Bach: gaming to turn a profit for Microsoft in fiscal '08

Xbox 360 costs will continue to keep the division in the red for one more year, according to entertainment and devices division head.

by

Microsoft's gaming division has a history of red ink. 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.

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.

The only part of the division (which also includes productivity and mobile operations) Bach expects to lose money in fiscal year 2008 is the entertainment program, which will still be sustaining costs associated with the launch of its Zune media player. Bach said that part of the business will be negative, "but not dramatically so."

Discussion

106 comments
robbie_basic
robbie_basic

If you accounted for the dollar value in the customer base and intangible assets they are definitely in the black in my opinion.

Riverwolf007
Riverwolf007

to be honest its probobly the only profit they make since they cant be making very much money selling new product and returning every pc game that wont run on peoples 7 year old computers. but i personally think that buying used games is bad for the industry as a whole when u factor in the price difference in buying new is marginal in most cases. You are correct about download only consoles, most areas still have limited broadband access and those are the very areas in which wal-mart and the like sell millions of copies of games. Anyone else like to pipe in in the used vs. new debate? im really curious as to peoples opinions on it.

chikahiro94
chikahiro94

@Riverwolf007 You do realize that Bill Gates said this would be the last generation of consoles that shipped games on physical media, right? No, I don't believe it either, but the truth is this: if the console makers could do everything online, they would. They take a bigger cut AND prevent you from loaning out a game or selling it used. Expect the next two to three generations to *really* start pushing online distribution of games, ala Steam or Stardock Central. Full, retail quality, $50 games, not just these $5 low budget deals. Expect them to say it's an anti-piracy measure, also. They've been aggravated about all the money they're not making off of used game sales; when they pull this expect Gamestop and other places that sell used games to be hurting (used games = major profit for them).

Riverwolf007
Riverwolf007

its amazing that with all the games sold that they didnt just lose a little bit of money, they lost their ass in the deal....how can the fees they get paid for halo,fable, kotr, gotham,gta,riddick,splinter cell, rainbow 6, and all the rest of the million sellers not pull them outta the red. oh yea thats right the retailers screwed them over selling the products used. When these software and hardwear companies fold and u end up with nothing to play so you could save 5 lousy bux on a scratched up copy of a eight month old game you will have noone but yourselves to blame. getcha a bite o that fanboys

chikahiro94
chikahiro94

You know, maybe there needs to be a "Video Game Console Economics 101" or something. You know, to explain how a successful console developer makes money and all that. It seems a lot of people never heard of the old "shaving razor and blades" analogy. Sell the system at a loss or little to no profit, make the profit of game and accessory royalties. Its very much a long-term investment, but once you're making a profit, you can make tons of cash. The new twist is this: Sony is using the PS3 and its related technologies (Cell, Blu-Ray) to boost other releated aspects of the company (movie sales, HDTVs, home theater equipment, hopefully the PSP, etc). Same with Microsoft; they're using the 360 to help extend Windows and Windows Media Center through XNA, Live Anywhere, etc. Nintendo is the most traditional, but given the GBA/GC interactivity we've seen before, hopefully we'll see some Wii/DS synergy also. This generation is pretty interesting: Sony and Microsoft want to be dominant because it advances their agendas, and Nintendo is taking a big risk by challenging traditions in terms of system power and interface conventions and skipping the woo-ing of the hardcore gamers in favor of going straight for the casual gamers, former gamers and non-gamers. I'd love to see all three be profitable this generation. I wasn't much for the old Sega/Nintendo duopolies, and Sony's stranglehold for the past 1-1/2 generations was annoying. I want to see multiple, sustainable visions as to what gaming could be, not just one company's "vision." Let them argue, debate, and fight - they'll cause each other to strengthen themselves and focus on delievering the best they have to offer. When only one company dominates the scene, then they go unchallenged and we suffer for it, hoping for someone to point out the emperor has no clothes...

jcloverboy
jcloverboy

It won't be until probably fiscal 09 or 10 (sounds weird) that Sony will trun profits on the PS3. Hopefully devs take advantage of that expensive BluRay DVD Drive early on.

phSychO_AtDawn
phSychO_AtDawn

I actually believe the Xbox 360 is going to do great this generation,I really like this console with it's diversity in games(now and near future) and I love First Person Shooters so this console is the one that provides them.Also I would like to inculde most of my friends(

relset
relset

I can`t imagine that, maybe they will gather the money back with windows vista:)

LaP
LaP

PS3 ripping xbox live :lol: Like if microsoft created online gaming :| Both Microsoft and Sony are ripping pc online gaming which is actually older than both the playstation and xbox brand.

TooDamnRaw
TooDamnRaw

Let's hope they turn a profit, because they are losing buku money with the set backs of Vista, and are still losing a lot on the original Xbox. That's just petty talk compared to how fast investors are pulling there money out from Microsoft...so they better turn some kind of profit somewhere.

ajm03865
ajm03865

I can't even comprehend that a company can lose $1.26 Billion and be like, yeah next year we're going to lose more money, but after that we should be cool. No worries, man! Just give me 0.5% of that, please!

axia_777
axia_777

Keep dreaming Bach, keep dreaming! LOL! That is what they said about X-Box every year. After it was all said and done over 4 billion losses were accrued. Lets all see how much red ink Microsoft bleeds this time.....

WolfSkill5544
WolfSkill5544

that's good for them, they are gonna get filthy rich now

sasuke55
sasuke55

Them making a profit is great and all but I just want some games lets be real thats what we care about. Unless you got stock in M$ In which case you are a RICH bastard

makemeweak
makemeweak

shibipocanibo said: "Apple is catching up with Microsoft and has some distinct advantages." While talking about Apple vs. Microsoft is a little off topic for this article, I couldn't let this slip by me - are you serious? catching up? I wouldn't categorize going from ~5% of the market to ~10% of the market as "catching up" quite yet. The olny reason that apple has a stable platform is because of it's small marketshare. They don't need strong virus protection because no one is going to waste their time to target macs with a virus. They don't need to worry about driver stability because they only have mac products to make drivers for - unlike Microsoft which has to make an operating environment for hundreds of different manufacturers. Apple doesn't have a competitive technological edge over Microsoft. They just have fewer problems to worry about.

messin18
messin18

Try not being a fanboy ShadwoBass.. "while the PS3 has at least 50 great titles" Uh what? They'll have at best 6 launch titles and none of them are "must have" awesome games. 360 only has a few really great games one of them being oblivion. But by the time ps3 launches 360 will definilty have more good games than ps3 does. Weather or not PS3 will quickly match 360's games nobody knows. One things for sure GTA4 on 360 is a huge blow to ps3.

messin18
messin18

Yup in includes all of the studios MS has purchased. Bungie, Digital Anvil, and a few more. So thoes types of investments don't pay off right away they take several years and arn't tied into any current generation of console hardware

ShadowBass989
ShadowBass989

hotdork70minus1 "How does microsoft have not have anything new ? The new Xbox Live system is freakin amazing. Live adds a boat load of replay value to games, look at halo 2, it still wrakes in 20 million games a month. The fact that you can download Demo Games before you decide to buy them is freakin awsome too. PS3 is ripping off Xbox Live and the Wii controller. The core processor hasn't proven a hell of alot in my eyes. Wii on the other had does look pretty fun and inovative." notice that about the x-box live all u said was halo 2, cause thats all u guys have, just halo, nothing else get over it. PS3 isnt ripping off x-box live, the world is in the internet age and they kno that people would like to play multiplayer on the internet. the problem for u Microsoft fanboys though is that all u have again is halo, while the PS3 has at least 50 great titles. the core processor hasnt proven n e thing to u cause u refuse to let it, ur so damn caught up in ur 360 "o were great and SONY sucks" just shove it. they arent ripping off the Wii controller either, they said that they were working on motion sensitive controllers cause they kno that controlling ur character in a game is the next step, not some rumble feature. get over it, the 360 is about to die when PS3 and Wii are released, just u watch.

ranglah33
ranglah33

Do those loss figures include the purchase of developers (such as Lionhead). I wonder how much Molyneux sold his biz for?

churchmany
churchmany

Well considering the MS as a whole had a cash surplus of $50 Billion (that's a B, not an M) dollars sitting around a few years ago, and chose to give away (literally give away) $34 Billion of it on a one time dividend payout to its stockholders, I don't think MS is too worried about its Entertainment division being in the red a little. MS has a very strong business model, and looks at the long term. If sales of the original Xbox or the new Xbox 360 were lackluster or not upto the level Microsoft expected, MS would cut it loose. But they said from the start way back in 2001 that they did not expect to start to turn a profit on the Xbox until sometime around 2007-2008. So it looks like they knew what they were talking about. It looks like Microsoft is truly the Master of its Domain.

messin18
messin18

Consoles currently are haveing around a 5 to 7 year run. If 360 is profitable by 2008 that means 4 - 5 more years of profit. And the profit will only grow over thoes years because cost on hardware will go down and game sales, XBL subscriptions, and XBL transactions will increase. I think Microsoft is very smart this time and around XBL income will be the difference for them to make a good profit.

SpamMeGamespot
SpamMeGamespot

The funny thing is that the division may post a profit for that specific fiscal year, but that won't exactly make up for the six billion dollars they've spent so far on console gaming. And then there's fiscal year 2009 where they start spending on the next Xbox iteration and things go down hill yet again. Don't get me wrong, I'm glad that there is competition in the gaming industry, I just think that any company that is willing to lose spend six billion dollars to get back a few hundred million should think about why it is doing what it is doing. Also, to the king of closed minded fanboys Optimusv2, I would seriously stop talking. I'm sure you used to have games such as Prey and Chromehounds on your list of super cool Xbox 360 games. Where are they now? Oh yeah, they were mediocre at best. Remember that most games do not live up to their own hype and it is way too easy to spout off a list of games that haven't come out yet as proof that a console will do well. I'm sure many of them will be great, I'm just saying that you look like an idiot every time you say things like that.

UmonDaisuke
UmonDaisuke

The Xbox business has dragged this division down since FY 2000 (which included R&D costs for the first system). One more year isn't really much, if they meet their target. With the radically different 360 manufacturing business model, and the launch of key software (the main being Halo 3) during FY 2007, I think they may very well be on target. Sounds good to me.

Snake2k9live
Snake2k9live

[This message was deleted at the request of a moderator or administrator]

SilV3RSix
SilV3RSix

shibipocanibo, I'm glad Im not the only one who sees this happening. But while Apple has impressed me of late, I am still looking forward to seeing how Vista turns out. It certainly looks good from the screenshots I've seen. Unfortunately its going to come down to security. If Vista even sniffs of being buggy, Apple will certainly be there to chomp into MSofts market share.

cesarotromundo
cesarotromundo

[This message was deleted at the request of the original poster]

shibipocanibo
shibipocanibo

Silver is also right, a point I also had made earlier in the recent Sony article. Apple is catching up with Microsoft and has some distinct advantages. It's brand-name appeal has become far more reliable then Microsoft's, in large part due to the worldwide domination of the MP3 market with it's Ipod. On top of that, Apple now has access to some of the best computer engineers in the art business - we all know about Pixar. Jobs is now the largest shareholder of Disney, so this bodes only good things for Apple. With continuing delays of Vista, and a lackluster performance of Microsoft advertising campaigns, Microsoft needs to do some serious make-up work to keeps it's edge over Apple. With Intel breaching new grounds in chip development, and with the success of the Intel-integrated Apple machines, I forsee a steady decline in the world of Microsoft-owned PC systems. Hopefully this will open the doors for developers to create a new OP that will breath new life into the business. I'm thinking Mozilla, Linux. We'll see.

m0zart
m0zart moderator

Hmm... well I hope they are right. I am not sure. As someone who works in competitive portions of the software industry, it is not easy to determine that profits are going to be made in a single quarter, let alone in the next two years. I am skeptical that their analysis can really predict trends that period of time in advance.

SilV3RSix
SilV3RSix

Meh, the main purpose of the XBox and 360 was to develop the Vista technology. Forget the next gen consoles, MSoft has to raise its Operating Systems to compete against an increasingly competitive Apple.

shibipocanibo
shibipocanibo

True that. They all rock. I happen to be a Playstation man, but I'm not immature enough not the recognize the potential of the 360. No comments on the Wii because it won't be my kind of deal, but it'll still be cool. One nice thing about the future PS3 online service is that it will be free. And why not knock off MS? Live is an awesome system that stands to be the predecessor for future console gaming, Sony should take a hint from MS, as they have, and implement their own. But let me say this again - PS3 has a huge third-party line-up and has the huge advantage of a monopoly on the Japanese market. Think about it, if you had a guarenteed buffer zone that insured your company didn't completely fail, no matter what, why not try to be a little more risky?

O_Lineman17
O_Lineman17

All I am gonna say is I agree with Estaban and Canibo, stop thinking about whos comming in 1st 2nd or last in this generation of gaming. Personally I want a PS3 the graphics look great and the games are gtonna be awesome for it, but then again I already of a 360 and I dont have all that cash to get a PS3...but the games for 360 are also about to getter better, game like Gears of War and Mass Effect and Oblivion(which I already have) are awesome games. But I love Playstation because that nwas what I first woned and I love their games, especially the Metal Gear series...and don't even get me started on Nintendo, they are by far my favorite gaming company. Well, I guess the point I'm trying to get across is that you shouldn't be saying "well xbox is sooo much better then a playstaion, they suck ass". Personally, I don't give a damn, and I bet almost everyone on these topics doesn't give a damn. If you are a true gamer who cares what system has the most powerful graphics. Look at the Wii and how many people want it, it doesn't up it graphics really from last year but the gameplay is what blows my mind away. So don't be thinking about graphics this year or which company you are obssessed with more. Look at everything each console has to offer, everyone of them has something great to offer.

hotdork70minus1
hotdork70minus1

bigelf72 How does microsoft have not have anything new ? The new Xbox Live system is freakin amazing. Live adds a boat load of replay value to games, look at halo 2, it still wrakes in 20 million games a month. The fact that you can download Demo Games before you decide to buy them is freakin awsome too. PS3 is ripping off Xbox Live and the Wii controller. The core processor hasn't proven a hell of alot in my eyes. Wii on the other had does look pretty fun and inovative.

eiru
eiru

hahah trashed! 2008. Linux would probably takeover by then and bye bye M$ =)

bigelf72
bigelf72

First off PC (Microsoft, and the ability to upgrade year after year) > Playstation 3 (innovative multimedia/game center)> Wii (Innovative gameplay) > Xbox360 (nothing innovative, just better graphics than its predecessor, also microsoft) Microsoft wins Ok, i was once a huge console gamer..but..consoles are now pc's that plug into a tv. I mean, think about it for a second; -Internet -Hard drives -Nvidia/Ati gfx cards -Wifi/Bluetooth -usb ports -sd card readers Might as well build a nice gaming rig Even you xbox360 fans cannot deny that your xbox 360 collects more dust that it does fingerprints on the controller. Besides the selection of games suck on the 360, you people are just waiting for Halo3. PS3 looks like it will have the best games. And Nintendo looks like it will have the most innovative and fun games. Second off Nintendo's initial profit from Wii > Microsoft's initial profit from xbox 360 >Sony's intial profit from ps3 It costs sony $800-$900 to make 1 Playstation 3 ($499 and $599 versions) It costs Microsoft $550-$715 to make 1 xbox360 ($299 and $399 versions) It costs Nintendo $375 to make 1 Nintendo wii ($225 Nintendo price for a wii) Everyone looses money at the beginning....

hotdork70minus1
hotdork70minus1

Just read in Google that 3rd party ps3 games will cost around $70 and 1st party games will be around $90 - $100. $100 motion controller with out Rumble. I can't get the link on here but just search it on google if you want, it's one of the first stories. Holy Ouch if that's true !

esteban0926
esteban0926

You are right canibo. We look at insight to buy the best system because sometimes we don't want to waste our money on all the consoles, but some people just take their choice of system too far and run their mouth about how crappy other companies are. That just bothers me a little bit.

shibipocanibo
shibipocanibo

That may be true Esteban, but trust me, we're far less educated than any market analysts or CEOs. Doesn't mean we don't have intelligent insights, but it does mean we don't have a fancy degree. Plus, this is the first posting series that has had intelligent responses without the "360 rocks, PS3 sucks" or the "Sony is so stupid yada yada yada." comments. It's nice, wish there was more like 'em.

esteban0926
esteban0926

You guys sound like CEOs of the hardware companies or game industry analyst. We are consumers that want to play great games, not wallstreet investors.

frankeyser
frankeyser

am i the only one that thinks mircosofts buisness plans maybe should actually be thought out a bit before they try out a new market? i mean... epople keep saying well they have so much money it does not matter. but if you keep loosing money eventually you have none.

shibipocanibo
shibipocanibo

Orlics is correct, the gaming 3 make a brunt of their profits from licensing games to developers. That's why Sony still will have such an competitive edge (assuming the PS3 doesn't fall flat on its ass). Shipping 6 million consoles at release helps (if it succeeds) but what's even more impressive is the massive amount of third-party developers signed up with Sony, as Gamespot had reported this week. By having so many vested interests in it's hardware, Sony will be able to turn a profit & reduce manufacturing cost of the PS3 faster than Microsoft will be able to with the 360, assuming that the 360 doesn't catch up to Sony in third-party developers. Plus, I'm assuming Sony has a pretty huge ace up their sleeve and is just waiting for the right hand to lay it out there. We'll see.

esteban0926
esteban0926

Who cares which company comes in 1st, 2nd, and 3rd place? We still have Sony, Microsoft, and Nintendo going strong since the last generation of consoles. As long as I have great, competitive games and hardware fighting for my money, than I am happy.

orlics101
orlics101

LordBraz, the point is that getting people to buy your system will increase marketshare and eventually allow you to turn in a profit, through game and accessory sales. If MS/Sony sold their consoles without any loss whatsoever, NO ONE would buy them. And the Wii is still being sold at a loss, though this is a bit less than the loss of Sony and Microsoft.

hotdork70minus1
hotdork70minus1

LordBraz They make their money by selling games, accessories and other things. Xbox Live is a great example of other ways to make that mighty $$$. The cheaper they sell the console the more people that will buy it. The more homes they controll means they sell more games, more accessories, more online add ons.

skektek
skektek

Last year it was said that the MS Entertainment division would be profitable by '07. Now this year profitability has been pushed back to '08. Things must not be going very well.

LordBraz
LordBraz

why, oh why, would you sell a console for less than it costs to make? Why would Sony and Microsoft purposely lose money on these endevours? For bragging rights? Who cares if they have money to burn, they're still running a business. Take a note from the boys over at Big N, the Wii costs less to make than they're selling it for. That's good business sense. No, their respective gaming divisions will not bankrupt Sony or Microsoft, it just seems silly.