Microsoft earning a profit on every console?

I'm really surprised the Xbox 360 has already started to make profit on the actual hardware so soon into it's life cycle, the original Xbox took around four years to break even.

And the big difference is that if the situation was reversed, and it was Microsoft who were loosing $300 per unit they could afford to.

Sony on the other hand have nowhere near as much financial clout, and to be loosing this amount of money on each unit is a serious amount of $, particularly when you multiply it by the number of consoles they plan to sell in the initial launch window:

$300 x 6,000,000 units = $1.8 Billion!

And even after 18 months, unlike the Xbox 360 the hardware parts for the PS3 are going to remain relatively expensive (specifically the cpu) to produce even at high volumes.

I'd rather see a price drop for the games and accessories than the console itself, seeing as I already have a 360. When I got it I would've been very happy to pay £400 for it but only have to pay £30 for the games.

Witht the price of the 360 so much less than the PS3, why would they need to drop it's price anyway?

That isn't an entirely fair comparison, sure it's now->now but wouldn't it be fairer comparing to MS's initial costs, since they must have been losing some money over the last year. And, inevitably, Sony's costs will go down, whether by enough to actually make money, we shall see.

Originally Posted by Salazaar
That isn't an entirely fair comparison, sure it's now->now but wouldn't it be fairer comparing to MS's initial costs, since they must have been losing some money over the last year. And, inevitably, Sony's costs will go down, whether by enough to actually make money, we shall see.

The point is that, at this moment in time, the PS3 is losing a lot of money while the Xbox 360 looks set to be profitable. Things will undoubtedly change in the future, but the fact of the matter is that Microsoft got Xbox 360 on the market 12 months before Sony.

Originally Posted by Veles


With the price of the 360 so much less than the PS3, why would they need to drop it's price anyway?

I don't think they have to, but I guess the argument from the Sony camp would be that to purchase an Xbox 360 + HD-DVD drive is more expensive than a PS3. However as the HD-DVD add-on is optional I don't think this holds any water.

I agree about the price reduction on games, however I think it will be really hard to persuade developers, retailers and manufacturers to take a smaller cut, unless of course you mean Microsoft could cover that with the profit from the hardware?

But I strongly doubt that is anywhere near 10% left for profit, a lot of costs have to goto the dev costs.

In adition i would like to know how much money MS/Sony makes with sold games? Maybe Sony makes much more profit on every game sold so the loss on the console is not that big of a bugger.

Originally Posted by antiHero
In adition i would like to know how much money MS/Sony makes with sold games? Maybe Sony makes much more profit on every game sold so the loss on the console is not that big of a bugger.

On the contrary, the cost of Blu-Ray media at the minute is just under $20 for a blank single layer disc, so Sony at best would be breaking even for third party games. I believe the majority of 1st party games will be $10 more so that may be the reason why?

Originally Posted by rupbert
I agree about the price reduction on games, however I think it will be really hard to persuade developers, retailers and manufacturers to take a smaller cut, unless of course you mean Microsoft could cover that with the profit from the hardware?

Yeah MS just reduces the amount they get from licensing, since they're now not losing money on each console, they don't have to make rediculous money from each game to make back losses anymore. Having cheaper games is also a major +point for people looking to buy a console. If they walk into a game shop, and see the PS3 section and the 360 section, if they see that not only the 360 is alot cheaper, the exact same game on the 360 is also cheaper, it's more likely they're gonna go for the 360. Doesn't take into account exclusives and fanboyism though.

Originally Posted by Veles
Yeah MS just reduces the amount they get from licensing, since they're now not losing money on each console, they don't have to make rediculous money from each game to make back losses anymore. Having cheaper games is also a major +point for people looking to buy a console. If they walk into a game shop, and see the PS3 section and the 360 section, if they see that not only the 360 is alot cheaper, the exact same game on the 360 is also cheaper, it's more likely they're gonna go for the 360.

I agree, but then are developers going to be happy about the Xbox 360 mutli-platform games being £10 cheaper than their PS3 counterpart? I think most consumers looking at the price difference would blame the developers and perhaps might shun all of their games as they think they are being ripped off?

look at the price of that optical drive..... is there any way to mod a new HD into the XBOX360? i am seriously thinking of getting a 360 and a wii.

Originally Posted by DXR_13KE
look at the price of that optical drive..... is there any way to mod a new HD into the XBOX360? i am seriously thinking of getting a 360 and a wii.

The simplest thing to do is attach a usb hardisk.

Originally Posted by rupbert
The simplest thing to do is attach a usb hardisk.

and it has all the functions of the standard hard drive that you attach to the top of the unit?

Originally Posted by rupbert
On the contrary, the cost of Blu-Ray media at the minute is just under $20 for a blank single layer disc, so Sony at best would be breaking even for third party games. I believe the majority of 1st party games will be $10 more so that may be the reason why?

So you belive everything you hear? I never much doubt sony are paying 20$ for a single layer blu ray disk, probably more like 2$, maximum :)

A Blu ray drive costs 125$, or .. 70 quid, so much for bluray being the reason the PS3 & associated DVD players costs 'so much more' than everything else - they must be raking it in with the hype not the technology, even with the other bits and a 70 quid drive, how can they justify a BR player that costs 1000 notes? because stupid people will pay it, not because its worth it, the prices will drop soon and thats not because of drops in the tech prices like they tell you its because theyve run out of stupid people with 1000 quid spare and are now moving into their next pricing bracket

Originally Posted by DXR_13KE
and it has all the functions of the standard hard drive that you attach to the top of the unit?

Sorry I should have clarified that, you cannot save or download to an external drive, yet...

Originally Posted by Swafeman
So you belive everything you hear? I never much doubt sony are paying 20$ for a single layer blu ray disk, probably more like 2$, maximum :)

A Blu ray drive costs 125$, or .. 70 quid, so much for bluray being the reason the PS3 & associated DVD players costs 'so much more' than everything else - they must be raking it in with the hype not the technology, even with the other bits and a 70 quid drive, how can they justify a BR player that costs 1000 notes? because stupid people will pay it, not because its worth it, the prices will drop soon and thats not because of drops in the tech prices like they tell you its because theyve run out of stupid people with 1000 quid spare and are now moving into their next pricing bracket

The cost of a blank single sided Blu-Ray disc to you or I would be on average $20. I agree that although Sony at worst may only be paying $5, it is a lot more money than the media used by the Xbox 360.

Originally Posted by rupbert
Sorry I should have clarified that, you cannot save or download to an external drive, yet...

hmmm i wonder what is inside the 360 hard drive gray peace.

Originally Posted by rupbert
The cost of a blank single sided Blu-Ray disc to you or I would be on average $20. I agree that although Sony at worst may only be paying $5, it is a lot more money than the media used by the Xbox 360.

Depends how you define 'a lot more money'

Arguably they will get it a lot cheaper, the 20$ you pay is a stupidly ridiculously overpriced price aimed at the top end of people with disposible income.

Sony however, not only get them at cost, not retail price, they also get ridiculous economies of scale, when buying 1,000,000 disks, theres gonna wrangle a big discount or just go elsewhere, the price they pay won't even be comparable to what we will pay currently in the shops.

DVDs cost companies pennies to produce (DVD-rs can be had for 10p to me, so probably 2-3p in bulk to publisihng companies) so it wouldnt suprise me if blueray disks were available to sony for less than a quid a piece - altho this is 25x the price and does seem to a bomb more than the normal dvd games - it is still only 2% (of a 49.99 game) of the total price your paying for the media, leaving a massive 98% oging towards the actual game - id say even tho blu ray might cost more, its marginally more, and seing as your paying upwards of 400 quid on a console, 50p-quid extra a disk which already has increased selling value due to the hype of how good the disks already will pay for itself - and no way justifys the extra 10-20$ sony are slamming on top, even at the same price from the increased sales from the 'wowww oomggg blu RayzzZZ' geek parade they will probably more or less cancel out the 2% they lose on a game in manufacturing to a couple of extra sales

Sorry to bring this out of left field, but did you guys read that the Wii is making a profit from day one?

yes - it's pretty much common knowledge these days. :)

I'd just like to point out that the line 'and to a lesser extent Nintendo' is completely false.

As I understand it Nintendo have NEVER sold a console at a loss. It's quite surprising how many people are unaware of this... :(

not many actually :p

I'd take this with a grain of salt. Wasn't it not long ago that it was reported that it was actually costing Microsoft more money now to manufacture each 360 then it did in the initial batch?

:EDIT: Can't seem to find the article I read. I'm pretty sure I didn't dream it up though. :(

What was meant is that Nintendo isn't looking to make money out of the console itself, or at least the primary way of games console making money is through the royalties and games themselves.

Originally Posted by bloodcar
I'd take this with a grain of salt. Wasn't it not long ago that it was reported that it was actually costing Microsoft more money now to manufacture each 360 then it did in the initial batch?

:EDIT: Can't seem to find the article I read. I'm pretty sure I didn't dream it up though. :(

I remember reading in quite a few places that Microsoft were actually cutting their costs by $xx every 6months on the 360 and planning to for a while...

<A88>

Originally Posted by Article
There are however, other implications. Now that Microsoft is supposedly making a profit we may actually see the 360 take (another) drop in price.

When did the 360 gets it's first price drop? As far as I have seen it's still priced at $400/$300 except with some retailers doing "Save x% off!" sales.

Like I've said many times before though, we won't see a drop in price for the 360 for quite some time. Microsoft has no reason at all to need to drop the price of the console and the goal for them is for the console to break even before the end of it's lifetime. With the year's lead and the high price point of the PS3, I doubt will see a drop in retail price until Sony brings the price of the PS3 more in line iwth the current price of the 360. We might see a bundle with the HD-DVD some time next year though.

Originally Posted by <A88>
I remember reading in quite a few places that Microsoft were actually cutting their costs by $xx every 6months on the 360 and planning to for a while...

<A88>

That was/is Microsoft's goal. It was actually quite a shock when I had read that manufacturing prices had actually risen. I just wish I remembered where the hell I read that at though.

I've read rumours that the 20gb PS3 almost doesn't exist (ie a store that gets 30 60gb may only get 1 20gb so they can say they had them) If they lose $241 on a 60gb and $306 on a 20gb, I can see why they wouldn't want to sell 20gb models (but still have it around so they can claim they have that lower price point..)

Thats got to be quite a few games to break even mind.

I can understand the idea of selling the console at a bit of a loss to attract buyers who will then buy games .. but I can't help but think sony has taken it a bit too far this time.

Originally Posted by rupbert
I don't think they have to, but I guess the argument from the Sony camp would be that to purchase an Xbox 360 + HD-DVD drive is more expensive than a PS3. However as the HD-DVD add-on is optional I don't think this holds any water.

I agree they don't' have to, but it would be a killer blow. Sony can't sink deeper, the availability will improve and the software problems will be eased with updates...in 6 months, assuming Sony has resolved most issues with the PS3, they will have a equivalent Console + BD player for 100€ more than X360...that, coupled with Sony's following (which is huge in Europe) and more and better games could make the PS3 sales soar.

We all know that the most amount of console sales comes once they are in the 200€ or less range...if MS closes the gap to that range and increases their number of items sold advantage, they could already be the default winner by this time next year.

Originally Posted by Iago


We all know that the most amount of console sales comes once they are in the 200€ or less range...if MS closes the gap to that range and increases their number of items sold advantage, they could already be the default winner by this time next year.

Yeah.

If Microsoft dropped the core to £150 and the premium to somewhere between £200 and £230 at the end of this month, the Xbox 360 would be a huge seller this Christmas.

I imagine however Microsoft may well hold out until Halo 3 arrives before they think about reducing the price of the console. I guess they will see how well the PS3 sales perform.

You gotta remember that sony has also had to pay alot of money for R&D of BR, when you pay £1000 for a BR player, it's not because its worth it, but because its the price you pay of being an early adopter of new technology. When you buy new technology, you're not only paying for the normal stuff, cost to manufacture, profit for the manufacturer, profit for the shops and profit for all the middle-men, you have to take a chunk of the R&D costs too. As more and more people buy it, the price drops because theres less of the R&D overhead for the company, meaning more people buy it, more R&D paid for, more price cuts, untill finally the R&D is paid off, the company can start making profit on the technology (it can take many years to actually start profiting off a new technology, making things like this a very risky business). This means your back to paying for manufacturing + profits, the price of the manufacturing will most likely have gone down in this period too, since they discover cheaper and more efficient ways of producing stuff (one of the reasons why HD-DVD is cheaper than BR, it's built on existing DVD technology instead of something completely new).

Although console manufacturers don't intend to make a profit on the console itself usually, so the cost of them is significantly less than a BR player for instance. By selling it cheaper for a loss, you get lots of sales, each one of those sales goes out and buys a few games, over the years they've probably bought alot of 'em, they'll also buy some overpriced peripherals, turning that initial loss into a big profit.

I don't think MS will be giving us a price drop for a bit longer, they've already given us deals that can save us around £50-£80 anyway, I know alot of 360s got sold since that PGR3 deal showed up, me included. I was also one of the ones who bought the xbox + JSRF + Sega GT deal many christmases ago.

Originally Posted by Veles
You gotta remember that sony has also had to pay alot of money for R&D of BR, when you pay £1000 for a BR player, it's not because its worth it, but because its the price you pay of being an early adopter of new technology. When you buy new technology, you're not only paying for the normal stuff, cost to manufacture, profit for the manufacturer, profit for the shops and profit for all the middle-men, you have to take a chunk of the R&D costs too. As more and more people buy it, the price drops because theres less of the R&D overhead for the company, meaning more people buy it, more R&D paid for, more price cuts, untill finally the R&D is paid off, the company can start making profit on the technology (it can take many years to actually start profiting off a new technology, making things like this a very risky business). This means your back to paying for manufacturing + profits, the price of the manufacturing will most likely have gone down in this period too, since they discover cheaper and more efficient ways of producing stuff (one of the reasons why HD-DVD is cheaper than BR, it's built on existing DVD technology instead of something completely new).

Good point.

The cost of hardware is not strictly related to the actual cost of it's parts, Research and Development as you say can cost an unbelievable amount of money.

Originally Posted by rupbert
Good point.

The cost of hardware is not strictly related to the actual cost of it's parts, Research and Development as you say can cost an unbelievable amount of money.

Which is, unfortunately for Sony, totally missed (and if I dare, irrelevant) by the consumer. If I spend 1000€ on whatever, I want to feel like I've gotten back 1000€ of whatever-type of enjoyment...not 500€ of enjoyment and 500€ of subsidized R&D costs...

Btw, I'm dying to get an X360, but so far, the only killer-app it has is Gears of War...and I still lack a HDTV. Now, were it to fall 100€, bundle with the HD-DVD drive, or include a 100Gb HDD, I think I'd get it right now, even if it's to connect it to my Dell monitor or SDTV.

Originally Posted by Iago
Btw, I'm dying to get an X360, but so far, the only killer-app it has is Gears of War...and I still lack a HDTV. Now, were it to fall 100€, bundle with the HD-DVD drive, or include a 100Gb HDD, I think I'd get it right now, even if it's to connect it to my Dell monitor or SDTV.

Gears of War isn't the only great title on the 360, it's got quite a few excellent games out right now, you don't NEED a HDTV for the 360 either, the graphics are still amazing, it's just they're not as crisp. What I've done is I've hooked it up to my second monitor using the VGA cable so it's now running at 1280x1024 res which looks very nice, not as good as a HDTV (since there are sometimes some aspect ration issues with a few games)

Originally Posted by Iago
Which is, unfortunately for Sony, totally missed (and if I dare, irrelevant) by the consumer. If I spend 1000€ on whatever, I want to feel like I've gotten back 1000€ of whatever-type of enjoyment...not 500€ of enjoyment and 500€ of subsidized R&D costs...

But thats the thing, you don't think it's worth the 1k (and neither do I), but there are alot of die hard tech heads or home cinema nuts who would pay anything for the latest and greatest technology. The 1k BR players arn't aimed at the average person or family with 2 kids and a mortgage, initial sales of these things are always alot lower, the people who really want the new stuff pay the premium to pay off the R&D. As the price gradually goes down, more and more people are willing to buy it.

Originally Posted by Veles
Gears of War isn't the only great title on the 360, it's got quite a few excellent games out right now, you don't NEED a HDTV for the 360 either, the graphics are still amazing, it's just they're not as crisp. What I've done is I've hooked it up to my second monitor using the VGA cable so it's now running at 1280x1024 res which looks very nice, not as good as a HDTV (since there are sometimes some aspect ration issues with a few games)

I've read mixed reviews about the X360 and a HD telly...some people say it's not a must, but several others don't think it's worth the money if you already have a PS2 like I do. And some games (Dead Rising? Tomb Rider?) aren't really playable on SDTV, I've read...

Still, I'm sure GoW isn't the only AAA game, but the rest of the catalogue, so far, doesn't excite me much. GRAW, I've tried on PC and didn't really liked...CoD2 I finished on PC time ago, and Pro Evolution Soccer is actually worse in X360 than PS2. Now, when Assassin's Creed, Mass Effect, Alan Wake and Bioshock 2 launch... that it's going to be another tale ;)

I haven't seen any price drops here in Canada since just after the launch. Most retailers are offering the same games bundled with the Core and Premium verisions...

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