'll be even worse then the delivery of the 360 back then.

2. And no, people won't hold on anymore. In Europe for sure not. And when they see the demopods with Gears (there is more then that and you know it, all the exclusives, I don't think I need to mention them all again but just see Viva Piniata, Forza 2, the timed exclusive soccer games (BIG IN EUROPE) etc. etc. And yep, everybody wants Gears. For real. It's not just another shooter. This will be the leading title and Halo 3 will be the last in that series. This will be larger then Halo even. And more accessible. The research link isn't real reflection if you'd ask me. But comparing Gears to any other shooter is totally out of this world. Go watch the trailer/teasersite, the story, the way of playing, and no jumping jack kiddies like in for example Halo. This game will sell systems in large numbers

And just see how the calculation of me just calculated only the 700k before the launch in India, Australia, soon South-Afrika and former East-European countries. For real, it'll hit the 10 million number sooner then you'd think.

And what you still look over: people wanting a Christmas present are looking in shops when there are NO PS3 units. They won't wait. Not even a month. They need the present for under the christmastree. They will buy 360.

+ Show (2) more repliesLast reply 4023d ago
shikwan4023d ago

The only (possible) negative stories they can muster seems to be about MS's profits which happens to blow Sony's profits (on a whole) out of the water.

ORIELKILLER4023d ago

hey im not a fanboy cuz i dont buy games i just rent them ... but i see MS spending alot of $$ just to stay on the race ... they have billions to spend ... is true they havent even see any plus signs yet... i do think that even tho sony is shipping few consoles in a year they will sell more ...actually PS3 will be sold out for a year long since everybody will buy that thing

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