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Microsoft

Microsoft Loses $177m on Xbox in Three Months 809

Posted by CmdrTaco
from the its-not-like-they-can't-afford-it dept.
Albanach writes "The BBC News are reporting in this story that Microsoft's Home Entertainment Division has filed a submission to the Securities and Exchange Commission reporting a loss of $177 million for the three months to 30 September 2002. The loss comes on revenues of $505m for the division that manufactures the Xbox games console. Microsoft are said to be prepared to spend $2 billion funding Xbox live over the next five years, suggesting it will be some time before the home entertainment division break into the black."
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Microsoft Loses $177m on Xbox in Three Months

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  • by turambar386 (254373) <turambar386@@@routergod...com> on Friday November 15, 2002 @11:31AM (#4677567) Homepage
    That's probably less than billg's annual pizza budget.
    • by xirus (584691) on Friday November 15, 2002 @11:48AM (#4677759)
      I'm surprised that's even legal?!
      Even if that's not a lot of money for MS, in Belgium it's forbidden to sell products for less money than you needed to produce it...
      It's unfair competition.
      If they put Playstation and Nintendo out of business because they don't have the money to use this trick, some American judge should finally see what MS is doing and give them a REAL punishment...
      • by ceejayoz (567949) <cj@ceejayoz.com> on Friday November 15, 2002 @11:54AM (#4677827) Homepage Journal
        AFAIK it's perfectly legal here.

        They make a huge profit on the games, so maybe that's a loophole or something.
        • by angel'o'sphere (80593) on Friday November 15, 2002 @12:25PM (#4678161) Homepage Journal
          No its not legal.

          America has so called anti dumping laws.

          However they get only applied if a non american company tries to sell for dumping prices inside of the US.

          E.g. Korean car manufactors selling 30% cheaper than US car manufactors or VCR crafting companies regulary got a punishment import tax.

          The US puts taxes at will on any kind of product if they think their own industrie soffers from forreign laws. E.g. genetic manipulated Soja needs to be noted as incridience in european food(by law). Europeans as majority do not buy genetic manipulated food. Feeding animals with genetic manipulated food is not allowed, as it gets to difficult to prove its absence in the final products (like ham). Result: US is threatening europe with a tax war since years just because Soja sales droped in Europe.

          However: what is legal and what not, all over the world, is final descided by a US court.

          Silly situation.

          angel'o'sphere
          • by hudsonhawk (148194) on Friday November 15, 2002 @01:03PM (#4678480)
            Otherwise Sony (being the only vertically integrated of the three companies) would be the only one able to sell their console at a low price.

            Look, I hate MS as much as anyone, but romaticizing Sony or Nintendo as good guys is a pretty biased view.

            If people really cared about the good guys winning the console war, people would've bought more Dreamcasts. Since they didn't win, you just have to go on which one has the games you want.

            Besides, we're not talking about Wal-Mart selling drugs below cost to drive the local competition out of business; we're talking about a "give the razor, sell the blades" pricing model here.

            There's a world of difference.

            Scott
          • by Gruneun (261463) on Friday November 15, 2002 @01:30PM (#4678736)
            It's not dumping. Period.

            Microsoft, like every other game console producer, takes a hit on the console. It isn't to put the other guy out of business (though sometimes that's a benefit), but rather, to get you hooked on a specific console. After that, they recoup their loss on the games. After all, who buys a console and then never buys a game? The only significant difference here is that Microsoft is banking on turning the profit in an online system, rather than just games.

            Last year, the Sheetz gas station near us was selling gas for $0.95/gallon, significantly less than what they paid for it. It wasn't to kill the competitor, but rather to get people in the habit of filling up there. The money they made from their food, drinks, and various items inside the store made up their loss and they slowly raised the cost of gas to normal rates. I fully recognize that, but you know what? I still shop there and I'm not the only one.
          • by peterb (13831) on Friday November 15, 2002 @06:56PM (#4681996) Homepage Journal

            No its not legal.

            America has so called anti dumping laws.
            ...and Microsoft is not dumping.

            I'm sorry, but this is a pet peeve of mine. Every idiot in the world speaks authoritatively about dumping when they have no idea whatsoever what it actually is.



            Here's a hint: "Selling a product at a loss" is not dumping. Not even a little bit. If you produced a product and gave it away for free, that still wouldn't be dumping.



            Dumping is very simple: It is selling a product in a foreign market for less than you normally sell it for in your domestic market. If you don't believe me ask the World Trade Organization [wto.org]. So unless you believe that MS is selling the Xbox cheaper overseas (hint: they're not), MS is not dumping.

            You may now all return to your ignorant, dogmatic lives.

      • by Camulus (578128) on Friday November 15, 2002 @12:03PM (#4677949) Journal
        >If they put Playstation and Nintendo out of business because they don't have the money to use this trick

        I am not Microsoft fan, but I have to say that this is actually the oposite of what happened. You see Microsoft made a much more expensive console then Sony or Nitendo (to produce that is). Then, Sony and Nintendo started dropping prices and Microsoft had to do it to keep up. They were planning on Moore's law dropping the cost to produce them before having to drop the price. The difference between Sony, Nintendo, and MS is that from the ground up MS has been planning on selling the Xbox as a service (ie Xbox live) to make their money. Besides, Sony has a huge market share. Mod: -1, not Anti-MS (this time)
      • by Mulletproof (513805) on Friday November 15, 2002 @01:32PM (#4678751) Homepage Journal
        Common, if you're gonna hit microsoft on this practice, you're going to have to hit Nintendo, Sony and the late-great Sega on it as well. They all sell their consoles at a loss in order to hit the consumer's impulse buy range. The only real difference here is that Microsoft has deeper pockets with which to do this with. It gives them the ability to market superior hardware while hitting the same impulse buy zone. And yes, it also creates hideously large loss numbers.

        As for putting Sony and Nintendo out of business, somebody really isn't in touch with the real world. First, the XBox is nearly dead last in console sales. That differential will decrease over time, but unless Sony and Nintendo do something incredibly stupid or MS incredibly brilliant, that's not likely to change in this round of the console wars. Second, Sony is a big boy. It has a diversified market beyond gaming. Their products have global reach and ideal penetration within their respected markets. Sony isn't going anywhere. Nintendo, on the other hand, has a far smaller foundation and hasn't exactly been making stellar decisions as of late. They haven't had a great console since the SNES, and the Gameboy is STILL their principle source of income. They're more likely to kill themselves off rather than be a victim of any MS "dumping" campaign.

        But it's just another day in the anti-MS neighborhood, I guess...
  • Accounting Tactic (Score:4, Interesting)

    by sdjunky (586961) on Friday November 15, 2002 @11:31AM (#4677572)
    Of course... This could be an accounting tactic to allow them taxbreaks on their losses.

    • I assume you mean "taxbreaks on their profits."

    • My guess would be that it would be bad strategy to use accounting tactics to cut their earnnigs here. The video game market is defined by market and mind share. To the extent that MS' video game division looks like it's bleeding money, it augers poorly - in Joe Public's mind - as to the XBox's future.
    • Re:Accounting Tactic (Score:5, Informative)

      by F2F (11474) on Friday November 15, 2002 @11:53AM (#4677817)
      according to The Register's article here [theregister.co.uk] the losses are minimal, when compared with the operating income MS gets from Windows, Office and their Server products. The numbers are (quoting the register):

      Windows: $2.48 billion on $2.89 billion revenue
      Office: $1.88 billion on $2.38 billion revenue
      Servers: $519 million on $1.52 billion revenue

      compare that with a loss of $177 (and microsoft lost on many other things, like CE/Mobility) and you'll see that the picture is not as bad as it looks (heh, for them, anyway)...

      Slashdot is aiming for the sensationalism value again, but that's nothing new now, is it? :)

  • by The Evil Couch (621105) on Friday November 15, 2002 @11:31AM (#4677574) Homepage
    or is there something actually legitimate about this? Granted there's stiff competition in the home console market, but MS was throwing consoles at people in hopes that they'd recoup their losses with the sale of games. to hear that they're losing money with game sales seems odd to me.
    • to hear that they're losing money with game sales seems odd to me.


      Well, that's because they aren't losing money on game sales. The problem is that the game sales isn't enough to recoup the loss that the console itself generates. Also, none of this is strange because this was predicted by MS before it launched it's console. Of course, there's strong hopes that Christmas game and accessory sales will help get the XBox division out of the red.
  • by jamesdood (468240) on Friday November 15, 2002 @11:32AM (#4677589)
    They have said from the get go that they didn't care about losing money to dominate the market.. And they have taken some market share from Nintendo and a small amount from Sony.. But that number seems pretty small for a company with like 20 billion in cash..

  • "Lost" (Score:3, Insightful)

    by Xerithane (13482) <xerithane@@@nerdfarm...org> on Friday November 15, 2002 @11:33AM (#4677591) Homepage Journal
    We really need to redefine business loss. Microsoft didn't lose money. They knew ahead of time that they were going to be in the red on the Xbox. Not that I'm saying Microsoft is bad for following this practice, it's common practice in many markets.

    I just don't think that purposefully loses should count like a standard lost. They know that this $177m they drop now, it's an expense. Not a loss. They will get it back, they are just taking credit out on their budget and getting the government to pay the interest.
    • Please go away. (Score:2, Interesting)

      by DAldredge (2353)
      What are you a former AA employee? Did you work on the Enron account?

      If expenses > revenue = LOSS
      If expenses < revenue = PROFIT

      It is that simple. This playing stupid accounting tricks is one of the reason the stockmarket went down so much. The investorers could not trust the numbers the companies where giving out.
    • Re:"Lost" (Score:4, Insightful)

      by Ieshan (409693) <ieshan@gGAUSSmail.com minus math_god> on Friday November 15, 2002 @11:44AM (#4677723) Homepage Journal
      Not to mention redefine "Monopoly".

      It's absurd that a company can consider a 200 million dollar loss "acceptable" and continue operating (under the same management) with plans for expansion.

      This reeks of the ability to undercut the console market.
    • "They know that this $177m they drop now, it's an expense. Not a loss. "

      And eventually expenses are considered as a loss.

    • Re:"Lost" (Score:5, Insightful)

      by manyoso (260664) on Friday November 15, 2002 @11:47AM (#4677757) Homepage
      " ... redefine business loss. ... it's an expense. Not a loss. They will get it back ..."

      No, they need to report this as a loss. Look, the Xbox division is a gamble by the larger company to enter into the home entertainment market. As with any gamble it contains a significant amount of risk. This loss quanitifies exactly how large a risk and let's the shareholders and prospective investors have some insight into how the gamble is going. Perhaps, this whole experiment will bomb ... who knows what can happen in five years ... So, you see, it is in the best interest of everyone for losses like this to continue to be reported for exactly what they are: immediate losses on a long term gamble with no guarantee on seeing the money again.
  • by Rader (40041) on Friday November 15, 2002 @11:33AM (#4677592) Homepage
    This is of course, how Microsoft takes over a marketplace. They are eternally funded, and can oulast anyone.

    They'll chip away at Sony and Nintendo's profits until even these successful companies can't make a profit.

    I wonder why they're trying to pull out of the DVR market. They say that there's no money in it. Maybe. I thinks that maybe it conflicts with their DRM agenda.
    • (Disclaimer; yeah, check my profile, I'm biased!)

      Yeah, I bet you must feel really sorry for poor little Sony. Big bad Microsoft has soooo much more money then Sony. Sony are just the little guy trying to make an honest buck.

      Jeez, open your eyes people, Sony has much more of a monopoly over Joe Public's possesions than MS do. Sony can piss money away on a loss leader just as well as Microsoft can.

    • Like Sony is not a megacorporation that can't keep up with MS. Also, a $177million loss is not rediculous considering the poor economy and the nature of the console business (difficult market penetration for the "new kid ont he block"). Sony took huge losses on the PS1, and that was during a better economy and a less heated console war.
  • Here [theregister.co.uk].

    As El Reg [theregister.co.uk] points out: "it's also clear that Microsoft is the dominant force in the PC market, and only the PC market. It can afford to shoulder big losses in the areas where it wishes to be the dominant force for a very long time. Which is fortunate, because in several cases these look suspiciously like ventures normal businesses would be forced to put a bullet into. Now."
  • by foistboinder (99286) on Friday November 15, 2002 @11:34AM (#4677603) Homepage Journal

    You're right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I'll have to close this place in... 60 years.
    -- Charles Foster Kane

  • How is this news? (Score:3, Insightful)

    by bay43270 (267213) on Friday November 15, 2002 @11:35AM (#4677614) Homepage
    Who here thinks games consoles are profitable?!? The money is made from the games.
    • Re:How is this news? (Score:3, Interesting)

      by FatherOfONe (515801)
      Wow thats kinda the attitude that Sega took. Both Sony and Nintendo MAKE money on their consoles.

    • Re:How is this news? (Score:3, Informative)

      by FatRatBastard (7583)
      Well, you're sorta right, but it does matter. Lose a little on a console, it takes fewer games sold to recoup the loss / start making a profit. Lose a lot per console and you have to sell more games. You still want to make your box as cheaply as possible in order to a) undercut your competition or b) shrink the breakeven point. Losing shedloads of money with a respectable, but still hugely smaller (now there's a contradiction of terms) base than the PS2 doesn't bode well. They're going to have to push the cost of the box down a lot more to even hope to do better (games that are must haves would be good too). Notice how MS and nVIDEA are having a nice spat about the price of nVIDEA's chipsets? Notice how VIA wants to get into the action with the XBoxII (by offering the CPU / Video / Bridge chipset as a package)? MS are making a concerted effort to lower prices.

      OT: But isn't it interesting how MS really isn't doing well in anything other than Windows and Office? The /. crowd seem to have this "gloom and doom / inevitablitiy of MS taking over every segment of the industry" attitude. Yes they have lots of money to throw around, yes they can afford to try three times before they get something remotely right, but lets face facts: they suck with their online experience (and its bleeding red ink), they suck at "Big Iron" (and its bleeding red ink), they suck at Phones (and their biggest cheerleader gave them the boot after thier flagship product was on the market for a whole two weeks), they're still mildly stinky at PDAs (although less stinky than they were), they're lackluster in the games market (where, for the first time in their history they're on the hook for the hardware, and bleeding red ink), .net looks insteresing but in the business sense is no different than what's going on now (buy .net server software, buy a client to run .net programs), and the *new, improved* greatest things since sliced bread: The Tablet PC and "networked stuff" (see the upcoming Comdex), are (IMHO) going to be middling at best, i.e. a huge let down from the hype. The tablet is nice but unneeded outside of niche industries, and the Windows based toaster is going to do about as well as it has already -- i.e. Not. MS still doesn't get the embedded space.

      Don't get me wrong, they're still printing money with Windows and Office, and they will for the forseeable future. But MS have been pretty much losers at trying to break out from those two (incredibly large and profitable) niches. All things come to and end though (see Wang, IBM, et al) and one wonders just what's going to happen to those guys when the industry takes its next big shift.
  • I'm not surprised; they lose money selling the systems, and since they didn't make a huge splash when it debuted, they're not catching up with the software sales. I mean, hey, the library is pitifully small compared to the Playstation 2 (it's about the same as Gamecube, but the Gamecube is cheaper and the games just look more fun.)

    I played an Xbox a couple times... I don't know. I just don't have the same fun that I do on a PS2 or Gamecube. Xbox has all this horsepower and no track to race it on.
  • I was trying for 200 mill, by pouring Pepsi in the boxes at Walmart. Now I'll never get my 'Corporate Killer Anarchist' badge.

    Billy Henderson always wins, 'cause his dad's the scout leader.

  • Standard Oil (Score:5, Interesting)

    by Bonker (243350) on Friday November 15, 2002 @11:36AM (#4677638)
    One of the tactics Standard Oil would employ was to sell oil and petroleum products well below cost, absorbing the loss for the sake of driving competitors to the point of ruin, and then buying their ruined competitors' assets.

    Sony is a strong, powerful company. Nintendo is slightly less so. I think, however, that if you were to do a direct comparison, Microsoft has the ability to lose more money and stay solvent for longer than either Sony or Nintendo.

    This tactic was found to be in violation of the Sherman act when applied to Standard oil. It's amazing to me that MS is able to get away with the same thing without its competitors screaming more loudly at the US government.
    • > It's amazing to me that MS is able to get away with the same thing without its competitors screaming more loudly at the US government.

      What exactly are they getting away with ? Losing money isn't a crime.

      There isn't one single corporation not trying to gain market shares by playing with prices, in order to increase demand for their products. Most companies also accept losses to parts of their operations in hope that the profits of others will more than make up for it. Selling X-Box at a net loss isn't a big deal if you can make up for it with the games, subscription fees etc. Gillette is practically giving away the razors, but the price on the blades borders to extortion.

      I think your concern would be valid if in fact what Microsoft is doing is the de facto standard for the gaming console market; you start of selling the consoles at a huge "loss" (i.e. you write off the development costs the first years) and then you practically break even on them. Sony isn't selling PS1 at a loss now, I assure you. But the main income is the games. Microsoft gets royalties for each and every title, without them having to lift a finger. Of course they can afford to get rid of the consoles at a loss.
  • Ignore short term losses. Few companies do, by MS can afford to. The company as a whole is making a profit, so the shareholders will allow it to carry on.

    In the long run, the plan is to eliminate console competition, just as Sony tried to do beforehand. They'll give X-boxes away if they have to.
  • You know, I always hear the argument that, although Microsoft's products are arguably poor, their superior business practices (whether legal or otherwise) keep them financially on top.

    One interesting thing in the article is that several of their divisions (mobile divices, xbox, msn) are consistently losing money.

    So, is Microsoft as a company really good at business strategies? It seems to me that the "$3.5 billion profits from its operating system and software divisions in the quarter" are what keeps it afloat. I doubt any other business could fail quite as much as Microsoft and still survive.
    • They are pouring money into several divisions because of long term strategies, not for immediate profit. Their goal is to build dominance in these new (for MS) areas, regardless of whether they make money on it now or not, by spending extreme amounts on marketing etc.. In other words, the losses in those divisions are so big because MS can easily afford it, and they think it will be a worthwhile investment in the end.
  • And overall... (Score:2, Insightful)

    by HaloZero (610207)
    XBox: Down.
    Windows OS sales: Up.
    Office Package: Up.
    Pre-packaged units with retail machines: Up.
    MSN Subscriptions: Up.
    Mouse sales: Up.

    Boo hoo hoo? Psh.
  • Ridiculous (Score:3, Insightful)

    by matusa (132837) <chisel@nospam.gmail.com> on Friday November 15, 2002 @11:41AM (#4677681) Homepage
    It always bothers me when we (the linux community, technically the underdog) make some snide reference to the failures of our competitor, especially when in the big picture the direct issue is rather silly.

    • Consider:
    • We _know_ that they have lots of cash. Granted a loss is not cool, and they will try to remedy it, also consider
    • How widely popular the xbox is. Even people that planned on hating it drool over it
    • The upheaval in the console market

    This is similar to how we report linux and windows vulnerabilities. When a windows vuln is mentioned, we bitch about the OS and its quality etc. etc.; when a linux vuln is mentioned, we downplay the potential risks, and then compliment the speed of patch/update/fix release.

    Don't get me wrong--I love linux, use nothing else, and haven't for many years; this ridiculous attitude of most zealots is annoying, however.
  • OK, I expected kind of big losses foir the XBox - new product, tough marketplace, lots of competition... and I'm not sure how much Sony and Nintendo are losing on their consoles.

    But I'd think that Microsoft had a huge advantage - after all, they own MS-Windows and can leverage that technology within the internals of the X-Box. Furthermore, the X-Box should be a great game box, because there are so many software vendors that already produce software for Windows.

    So where did Microsoft go wrong? Is the X-Box just grossly mismanaged, with a seemingly unlimited budget? Or is this something that is "expected", and therefore was part of the grand plan, and therefore will ultimately result in the glowing profits and new markets for Microsoft?

    The only other thing I know is that I bought a PS2. I thought of going with the X-Box - heck, it is a sweet game console. But I stuck it out with the PS2 because of game availability - after all, the PS2 has already been proven. Not sure if I made the right choice, but I don't think I made a bad choice.
  • by smd4985 (203677) on Friday November 15, 2002 @11:43AM (#4677709) Homepage
    i'm a (not so proud ;) ) xbox owner, and while i'm excited about various applications (sega's games, xbox live), the xbox is already #3 in this console war and will stay that way. the main reason is their DISAPPOINTING presence in japan (which is virtually non-existent). you simply can't win a console war without support from nihongo developers and users.

    that said, i don't this MS really cares. for a first iteration console they've done well, and you can kind of think of xbox as a testbed for future MS consoles (especially xbox live). also, they only have some 50 billion left in the bank (oh, the convenience a desktop OS provides!).

    my bet is that xbox2 will come out BEFORE ps3 simply because first-mover momentum in the industry has become more important. the ps2 is hard to develop for, but the installed base is NUTS so developers flock to the ps2. MS realizes this so i wouldn't be surprised xbox2 comes out by 2004ish.
    • because first-mover momentum in the industry has become more important

      I'm not so sure about this. I think for a lot of users, it's all about past performance. When Sega came out with the Dreamcast, there was no way that I, or any of my friends were going to buy one simply because we knew that Sega never seems to meet expectations. We discussed the matter at length and we all felt that Sega didn't stand much of a chance in the market that was then dominated by Sony and Nintendo. Looking back on it, I am very glad that we decided not to buy since Sega eventually gave up on hardware and those that bought Dreamcast systems are now left out in the cold.

      Sony on the other hand has a lot of connections with software developers and has been able to leverage that consistently. While you won't see all of the coolest titles on PS2, you will see a large number of great games that sell very well. Sony proved themselves when they released the first Playstation. A lot of people said they couldn't compete with Nintendo due to lack of experience. That turned out to be false. People said that they wouldn't have as many games as Nintendo. Count them. Sony dominates. Why do they dominate? I think it boils down to two things. First, they are in Japan and they know how to cater to Japanese gamers. That is a huge market and they have been very successful in it. Second, they don't tailor to younger kids. They have games suited to different age groups and I think the GameCube is lacking in games for adults. Sure they have some but from what I've seen, a lot of their games (while very good) are for younger people. Nothing at all wrong with that, and it does seem to be working for them, but they won't be able to garner the market share Sony has with that strategy.

      I was excited when I first heard that MS was getting into the console market because I think they make great hardware, I like a lot of their software, and they have had some great games over the years. Motocross Madness and Age of Empires II were awesome. But one of the main reasons that I bought a PS2 was because I already had PS1 games. And guess what folks? The PS3 will be backwards compatible. How is MS going to compete with that?

      I think there will be a slight advantage to MS if they get the XBox 2 out the door before the PS3 but in the long run, I don't think it will make a bit of difference. I know that when the PS3 comes out, I will buy one. I have a lot of PS1 games, a lot of PS2 games and I want to be able to play all of them on the same console. Sony knows that I'm not the only one that feels this way and unless something drastic happens (which isn't very likely), they will continue to dominate the market for years to come.

      I think one thing a lot of people are forgetting is that it's not just MS vs Sony vs Nintendo in this. There are a lot of other companies involved in this. Some companies only develop for a single platform and they have a lot at stake in whether or not the platform succeeds or not. Also, Sony is no little kid on the playground that MS can bully around. They have some pretty deep pockets as well, although I don't think they need them in this case. Does anyone have any numbers as to how Sony is doing with the PS2? Everyone I know has one and has bought a lot of games so they must be making a pretty nice profit.

  • MS is trying to gain market share by selling hardware below cost. The trouble is that that strategy won't work against a dominant force like Sony. So while MS takes a $177mill loss on the XBox, but touts its US market share, Nintendo is laughing all the way to the bank with strong software sales for the GCN and dominance of the handheld market with the GBA (even MS produces games for it).
  • As an avid gamer and self-proclaimed "gadget freak," I can tell you that Microsoft has spent the last two years shooting itself in the foot with regard to their Xbox strategy. I have seen Xbox Live, and to be frank, the extra voice features and other refinements are nothing to write home about. I have a few suggestions as to how Microsoft can turn the trend around and avoid a massive failure like Microsoft Bob or UltimateTV:
    • Keep it open, stupid. The barrier to entry is very high for Xbox development - the very opposite of the strategy that have made Linux and Windows very successful amongst amateur programmers such as the founder of this site. "Developer" Xboxes which will run all signed and unsigned software should be plentiful and cheap - not subsidized, but rather sold slightly above cost. This has the benefit of making Microsoft's economy of scale pay off for thousands of potential game developers (read: licensees) as well as hardware hackers who are looking for a cheap PC.
    • Buck the content industry. Manufacturing Xboxes that defeat region encoding and macrovision with small modifications would cause sales to skyrocket. Likewise, since Sony has their own gaming arm and no other RIAA/MPAA company is involved in game production, the support of the content industry is meaningless.
    • Focus on getting better games. Why does nobody develop good games for the Xbox? For starters, Microsoft has failed to push Xboxes in the game capital of the world, Japan. Microsoft needs to revamp their entire strategy with regard to this country, starting with the release of hentai games and ending with the successful ports of many PS2 games over to the Xbox platform. The Xbox will go nowhere if there is no good software to run on it.
    • Keep manufacturing costs down. Microsoft needs to switch to AMD or Transmeta chips, which pack more power for the buck, run cooler, and are 100% compatible with their existing software base. Also, this will allow them to use cheaper graphics coprocessors by using a cheaper, more powerful main CPU.
    These are just a start, but if Microsoft takes these suggestions, their Xbox division will be well on its way to profitability.
    • by binaryDigit (557647) on Friday November 15, 2002 @12:27PM (#4678180)
      Keep it open, stupid

      This directly opposes Focus on getting better games. While one or two good games might come from Joe and Tom working in their bedrooms for 8 months straight, most of todays games are massive efforts and the cost for playing helps to ensure that only those who are truely serious will play. Don't get me wrong, I'd love to get my mitts on a dev kit cheaply, but games today are way more complex than the average person/small team can effectively deal with.

      Manufacturing Xboxes that defeat region encoding and macrovision with small modifications would cause sales to skyrocket

      Me thinks that your definition of "skyrocket" and M$'s definition of "skyrocket" might be orders of magnitude different. Who in the US (general game playing population) gives a flip about region encoding? Sure, beating Macrovision might be interesting and sell a few more boxes, but it's a GAME BOX, those features have no interest to GAMERS. This is especially accute concerning M$, since even as you mentioned they have made little inroads in Japan, and after all, isn't getting those hot Japanese titles months before they come here one of the primary reasons that the hardcore gamers care about region encoding.

      Microsoft needs to switch to AMD or Transmeta chips, which pack more power for the buck, run cooler

      Uh, which AMD chip runs cooler? Which Transmeta chip packs more power for the buck? Do you know the details for M$'s agreement with Intel to know if they could truely save money by switching. Could the other two companies afford to offer prices as low as Intel could?

      Also, this will allow them to use cheaper graphics coprocessors by using a cheaper, more powerful main CPU

      Isn't this bucking the trend? Aren't games systems moving towards ever more powerful graphics subsystems with modest increases in cpu performance. Sony gets away with using a ~300mhz (IIRC) cpu, I don't think that the console makers are too stressed out about raw CPU performance.

      but if Microsoft takes these suggestions, their Xbox division will be well on its way to profitability

      They need to produce better games than Sony and offer the user a better experience for the buck and most importantly, they need market share. The power of the last point is elegantly illustrated by Sony. PS1 was the market share (though long money losing) vehicle that allowed Sony to start cashing in once PS1 was established thus smoothing the road to much quicker profitability on PS2.
  • Xbox 2 (Score:5, Interesting)

    by Kirby-meister (574952) on Friday November 15, 2002 @11:45AM (#4677727)
    The common theory is that by 2005, the Xbox division will be profitable. Why?

    1) They are said to be abandoning dependency on third party chip makers (aka Intel and nVidia). This means they will probably buy a chip company.

    2) They will want their console to be the latest and greatest, so they will probably release it late but with extremely powerful and expensive hardware. If they learned their lesson this time they will release it concurrently with their main competitor, but I don't think they have. The hardware will probably be a derivative of x86, but they could abandon that for a custom chipset (although that's doubtful - they might pull a PS2 and allow backwards compatibility with Xbox 1 games). They will probably sell at a loss in the beginning (as some console companies do).

    3) Who knows how much PR money they will spill into the Xbox2's budget.

    I'd say profits at 2005 would be during that small window of time, those few months, between when Xbox 1 + Xbox Live! + PR Money for Xbox1 + nVidia/Intel-tax become profitable, and when Xbox 2 will be unleashed (assuming the usual 5 year cycle).

  • by joeflies (529536) on Friday November 15, 2002 @11:45AM (#4677729)
    Microsoft already said they were spending $500M in marketing ALONE for xbox in the first year. Losing $177M in 3 months isn't all that bad, because it means that out of all the exhorbinant money they spent, they still only lost $177M which isn't an insane number given the insanity of spending $500M in marketing (a sunk money used for demand generation).

    I expect that they will scale back their marketing a LOT as soon as they proliferate a base number of boxes, which was their entire objective anyways.

    Besides, Microsoft was already planning for first year loses [com.com] so it isn't like that this wasn't forseen.

    • Mod this parent up... even simple math says that without the PR says they're more than $300 M in the black! That's pretty phenomenal for a box that's been out for just over 1 year (as of today!). This is actually amazingly good, not bad.
      • Umm, math? (Score:4, Informative)

        by TheConfusedOne (442158) <the.confused.one@nOspam.gmail.com> on Friday November 15, 2002 @01:54PM (#4678958) Journal
        MS stated they were going to spend $500 million in advertising during the first year. The numbers you're looking at now are related to what, the current quarter? (Lost $177m in 3 months ended Sept 30th.)

        When do you think they spent most of that $500 million? That's right, the launch events, the pre-release hype, and everything leading up to that first day. (Think of all of those campus tours and giveaways and what not.)

        This is talking about the losses of the box for the most recent quarter. Marketing expenditures for the XBox have decreased dramatically since then.

        In fact, losses accelerated when they clipped $100 off the price tag. They've managed to do some work to decrease the cost of the box since then but nowhere near a 33% cost reduction.
  • "Microsoft are said to be prepared to spend $2 billion funding Xbox live over the next five years, suggesting it will be some time before the home entertainment division break into the black."

    Must be nice to flood a market, and push out all the existing competition, thats the advantage of a monopoly that has no bonuds, branching out into other markets, to do the same practices that worked so well before..
  • How Sad (Score:4, Insightful)

    by VividU (175339) on Friday November 15, 2002 @11:46AM (#4677743)
    How sad that on the day Microsoft launches [washingtonpost.com] Xbox Live, we have a story about how much money MS is losing on the Xbox.

    The desire among the overzelous Linuxites for the Xbox to fail is palpatable at Slashdot. Just look all the posts advising people to buy a Xbox but not buy any games. Just so MS can lose money. Its pathetic and sad.

    Go ahead and buy a Xbox, waste your time and install Linux on it. But I dare you not to play Halo on it (Game of the Year and a work of art).

    I dare you not to plug in your Cat-5 and fire up Unreal Championship (released Today!). Oh! and when Halo2 is released later late 2003, please do'nt go and buy it. Leave it to the serious gamers.

    The Xbox is a great piece of tech. Real gamers know it. Thats why in the states its outselling the GameCube (read linked article above).
  • The 2 billion over 5 years was the initial projected loss. I imagine this was the loss figure that was presented to Gates and Ballmer so that the project could get an approval.

    They have since upped the loss projects to 2 billion over the first two years of the project. See:

    http://www.msnbc.com/news/772001.asp?0si=-

    The XBox is classic monopoly leverage at work. Use the revenue from the desktop monopoly to dump product on an emerging market and attempt to control it.

    I suggest boycotting Microsoft and purchasing a GameCube or PS2.
  • buuuuuut...can't they write that loss off? I read somewhere that Bill and his Co. don't pay much for taxes (say in proportion to a /. reader), doesn't this mean that the Gov will refund the lost $$$? So in other words, we are still paying MS for X-Boxen?

    If I am wrong, please tell me. I have an oogy feeling about it.

  • Market Distortion (Score:5, Insightful)

    by 4of12 (97621) on Friday November 15, 2002 @11:58AM (#4677873) Homepage Journal

    As the story at the Register [theregister.co.uk] points out, any other business with ventures losing money like Xbox and MSN would kill them off as clearly bad business decisions.

    A company willing and able to sustain hundreds of millions of dollars poured down a holes that are peripherally related to their core business of PC software, for years at a time, is crazy.

    A company willing and able to do that against large, established business like AOL/Time Warner and Sony is downright scary.

    A normal business, run to increase profits, would look at the margins on Office and Windows and simply jack up their prices. It's an iron-clad guarantee to increase profits at MSFT. There is virtually zero price elasticity of demand [mintercreek.com] for Windows and Office and MSFT management owes it to their shareholders to optimize profits by taking advantage of their stranglehold on the market.

    [Note: I don't own any MSFT.]

    • by Zathrus (232140)
      any other business with ventures losing money like Xbox and MSN would kill them off as clearly bad business decisions

      If they were short-sighted, sure. Microsoft is not short-sighted. They very much have a long term plan, and know that short-term sacrifices are often necessary to realize long term gain.

      Microsoft believes that, long-term, Internet access and console gaming are going to be high-profit ventures. I question the first (it's commodity), but I think they're right on the second. Sony poured tons of money into the PS1 before it became profitable. And they were up against corporations like Nintendo and Sega, both of which have a much longer history in gaming and had established markets. Sega is now out of the market and Nintendo has been floundering recently. Sony's Playstation division is now hugely profitable. But by your logic they should have ditched after the first year since they were losing so much money.

      Sony shareholders should be damned glad you're not senior management.

      Microsoft shareholders are damn glad too.

      A normal business, run to increase profits, would look at the margins on Office and Windows and simply jack up their prices

      Uh... they're running at over 80% profit right now. They did just effectively jack up prices with the last licensing agreement for corporations. They are now losing business on new sales from Gateway and HP (Office or Works no longer bundled). They are facing increased downside pressure from Linux on the server, primarily due to TCO. So they should raise prices more?

      I am a MSFT shareholder. And I am damn glad you aren't on the board. Frankly, I'd like to know if you have influential decisions on any other corporations, simply so I can make sure I don't own any of their stock.
  • by thatguywhoiam (524290) on Friday November 15, 2002 @11:59AM (#4677899)
    ... coming from the point-of-view that losing money is always bad. Of course, it's an expense, as another poster pointed out. Nothing unexpected.

    It's bad from a PR perspective. It's bad considering that Nintendo and Sony are now actually turning a profit on the consoles, a slim one but a profit nonetheless. Sony has managed to fit the entire Emotion Engine + CPU + sundry other parts onto a single chip, which reduces cost significantly. I'm not sure how Nintendo has pulled it off.

    Xbox Live is doing better than expected, but the total numbers are pretty intimidating for MS. Last I checked (2 weeks ago), the score is:

    - approximately 8 million GameCubes
    - approximately 10 million XBoxen
    - approximately 52 million PlayStation 2s

    By those numbers, it's safe to say Sony has wrapped up this round, if you're looking for a 'winner'. 5X the market share is too compelling for game designers. The games go where the customers are.

    [tangent]

    I like the Xbox, even if it is a little limited in scope. There's a completely different philosophy at work at Sony's computer entertainment division that I don't think MS really understands. The Xbox is basically a kickass 3D sandbox. The PS2 is a super-flexible games machine; by this I mean that the PS2 is oriented for all kinds of games, not just 3D. The PMUs for example, can generate procedural textures on the fly. Take the oft-lamented VRAM issue. VRAM holds lots of shiny textures. But what if you are generating textures from (basically) pure math? No texture overhead. (Bryce 3D, to name a weird example, gets away almost entirely without using graphical textures.)

    And now we see Sony moving fast to innovate in areas that Microsoft basically can't... namely, they've gone and asked IBM for a radically different kind of chip. MS is in no position to do this, as part of their whole pitch is the fact that it's a PC in a box, with MS's x86 programming tools.

    [/tangent]

  • Article is wrong (Score:5, Informative)

    by Yankovic (97540) on Friday November 15, 2002 @12:01PM (#4677920)
    According to the 10-Q filing, the article is wrong. The $177M net loss is for all of home and entertainment, only a subset of which is Xbox. In fact, comparing it to last year, where the losses were at $68 M and there was NO xbox, you can conclude that total losses resulting from xbox activities would not be greater than $109 M, and in fact probably even less than that. There are many other things in the home and entertainment division such as Windows Media Center PC, UltimateTV, MSN TV, and so on, many of which were probably not profitable, and contributed to the overall losses.
    • Re:Article is wrong (Score:3, Informative)

      by donutello (88309)
      You are right that $177M is not just on the XBOX. You are wrong in concluding that the money is no more than $68M, however.

      I believe the XBOX was in development last year. So while nothing was being sold, they still had to pay the employees, maintain/invest in equipment, facilities, etc. and spend money on marketing, etc.

      Without having a further breakdown, we can't conclude much about how much money exactly was lost on the XBOX.
  • Fair's Fair (Score:3, Funny)

    by GMFTatsujin (239569) on Friday November 15, 2002 @12:12PM (#4678033) Homepage
    I have no idea how much money has evaporated due to lost productivity by businesses using MS products that crash left and right.

    Hell, the value of man-hours consumed by Solitaire alone must be close to the GNP of your average South American country...
    GMFTatsujin
  • by Anonymous Coward on Friday November 15, 2002 @12:13PM (#4678041)
    used by cash-rich companies against cash-poor competitors. There's really nothing unusual about it except that it's Microsoft. Take Blockbuster video and Hollywood video, for example. When they try to crack a new market (region), they basically do the economic equivalent of carpet-bombing. They open stores every TWO BLOCKS in some cases. The reason is: even if there's a mom-n-pop video store only a mile away, they want to make sure you walk/drive past three of their stores before you reach their competitor. If they divert enough customers, their competitor goes out of business. Then, they close down their excess stores, because they've been losing money like crazy by having way too many stores in a small area. But in the long-term, they make money, because without competition, you can charge whatever you want and make it all back.

    Much as MS abuses the law in many many other areas, this is just a (shitty) business practice you see every day.
    • Yes, "cash poor" competitors like SONY and NINTENDO, you mongoloid.

      I suppose it also wouldn't penetrate your sloped forehead if I mentioned to you that Sony dropped the price of the PS2 first, would it? Of course not, it might interrupt your mindless bashing session.
  • Perspective (Score:4, Interesting)

    by the_gadfly (556428) on Friday November 15, 2002 @12:15PM (#4678058)
    Microsoft are said to be prepared to spend $2 billion funding Xbox live over the next five years, suggesting it will be some time before the home entertainment division break into the black."

    I don't begrudge people their money and I'm not an anti-corporate type. MS may be evil, but not for simply making money. Still, it's good to put numbers like $2 billion in perspective. The state I live in has about 8 million people. We're facing a budget shortfall (two-year budget, compared to MS's five-year plan) of about $2-3 billion, and people are flipping out -- school funding may be cut, roads might not get fixed or else taxes are going seriously up. One can argue about the reasons -- like government spending way too much already -- and it's not really important to my point. I just wanted to give that figure a context: It's a statewide disaster. Or an investment in making a line of video game hardware successful. Take your pick.

  • by devleopard (317515) on Friday November 15, 2002 @12:36PM (#4678259) Homepage
    It's obvious that Microsoft is trying to adopt the business philosophies of Linux-based companies in order to better compete with Linux. The idea of losing millions with a slim chance of attaining profitability in the distant future is something that companies like VA Software, Lineo, etc have been very good at.
  • Big Deal (Score:5, Insightful)

    by angst_ridden_hipster (23104) on Friday November 15, 2002 @12:42PM (#4678316) Homepage Journal
    It's all an investment.

    How much do you think Microsoft lost on Internet Explorer through its first three or four versions?

    How much did that end up costing Netscape?

    Of course, even taking the dynamics of the bubble into consideration, Sony has much deeper pockets than Netscape ever did...

    • Re:Big Deal (Score:3, Interesting)

      How much do you think Microsoft lost on Internet Explorer through its first three or four versions?

      On the first three or four versions??? Internet Explorer has never made a profit, only massive massive losses. Why? Because some starry eyed futurist over at Redmond HQ got scared that maybe oneday the web would become a kickass way of building applications. They were terrified that somehow, magically, the dire NS4 codebase would turn into an easier way to write apps than Windows was.

      How much did that end up costing Netscape?

      It cost them everything.

      Rather amusingly, Microsoft made it a self fulfilling prophecy, by destroying Netscape the Mozilla project was born, and what have the Mozilla team done? Why, only gone and built a kickass applications platform based on web technologies! The irony is too great really, if they'd just left Netscape along the old NS4 codebase would never have been scrapped in the way it was, and today we wouldn't have XUL/XBL/RDF Templates and the rest.

      Of course, even taking the dynamics of the bubble into consideration, Sony has much deeper pockets than Netscape ever did...

      Yes, but these guys are playing with hardware, not software, and hardware is far more expensive than software - it's a similar situation but on a larger scale.

  • Its working (Score:4, Interesting)

    by sh0rtie (455432) on Friday November 15, 2002 @12:48PM (#4678349)

    In the UK the XBOX has now put itself as the number 2 console , ahead of Nintendo's gamecube.

    Xbox wins race of the also-rans
    http://www.guardian.co.uk/online/comment/story/0,1 2449,840789,00.html [guardian.co.uk]

  • Oh come on (Score:3, Insightful)

    by Have Blue (616) on Friday November 15, 2002 @12:48PM (#4678354) Homepage
    EVERYBODY does this, especially Apple. How many times has the "They're supported by hardware sales" argument been invoked against x86 OS X here? How much do you think Apple is losing on the iApps or movie trailer hosting? How many other companies are shelling out for research that won't bear fruit for another few years? This is perfectly normal corporate gambling, except that MS is doing it in the market instead of the lab.
  • by shreak (248275) on Friday November 15, 2002 @01:13PM (#4678579)
    MS is required to post a financial report by the SEC. The SEC defines how often this has to occur (2 times a year I think). If your business plan lasts longer than this period you are going to post short term losses and gains that have no meaning outside the larger context.

    If I open a new comic book store, I have to pay 1st months and last months rent (2x rent), Buy shelves, inventory, register, computer, business license, phone installation, internet installation, website setup costs...

    Now I start to sell comic books at the going rate. Can the comic book store up the street call foul because I'm operating in the red at this very moment? I won't have all that start up stuff paid off within the next 6 months (when a public company would have to file a financial report). I won't have it paid off in a 12 months. I'll be lucky to be operating in the black in 18-24 months. I'm not cheating, I just have a business plan that lasts longer than the SEC filing period.

    =Shreak
  • by Skip666Kent (4128) on Friday November 15, 2002 @01:14PM (#4678592)
    I respect the fact that MS is showing a willingness to nurture their product for the long term rather than giving up at the get-go just because it failed to change the playing field over night.

  • by talks_to_birds (2488) on Friday November 15, 2002 @01:25PM (#4678697) Homepage Journal
    Despite the losses Microsoft will not have to rein in its marketing and promotional efforts any time soon. The company has a cash pile of more than $30 billion to fund expansion.

    Even if it did not have this huge amount of cash on hand the $3.5 billion profits from its operating system and software divisions in the quarter more than offset any loss.

    I imagine billg broke into a cold sweat when he heard the news of this financial catastrophe...

    t_t_b

  • by Mulletproof (513805) on Friday November 15, 2002 @01:39PM (#4678819) Homepage Journal
    Common, if you're gonna hit microsoft on this practice, you're going to have to hit Nintendo, Sony and the late-great Sega on it as well. They all sell their consoles at a loss in order to hit the consumer's impulse buy range. The only real difference here is that Microsoft has deeper pockets with which to do this with. It gives them the ability to market superior hardware while hitting the same impulse buy zone. And yes, it also creates hideously large loss numbers.

    As for putting Sony and Nintendo out of business, somebody really isn't in touch with the real world. First, the XBox is nearly dead last in console sales. That differential will decrease over time, but unless Sony and Nintendo do something incredibly stupid or MS incredibly brilliant, that's not likely to change in this round of the console wars. Second, Sony is a big boy. It has a diversified market beyond gaming. Their products have global reach and ideal penetration within their respected markets. Sony isn't going anywhere. Nintendo, on the other hand, has a far smaller foundation and hasn't exactly been making stellar decisions as of late. They haven't had a great console since the SNES, and the Gameboy is STILL their principle source of income. They're more likely to kill themselves off rather than be a victim of any MS "dumping" campaign that everybody else also seems to be engaged in.

    But it's just another day in the anti-MS neighborhood, I guess...
  • by jmoody (533840) on Friday November 15, 2002 @02:02PM (#4679017)
    Many of you seem so surprised by this per unit loss yet every cell phone company in North America "subsidizes" phone handsents - creating such a loss. Do you think the cell provider gets your phone for 9.99 ? Do you know why GSM phones in Europe at generally start over US$200 yet in North America they are $19.99 with a contract? This is a common practice in many service industries, broadband internet providers do the same. They subsidize the modems and other hardware - wireless providers do this to such an extent that many have limited growth based on capital available. Anyone who thinks this is abnormal or illegal is not aware of common business practices as the list of examples is immense.
  • National Pride (Score:3, Interesting)

    by riclewis (617546) on Friday November 15, 2002 @02:44PM (#4679380)
    In all this discussion of console wars, many people seem to overlook an important point:

    Microsoft is the only american player in the game.

    Don't get me wrong, I'm just as concerned about M$ as the next guy, but it seems to boil down to buying my entertainment from either some big japanese company or some bigger american company. I'm no economist, but isn't it better for my nation if my money stays in my nation's economy?

  • by Mulletproof (513805) on Friday November 15, 2002 @03:51PM (#4679887) Homepage Journal
    "Documents filed with the US financial watchdog show that Microsoft's Home and Entertainment division, which includes the Xbox, lost $177m (£112m) in the three months to 30 September.
    "The documents also reveal that five of the seven divisions of the company are operating at a loss. "

    Could you possible sensationalize this article anymore? "XBox falls from orbit, kills wife and kids!" The XBox did not lose $117 million. The Home and Entertainment Division did. Not only that, Five other divisions of Microsoft are also operating at a loss, not that those deserve mentioning.

    Jeez, Taco, can't you screen these articles just a tad bit better?

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