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Analyst: Microsoft Loses $2 Billion on Xbox Annually

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Nomura analyst Rick Sherlund says that Microsoft's losses on its Xbox business total $2 billion per year, but are masked or hidden by substantial cash generated from royalties on patents from Android-based devices.

"If we start with the overall traditional [Entertainment and Devices Division] business that actually loses money before corporate allocations and back out the nearly $2 billion 95 percent gross margin Android phone royalties, we conclude that Xbox platform plus Windows phone and Skype lose about $2.5 billion per year, and we estimate that the Xbox platform may account for roughly $2 billion of this," Sherlund said.

He goes on to say that this loss "is concealed by the hugely profitable Android royalties" that come out of licensing deals on Microsoft-held FRAND patents related to the Android OS.

Source: GII by way of The Escapist

 

http://gamepolitics.com/2013/11/08/analyst-microsoft-loses-2-billion-xbox-annually#.Un_rnfmnpqk

 

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If this was the case, Xbox would not exist.

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Read this last week. It's no wonder investors are calling for them to branch the Xbox division out into a separate business.

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lol show us evidence. I can be an analyst and say this guy is chatting rubbish.

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It's true, I know, as I play Xbox.

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Microsoft makes a killing off of Android.. So Android OEMs,are basically funding Skype, Xbox, and Windows Phone and Bing for the most part. And basically the Blu-Ray license fees Microsoft has to pay for as well...

To keep a whole division going off of others companies dime, is pure genius if you ask me....

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next up Analyst says Microsoft loses 5 billion on Windows, makes up for it by hidden cash from the Xbox division, get rid of windows! analysts are just full of BS... they don't have the books, they can only go by what they guess... only MS knows 100% for sure what makes what, then they distill that down to what they tell the SEC and investors

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It's true, I know, as I play Xbox.

 playing Xbox gices you secret access to Microsoft's financials?

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Never knew there were so many analysts at Neowin.

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Read this last week. It's no wonder investors are calling for them to branch the Xbox division out into a separate business.

 

 

To be honest, if its losing that annually, how in the world would it survive spun off?  If they wanted to sell it, who would want to buy it? 

 

No if its losing money like that, then the only choice would be to get rid of it completely if they wanted rid of it.  I wonder how this compares to Sony.

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To be honest, if its losing that annually, how in the world would it survive spun off?  If they wanted to sell it, who would want to buy it? 

 

No if its losing money like that, then the only choice would be to get rid of it completely if they wanted rid of it.  I wonder how this compares to Sony.

 

Amazon, Google, Valve?

 

All of them have the means to turn it around. On the outside Xbox isn't a horrible business and it has a lot of room to grow, but it has been mismanaged & bled money from the start. They've managed to grow it into one of the biggest names in gaming in just 10 years and taking 2nd place from Nintendo. That's a lot of power for someone to take interest in and to merge with their own app economy or digital futures.

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It doesn't really matter if it's making or losing money at this point.  A significant part of it is being able to have a strong household presence for the rest of the Microsoft ecosystem.  Skype, Bing, IE, Video, Skydrive, etc...

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These Xbox and PS threads that cause F.U.D. are getting repetitive

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It doesn't really matter if it's making or losing money at this point.  A significant part of it is being able to have a strong household presence for the rest of the Microsoft ecosystem.  Skype, Bing, IE, Video, Skydrive, etc...

It's also a huge brand name. People know Xbox, and to loose that would be destructive.

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I can be an analyst

You are not.

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He goes on to say that this loss "is concealed by the hugely profitable Android royalties" that come out of licensing deals on Microsoft-held FRAND patents related to the Android OS.

microsoft is not making OEMS quiver in cowardice by waving FRAND patents in their faces, LMAO. what an imbecile.

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I agree with this, since outside of the US the xbox division didn't so great at all in fact it sold less consoles then the PS3 and Wii. But sure alot of people here will say that the xbox made microsoft alot of money because they only read US data crap only instead of looking at the whole picture.

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Micrososft sold the 360 at a loss and within a few years the 360 had broke even and began generating profit for Microsoft. The 3 year warranty extension cost them but the 360 began generating profit again. This time they aren't selling the Xbox at a loss, only time will tell. Sony assumed they'd be king in this gen after owning the PS2 gen, they got the shock of their lives. I'd hate for Microsoft to go into the next-gen with the same cavalier attitude. 

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I don't care if it loses money. Xbox is a cornerstone of Microsoft's consumer strategy.

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Amazon, Google, Valve?

 

All of them have the means to turn it around. On the outside Xbox isn't a horrible business and it has a lot of room to grow, but it has been mismanaged & bled money from the start. They've managed to grow it into one of the biggest names in gaming in just 10 years and taking 2nd place from Nintendo. That's a lot of power for someone to take interest in and to merge with their own app economy or digital futures.

 

Vavle? Why in the heck would they do that when they already are pushing Steambox?

 

 

As far as Amazon or Google, what kind of value is there in a closed console business?  What does it add to their markets and does it match anything they are currently doing?  Selling a $400 or $500 device and having to somehow create a strong game developer support base from scratch just doesn't seem fit in with what Amazon and Google are doing.

 

There is a reality that I think is being ignored.  Its very possible none of these companies have any interest getting into the console business when many people see it as a small market to begin with and one that could very well be declining.

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This makes no sense,   The division itself makes most of it's revenues from the Xbox, when the 360 started to sell less because of old age the whole division saw it's revenues drop.  MS calls this out in fact.   I'm sure MS makes money from it's Android related patent deals but it's not holding up the whole group.   This post is making lots of assumptions with no proof, it's guesswork at best.

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I agree with this, since outside of the US the xbox division didn't so great at all in fact it sold less consoles then the PS3 and Wii. But sure alot of people here will say that the xbox made microsoft alot of money because they only read US data crap only instead of looking at the whole picture.

 

The only place the Xbox did bad was Asia, going from the numbers the Xbox and PS sold neck and neck overall in Europe and the Xbox did better in the US.   The numbers worked out and as we've seen the two systems are very close in total sales.   If all the Xbox had was the US it wouldn't be as successful. 

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Microsoft makes a killing off of Android.. So Android OEMs,are basically funding Skype, Xbox, and Windows Phone and Bing for the most part. And basically the Blu-Ray license fees Microsoft has to pay for as well...

To keep a whole division going off of others companies dime, is pure genius if you ask me....

 

Losing money is losing money regardless of what profit you make from other areas. If those divisions were not there, they would be 2.5 billion a year better off. Using other profit to fund a flagging business doesn't strike me as a sound business strategy, it sounds completely stupid.

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There has been this drumbeat from analysts for MS to end their Xbox division, along with just bout anything consumer oriented. 

 

Where is the drumbeat for Sony to get rid of its PS division and stick to finance since it does so well in that market and yet loses money in consumer markets like TVs and home consoles?

 

Where is the drumbeat for Google to get rid of Android since it doesn't actually earn Google any money.  The vast majority of their money is from ad revenue, nothing else.  all of their other projects are funded by that profit. 

 

Where is the drumbeat for Apple to drop its desktop business since the clear majority of its profits are in mobile?

 

My point in all of this is why is it that MS is not allowed to use profits from one division to grow into a new market that either loses money or breaks even, while other companies seem to get a pass.  I always thought there was a value to a company overall that sometimes cannot be calculated based on profits.  Android for example.  It doesn't earn Google any money, but its a gateway to serve more ads, which do generate profit.  Likewise Bing.  It doesn't earn money on its own, but it has resulted in services that MS has brought into all of its major software that does generate profit.

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Vavle? Why in the heck would they do that when they already are pushing Steambox?

 

 

As far as Amazon or Google, what kind of value is there in a closed console business?  What does it add to their markets and does it match anything they are currently doing?  Selling a $400 or $500 device and having to somehow create a strong game developer support base from scratch just doesn't seem fit in with what Amazon and Google are doing.

 

There is a reality that I think is being ignored.  Its very possible none of these companies have any interest getting into the console business when many people see it as a small market to begin with and one that could very well be declining.

 

Why reinvent the wheel when you already have a box in every home. It's more complicated than that obviously, but Steamboxes have a long road ahead of them. Not saying they can't/won't be successful, but if MS did sell the Xbox division then it might be a good buy for Valve to boost their efforts with Steambox. And like you said in the other topic re:disc installs/downloads, there may be a time when you buy 1 game and can play it on any hardware tied to a service. Valve already do that with Steamplay and I'm sure it'll expand with Linux/SteamOS. Go one step further and say you buy an Xbox and you can play there too. I'm sure that type of deal gets messy because publishers might see a dip in sales, but Sony already did something similar in 2011 with Valve and Portal 2's release.

 

As for Amazon/Google, if rumours are true they're already working on games or a console of sorts. Put it this way, they're already in the business of selling digital downloads, not just for games, but movies, music and books. That's all the same things MS are struggling to do right now. If you're Amazon or Google you don't need to keep Xbox as a closed eco system, it can be argued it would be even stronger if it was open.

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