Microsoft has lost billions of dollars on Xbox division, no turnaround in sight

[naum]

http://www.informationarbitrage.com/2007/04/msft_and_japan_.html

It seems to me that there is a disconnect between stated objectives, strategy and execution. Microsoft's vision of the gaming console as the window into the living room is a big, big bet, and one that clearly hasn't paid off thus far. Mr. Moore talks about the need to broaden its audience across both geographies and demographics, yet the emphasis on HDTV as being a key factor driving broad-based console sales kind of misses the point. Is the Wii successful because of its zippy graphics and technological superiority? No. It is successful because it is fun. And because it appeals to a broad audience. And because it is comparatively cheap. The Microsoft strategy sounds more like a niche strategy for hard-core gamers, in which case it's investment in a console strategy should be smaller and more targeted. Would Lamborghini try to sell to everyone? Of course not; it would target those who the company knows value its features and are willing to pay for them. This is basic stuff.

They are just not in sync with the Consumer Era of Computing thesis I've written about, something that Apple and others have done quite well. A hard-core high-end gaming console or a console for everyone?  The Zune as the answer to the iPod? I don't know who was in those focus groups but clearly that was a mis-read from a market perspective. Are these miscues a function of unwieldy size or simply flawed strategy? I don't know, but something is clearly amiss. And these weaknesses are apparent all across the firm.

Bottom line, Microsoft needs to take a long, hard look at its gaming strategy - and, in fact, its entire H&E strategy. At what point, regardless of its virtually endless financial resources, does it say "enough is enough." Would we have been better served by returning the extra cash to shareholders rather than investing it in a franchise that seems to have questionable prospects for turning around? These are the kinds of questions Microsoft management should be asking. And hopefully, for shareholders' sakes, they are.

[Miasma]

It's an interesting situation because if Ballmer ever decides the xbox isn't worth all the money they are losing Microsoft could just flip a switch and shut the whole thing down without any negative repercussions.  They would actually make more money.

That said there is is no way they will do such a thing, Microsoft desperately wants inside peoples' living rooms and will blow as much money as it takes to get the job done.  They need to find new ways to grow and have the warchest to do whatever they want.

[stray]

Heh. I think this was their "new way to grow" (in relation to Windows and Internet assets, etc..). 

[Nija]

MS is set to make a lot of money with the new announcements that the next final fantasy "isn't a ps3 exclusive" and that GTA4 will be out on the 360 and ps3 at the same time, with the game being designed for the x360.

I'd already have an x360 if it natively would play all the popular video codecs AND it would just connect to a UMB share to do so. All the proprietary crap on that front has kept me away.

Forza 2 is all that I needed to be suckered in, and I've got an x360 elite on order.

[stray]

That next Final Fantasy isn't going anywhere. The engine has been too tied up with PS3 development for too long.

Perhaps the game after that one could go though. Depending on Sony really, not Microsoft.

And the only reason that's a possibility is because Squeenix purchased a UE3 license recently (but they make dozens of games...FF need not be one of them. They could very well stick with the engine they developed already).

[Velorath]

That next Final Fantasy isn't going anywhere. The engine has been too tied up with PS3 development for too long.

FFXIII and FFXIII VS. aren't likely going anywhere, but as is sadly typical of Square lately, they're planning on making even more FFXIII games which will likely be on other systems in order to further milk the FF name.

[stray]

I'd say it goes to the DS (in some shape or form) before it went to the XBox.

[schild]

Nope, the DS will remain there for FF sidestories.

Edit: At least I hope I don't have to eat those words.

Edit 2: As for Microsoft losing billions. Who gives a fuck. They have it in liquid. Sony is in worse shape. Next.

[Nija]

So this is bullshit? http://www.ps3center.net/story-394.html

I don't really care - FF games aren't for me.

edit: a better article, http://www.ps3fanboy.com/2007/04/18/final-fantasy-xiii-games-not-limited-to-ps3-and-mobile/

[stray]

That's a weird article.

"Confirmed!"


But I don't see a link or a quote anywhere. I want to hear the official news, if there is any. The only thing I know about is from a couple of weeks ago, where some Sony official said they were in talks with Squeenix about exclusivity deals, and that nothing was certain. After that, a bunch of news sites popped up saying it'd be on the 360. Sheesh.

Not sure if this news is related to that press agent's words or not though. Because the writer of that article doesn't link anything at all.

[schild]

That article is a mess.

[Velorath]

So this is bullshit? http://www.ps3center.net/story-394.html

I don't really care - FF games aren't for me.

The article isn't bullshit, it just gets the details wrong.  I've seen this story on other sites, and it's coming from an interview with Motomu Toriyama in the Australian Playstation magazine which essentially says that the overall Fabula Nova Crystalis thing won't just be exclusive to PS3 and cell phones.

[Margalis]

MS has been trying to get a box into the living room for a long time now, even with WebTV junk. The problem is they have a tin-ear for general consumer wants.

[cosapi]

MS needs to get someone like Treasure to make games for them.

Come to think of it, when's the last time treasure's even made a game?

[schild]

Treasure is converting Ikaruga to XBLA.

Then they're doing...damnit...something.

Cave needs to start porting their shooters to XBLA as well. Starting with Ketsui, EspGaluda 1/2 (bundle plz), and DoDonPachi DOJ.

[Fabricated]

I imagine "not exclusive to cell phones and the PS3" means PSP and DS. None of the main console series is going to the 360 thanks to the White Engine. They have bought a license for the Unreal 3 engine though, so SquareEnix titles on the 360 is definitely possible.

As for the MS losing billions thing, nothing new. MS will throw twice that much down the toilet before they give up, especially since the PS3 has stumbled so badly.

[schild]

I think tons of lols would come from the Saga series going to the 360. With some sort of prototype multiplayer the likes of which we've never seen. I mean, those games suck already. let's make them more fucked up.

[Velorath]

I think Front Mission would be a better fit for the 360, or possibly Parasite Eve.

[schild]

Don't joke about parasite eve.

[Velorath]

Just sayin' Parasite Eve would seem like a good fit for the 360.  Oh and Einhander also.

[schild]

I would love both of those. And Bushido Blade.

[Yegolev]

I can't see anyone doing anything to Bushido Blade without fucking it in the ass.  I mean, look at Bushido Blade 2.  I wouldn't trust a team of MIT grads to do a simple graphical update.

[Margalis]

The Saga series started off really good but then turned to shit. Dunno what happened there, it's like they are having a contest to see who can make the worst Saga game now.

[Nija]

Man, Bushido Blade. I've been in several fist fights because I kept using one of the girls and the rapier, and jabbing people in the neck as soon as the round started.

I love that game.

[squirrel]

Edit 2: As for Microsoft losing billions. Who gives a fuck. They have it in liquid. Sony is in worse shape. Next.

And this is why I don't dog-pile on schild when he does get a little crazy.

Microsoft decides to throw away billions. So the fuck what. They have it to throw away more than any other company on earth right now, irrespective of industry. Christ paying dividends is optional for them.

Microsoft has a long, long, long, history of throwing money at market segments they want to gain a foothold in. They were pretty clear with Xbox 1 that they were willing to take a shower to get into our hearts and minds.

And I'm not an anti-Sony fanatic - I will very likely own a PS3 in the future. But at the moment if you're a gamer and you don't have a 'second gen' console the 360 is the best buy currently. Little question there. Sony loses money on every PS3 - Microsoft loses money on every 360. Look at the balance sheets - they can both afford it - Microsoft can just afford to go a little farther in their indulgence.

[stray]

Nope, the DS will remain there for FF sidestories.

Edit: At least I hope I don't have to eat those words.

Edit 2: As for Microsoft losing billions. Who gives a fuck. They have it in liquid. Sony is in worse shape. Next.

This will be a mouthful (also, I'm not trying to doomcast), but hear me out:

As a gamer, I personally don't really care how much MS loses. I know they have quite a cushion of private, past earned cash to help them rebound from things. Fair enough. But it does matter as far overall company and division health is concerned (strictly business speaking, relying on wealth, and not on earnings is bad news).

In this respect, Sony isn't as bad as you think. They have their hands in so many things, most of which are performing well (some incredibly well, like the LCD's and PS2). That doesn't put them in worse shape. They're in good enough shape that analysts upped their stock last week, and projected profits throughout the rest of the business year (May07 to 08, I believe).

Speaking gaming hardware specifically: While the PS3 is performing abysmally, they have other things to offset that (the PS2 and PSP -- and the games). Gaming-wise, Microsoft doesn't have that luxury. They just have a still pond of cash to rely on here. How is that better? Their other divisions can only support themselves. Vista isn't exactly Windows 95 redux to say the least; they're getting their asses kicked by Google in the Internet sector; Apple wins the media player war; their server market is dwindling. The Xbox brand was one of the things meant to help them expand out of the desktop and server computing market -- something to safeguard them from that other bullshit. But what safeguards the XBox brand itself? Sony has the PS2 and PSP. Nintendo has the DS and GBA. Microsoft has nothing at the moment.

Another thing, even though the PS3 is selling less units a month than a 360, it's probably making the same amount of cash just because it's more expensive (probably making similar amounts of cash as the Wii too). So, even though it's not gaining marketshare, it still offers a similar amount of cashflow. In a sense, the PS3 is still making the same amount of money as the other two consoles, even when losing valuable marketshare (I'm not saying that's ideal. I'm just saying).

Also, like I said, they also have additional cashflow from other products. Microsoft doesn't have anything equivalent to keep their gaming division out of the dumps:

For example, here are the March NPD Hardware results:

PlayStation 2 - 280K
Wii - 259K
Xbox 360 - 199K
PlayStation Portable - 180K
PlayStation 3 - 130K

Lastly, and strangely, the PS3 is a success in Europe so far. Almost 900k units sold already. Time will tell how that'll pan out, but so far, all signs point to it not being the same story as the US and JP. It's had a better launch period than the 360 has.

[Trippy]

Their other divisions can only support themselves.

Huh? Your argument makes absolutely no sense at all. On one hand you say that Sony benefits from the profits in other divisions and yet the billions and billions and billions MS makes on OS and Office sales somehow don't get to benefit their Entertainment division?

[squirrel]

Speaking gaming hardware specifically: While the PS3 is performing abysmally, they have other things to offset that (the PS2 and PSP -- and the games). Gaming-wise, Microsoft doesn't have that luxury. They just have a still pond of cash to rely on here. How is that better? Their other divisions can only support themselves. Vista isn't exactly Windows 95 redux to say the least; they're getting their asses kicked by Google in the Internet sector; Apple wins the media player war; their server market is dwindling. The Xbox brand was one of the things meant to help them expand out of the desktop and server computing market -- something to safeguard them from that other bullshit. But what safeguards the XBox brand itself? Sony has the PS2 and PSP. Nintendo has the DS and GBA. Microsoft has nothing at the moment.

Um ok. If you're speaking gaming hardware specifically (to quote) why are you talking about Google and Apple's impact on Microsoft? You start out by saying that Sony has the PS2 and PSP in the gaming market to support them (and by limiting your topic to gaming only to ignore the terrible performance of some Sony departments) but then in the next sentence attack Microsoft on Vista, Google and the Apple media fight?

Um. WTF dude? I don't have any vested interest in Microsoft and actually agree with some of what you say but this is some of the worst logic ever - talk about gaming only. Or talk about the overall business. But don't limit your discussion to how Sony owns gaming, and Microsoft is losing market share in media and server markets. Way to destroy your own argument.

[stray]

Their other divisions can only support themselves.

Huh? Your argument makes absolutely no sense at all. On one hand you say that Sony benefits from the profits in other divisions and yet the billions and billions and billions MS makes on OS and Office sales somehow don't get to benefit their Entertainment division?

I don't know. I saw recent news that Microsoft is going to start offering Windows and Office bundles in Asia for $3 (one of the reasons is to compete with Google, I think....Again). If they're looking to grab markets like that, those kind of initiatives speak of desperation to me.


I could be wrong though, I'll admit. We can just talk about gaming divisions if you like.

[squirrel]

Their other divisions can only support themselves.

Huh? Your argument makes absolutely no sense at all. On one hand you say that Sony benefits from the profits in other divisions and yet the billions and billions and billions MS makes on OS and Office sales somehow don't get to benefit their Entertainment division?

I don't know. I saw recent news that Microsoft is going to start offering Windows and Office bundles in Asia for $3 (one of the reasons is to compete with Google, I think....Again). If they're looking to grab markets like that, those kind of initiatives speak of desperation to me.


I could be wrong though, I'll admit. We can just talk about gaming divisions if you like.

Probably a good idea since you started that discussion with "Speaking gaming hardware specifically:" and then highlighted only Sony's gaming strengths and only Microsoft's non-gaming threats...

[Trippy]

Their other divisions can only support themselves.

Huh? Your argument makes absolutely no sense at all. On one hand you say that Sony benefits from the profits in other divisions and yet the billions and billions and billions MS makes on OS and Office sales somehow don't get to benefit their Entertainment division?

I don't know. I saw recent news that Microsoft is going to start offering Windows and Office bundles in Asia for $3 (one of the reasons is to compete with Google, I think....Again). If they're looking to grab markets like that, those kind of initiatives speak of desperation to me.

I could be wrong though, I'll admit. We can just talk about gaming divisions if you like.

That has no bearing at all on the billions MS currently makes. They don't sell any copies over there (well maybe a couple hundred copies of Vista so far in China). It's all pirated so anything they can sell over there is just extra. If they decided to sell Windows and/or Office here in the US or Europe for $3 a copy that's any entirely different situation.

[stray]

Cool enough.

If the last line in my post wasn't clear enough, it was an apology. ;)

Sorry!

[EDIT] This is in no way meant to be a retraction on that apology, but my basic point was that it seemed like the XBox brand undercuts Microsoft's overall bottom line more than the PS3 does for Sony. That Microsoft's other products have enough expenses of their own to take of, while Sony's other products have a better trickling down effect.

Anyways, I'll drop it. It's gotten more convoluted than I thought at first.

[squirrel]

[EDIT] This is in no way meant to be a retraction on that apology, but my basic point was that it seemed like the XBox brand undercuts Microsoft's overall bottom line more than the PS3 does for Sony. That Microsoft's other products have enough expenses of their own to take of, while Sony's other products have a better trickling down effect.

Anyways, I'll drop it. It's gotten more convoluted than I thought at first.

Dunno about that - it's an interesting topic. After all, despite the criticism of the Wii in terms of technical capability and titles, the thing is selling a ton of units and is profitable on each one. But they have to be, they don't have other business units to support them. Sony has lost a lot of ground in some areas it used to be the unquestionable owner of (never mind Apple eating Msoft - ummm....walkman???), but by the same token Sony has a lot of business that is doing quite well. (Sony TV's are selling as well as ever for instance.)

Microsoft on the other hand is less distributed but Windows and Office licenses combined with their vast Enterprise licensing schemes and low cost structure have tonnes of cash on hand.

Sony's primary differentiator in the gaming arena is the continued dominance of the PS2. I can't help but wonder if that's something they wish wasn't so. After all every PS2 title in development now and every PS2 unit sold is a potential loss for the PS3.

[stray]

On a sidenote, SOE is probably the most wasteful piece of shit division Sony has. I forgot about them. Worse yet, it is game related.

So, I guess this will be another correction. The PS3 isn't the only thing screwing up Sony's game division.

[schild]

Stray, that was a mess.

Let's be clear, for every 360 they lost $50 on, they sell like 50 copies of Office to a corporation for 100 times the profit. This is fuzzy math, but it's the truth. Losing money in games is a fucking joke to win the couches and hearts of middle America.

As for SOE. Hi. They're profitable. Companies cut off bad limbs. There's a reason SOE hasn't been cut off.