Microsoft Has Never Made a Profit From Xbox Hardware - News
by William D'Angelo , posted on 06 May 2021 / 3,507 Views
Xbox business development vice president Lori Wright as a third-party witness at the Epic Games v. Apple court case was asked by Epic Games lawyer Wes Earnhardt how much money Microsoft earns on each Xbox console sold. Wright revealed that Microsoft doesn't earn money for Xbox hardware.
"How much margin does Microsoft earn on the sale on the Xbox consoles?" Earnhardt asked.
"We don't. We sell the consoles at a loss," Wright said, according to Protocol. Wright added that the Xbox business model is selling the hardware at a loss and subsidizing that loss with game sales and subscription services like Xbox Game Pass and Xbox Live Gold to turn a profit.
The Epic Games lawyer later asked Wright, "has Microsoft ever earned a profit on the sale of an Xbox console?" and Wright responded," no."
A leaked document from the court case revealed that Microsoft earned between $1.6 billion and $2.3 billion in profits in the 2019 calendar year.
Senior video games industry analyst at Niko Partners Daniel Ahmad via Twitter wrote a response explaining Microsoft's business model with the Xbox.
"This isn't too unusual for the console space," said Ahmad. "The console is sold at a loss initially & usually for some time after. The platform holder recoups the investment in hardware via its own first party game sales + services + the cut it takes from third parties that sell games / DLC.
"Hardware being unprofitable certainly played a bigger role in the late 90's and early 2000's (oh and PS3 era lol). Both the PS5 and Series X/S are being sold at a loss right now, but will become profitable down the line most likely. Nintendo is somewhat of an outlier.
"The PS4 was probably the first Sony console to flip the above concept somewhat. While Sony aggressively cut the price of PS2, for example, down to $99, the PS4 maintained a $299 price point for multiple years and was profitable. Switch was built to be profitable asap."
Some leaked court documents from the Epic Games v. Apple court case include an internal Xbox review of The Last of Us Part II that was done by the Xbox Portfolio Team, that Dead Island 2 and Saints Row 5 will be exclusive to the Epic Games Store, how much Sony was against adding cross-platform play to multiplatform games on the PlayStation 4, and Epic paying Two-Two Interactive $146 million to have the PC version of Borderlands 3 launch as a timed exclusive on the Epic Game Store.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel dedicated to gaming Let's Plays and tutorials. You can contact the author at wdangelo@vgchartz.com or on Twitter @TrunksWD.
More Articles
Sad for microsoft but they are swimming in cash don't think they felt it,
However epic game stores is "feeling" that lost...
Nothing new or expected, although I thought on the last years of X1 the price of the HW was enough to sell it at a small profit like PS4. Perhaps X1X losses (and I thought it was sold at small profit due to being premium) offset that. But well nothing troublesome really, as Daniel said that is the usual model for console makers.
Seems to be true for most console manufactures besides Nintendo maybe. I know Sony made profit on the PS4 and Sony is breaking even on the PS5 I believe well for the disc tray PS5 not sure about the digital. But I'm surprised Microsoft never made profit from their Xbox systems ...
Loss leader strategy. Makes sense. But surely, and I mean SURELY, they made a profit on the Xbox 360 E. That thing was super cheap to build.
I read somewhere that the 360 was profitable at very end of the generation, so maybe that wasn’t true.
But in the case of the PS4, Sony started to make profit around 2017.
Nintendo always make profit since the launch of the Switch.
It most likely when she was asked whether MS had ever made a profit of the sale of a Xbox console she was under the assumption that the word Xbox console was being used in the broader sense of it's branding, rather than say uncoupling down to single SKU's, if that's the case it may well have been a period where toward the back end of the gen certain 360 SKU made a profit but she was talking more broadly.
"Supposition, your Honor..." ;-)
too my learned colleague and fellow disbarred member of many Bars both private and public and also the legal fraternity, I have never be called your Honor before so I Suppose I should either sadly form the opinion that the term was not aimed at me , or make another Supposition that being it was you Horror before spellcheck decided it should intervene before howls of contempt and much gavel banging echoed through the court,
I think its fairly common for hardware to be sold at some profit eventually. But at that point ambitious specs of Playstation and Xbox have already lost a significant amount and some profits on hardware do not recoup what was lost.
It seems the amount of money MS and Sony are willing to lose on hardware has declined significantly since 2005/2006.
"360 was profitable at very end" - Not in this universe, on thecontrary.
The manufacturing numbers towards the end were so low, the costs sky rocketed. That is a basic law in mass manufacturing: Not enough mass -> high prices. And at least in Euroland, 99 Euro X360s were quite common towards the end.
The PS4 still is high priced in Euroland (the price actually increased after a few years when manufacturing numbers fell to a low level-a telltale sign Sony wasn't willing to lose money on hardware)
The cost benefits derived from volume can be complex and these deals involve multiple subcontractors , and simple things like contract length can lead to differing outcomes of what on paper are similar deals , also how the contracts are written ,an example being MS not gaining any pricing benefit from lower gpu costs being passed on by Nvidia for the Xbox because of the contract terms ,something that Sony made sure of when they contracted Nvidia for the PS3 gpu so why I agree about end of gen pricing and volume that doesn't rule out certain prior SKU having made a small profit beforehand. especially if that includes the drop in hardware marketing costs .
Shouldn't be a suprise to anyone. It explains why they are pushing the service route.
Gamepass isnt profitable either according to tim warren. Makes sense why MS is trying to bring gamepass to other consoles.
Printers and ink have the same business model.
Sell the printer at a loss, recoup on pricey ink carts.
ink is usually very expensively priced.
On Nintendo from what I saw and heard all these years in VGC the only HW they ever sold at loss was 3DS after that first big cut (because it was struggling on the initial sales), every other time they sold for at least small profit (perhaps GC had some loss when they cut it deep to 99).
I think the Wii U was initially sold at a loss as well, but the first game purchase made with it was considered profit.
Could be, the tablet part was quite expensive to make at the beginning and well the console didn't had a big start to get those gains of scale and efficiency.
Essay Pro