GamezineMag - Microsoft Saying the Xbox Still Makes Them Money, for News, Publishing, and Educational Purposes in Games Development

 

Credit: The Verge

A Microsoft executive has admitted that the company doesn’t earn any profit on sales of Xbox consoles alone. The admission came as part of the Epic v. Apple trial yesterday, confirming what we’ve known for years: Microsoft sells Xbox consoles at a loss. Asked how much margin Microsoft makes on Xbox consoles, the company’s head of Xbox business development, Lori Wright, said, “We don’t; we sell the consoles at a loss.”
An Epic Games lawyer asked a follow-up question: “Does Microsoft ever earn a profit on the sale of an Xbox console?” Wright replied, “No.” That doesn’t mean Xbox doesn’t make money, though. Microsoft was keen to point this out in a statement to The Verge just hours after Wright’s testimony yesterday.
“The gaming business is a profitable and high-growth business for Microsoft,” says a Microsoft spokesperson. “The console gaming business is traditionally a hardware subsidy model. Game companies sell consoles at a loss to attract new customers. Profits are generated in game sales and online service subscriptions.“

The Verge asked Microsoft whether it never truly makes any margins on hardware alone, but the company didn’t respond in time for publication. Typically, Microsoft and Sony subsidize hardware at the beginning of a console’s lifecycle, but those early component costs tend to decrease over time. Those lower costs also translate to lower retail prices for consoles over time, though.
A teardown analysis of the Xbox One S, for example, revealed an estimated bill of materials of $324, which is $75 less than the $399 launch price for the 2TB version of the console, back in 2016. Microsoft also launched a disc-less version of the Xbox One S two years ago, which was presumably also sold at a loss.
Sony and Microsoft have similar business models for PlayStation and Xbox consoles, but Nintendo is the exception. In court documents, Microsoft estimates that hardware is generating a loss for Sony, but a profit for Nintendo. That’s backed up by Nintendo’s impressive 84.59 million Switch sales this year, up to March 31st.