Microsoft: Xbox consoles are always sold at a loss, and games and services bring profit
Yesterday, Lori Wright, vice president of Xbox, appeared as a witness in the trial of Epic Games and Apple. She revealed several details from the business model of Microsoft‘s gaming division and stated that the company has never really made a profit from the sale of consoles.
Wright’s questions were asked by Epic Games attorney Wes Earnhardt. He wanted to show that game console manufacturers have the right to charge developers a 30% commission. Because for them, this is what allows them to stay in the black, while Apple does not have sufficient justification for such a bet.
Wright agreed with the lawyer, noting that Microsoft will not be able to earn on its consoles if it stops charging a 30% commission.
When asked if Microsoft has ever made a profit from the sale of Xbox consoles, Wright directly replied – “No.” She added that the video game division of the company sells consoles at a loss to ensure “continuous gameplay”, and receives money from games and services.
“Has Microsoft ever earned a profit on the sale of an Xbox console?” lawyer asks.
“No,” Wright says.
— Adi Robertson (@thedextriarchy@mastodon.social) (@thedextriarchy) May 5, 2021
The statement of the vice president of Xbox has already been commented on by Daniel Ahmad, senior analyst at Niko Partners. He pointed out that selling consoles at a loss is standard practice in the industry.
For example, now neither the PS5 nor the Xbox Series X|S recoup the costs of manufacturers. Although it is likely that in the future they will begin to make a profit.
Currently, Microsoft earns over $1 billion on Xbox games and services alone. Judging by the graphs provided during the hearing, in 2019 the corporation’s profit in this segment amounted to $2.2 billion (the graphs are edited, but the data can be correlated with other places in the documents).
As Ahmad explained, these charts do not take into account Microsoft’s losses from consoles, so the profit of the entire gaming division is much lower than $2.2 billion. Moreover, it may not be at all.
Court documents also indicate what is happening in the gaming divisions of Sony and Nintendo.
Sony makes the main money on content and services ($4.1 billion) and loses a lot on console sales ($1.7 billion). As a result, the total profit is $2.3 billion.
At the same time, Nintendo managed to make money both on the sale of consoles and on games with services. The first brought her $ 332 million, and the second — $ 2.3 billion. The total profit was $2.6 billion.
Same Microsoft document has a breakdown of hardware revenue / profit estimates for Sony and Nintendo.
Hardware generating a loss for Sony, but profit for Nintendo.https://t.co/hOqyjeKQcv pic.twitter.com/mPBKABWHRD
— Daniel Ahmad (@ZhugeEX) May 5, 2021
