MS Loses $400m on XBox One

Reports that the XBox devision received $1.7b in revenue which sounds great until you show their costs were $2.1b

http://www.forbes.com/sites/insertc...-fine-if-microsoft-has-lost-400m-on-xbox-one/

I think that's normally the case with consoles, isn't it? They make their money with games.

Well, I think they made a big mistake.. why did they sell the console with Kinect, when there wasn't a single interesting Kincet game to play with? Of course people don't want to play a premium for that… instead they'll buy a cheaper PS4 with better performance.

If they'd sold it without the Kinect and would have had that as an add-on instead… they'd have had possiblity to sell it cheaper and take the lead in the race instead… and besides that I think they would have earned money!

Very strange play by microsoft about that. Looks like they realised their error now though.. and is offering the xone without kinect.

Not sure sony or MS thinks we want game where you have to stand up and run around to play.

I bough5 my children the PS3 motion controllers..or whatever they were called. It was fun for all 2 days and 250.00 in controllers and games were never touched again.

As long as people believe that with inferior products they get maximum of modern technology nothing is lost.

Minus of 400 million or billion who cares, the audience is ignorant, consoles will continue to sell.

They lost more than $400 million on Xbox 1. It says thats the figure on the Xbox division which include Xbox 360. I'm will to bet they made money on the 360 and lost even more one on the 1.

I have a 360 and I've been happy with it but I'm going PS4 for sure this generation. I have no desire at all to reward MS with a purchase with how hard they tried to lock the 1 down at the beginning. Besides I dont know a single person who bought a 1 yet, they all went PS4. More people to borrow games from.

The article also shows that the games side of forbes doesn't talk much with the finance side.

They say that an early loss is to be expected because of front loaded R&D and launch marketing expenses. This is not correct - under most accounting rules they would amortize such costs over time, not show them all in year 1.

I've yet to purchase any Microsoft console despite owning nearly every console system by other companies. The Xbox's have never had enough quality exclusive titles to justify a purchase for me.

I'm sure they'll make that money back easily over the course of the Xbox One's lifetime.

Gaxkang said:

The article also shows that the games side of forbes doesn't talk much with the finance side.

They say that an early loss is to be expected because of front loaded R&D and launch marketing expenses. This is not correct - under most accounting rules they would amortize such costs over time, not show them all in year 1.

Click to expand...

Hi Gax, I don't know what country you live in but GAAP and IFRS do not allow R&D to be capitalized as an asset. There are many reasons they don't allow it, but the easiest reason to explain is "How can you draw a proper depreciation chart when the cause/effect of R&D would be impossible to follow." There would be no way to match the expense to an asset or a revenue.

The only exception of R&D allowed to be amortized that I know of would be if a company acquired another company with R&D in development. They make the assumption that the purchased company was bought with knowledge of the current R&D and a portion of purchase price would be specifically for the R&D. They can allocate a value to that one time and depreciate it as an asset.

Advertising would be an example as a short term liability and also not allowable for depreciation. They can choose to leave the advertising item in the liabilities for as long as they want, but it will always remain a "short term" liability.

GothicGothicness said:

Well, I think they made a big mistake.. why did they sell the console with Kinect, when there wasn't a single interesting Kincet game to play with? Of course people don't want to play a premium for that… instead they'll buy a cheaper PS4 with better performance.

Click to expand...

I bought an Xbox One with a Kinect, and it is an almost worse than useless piece of technology. It is an energy hog, keeping the system running all the time waiting for you to say "Xbox On". I should say, waiting for you to holler it for the third or fourth time at it. It is a piece of junk, who wants to sit and yell at their tv like they are trying to communicate with their nearly deaf grandma?

The Kinect may be something cool someday, but it is disappointing as it stands today. They pushed for it without having the hardware and software to back it.

Usually companies lose money the year the console is released, as parts are expensive and production hasn't been streamlined, plus there aren't almost any games out where they get their chunk in royalties (this is for Xbox or Playstation, no matter). Remember consoles pretty much keep the same internal architecture for years, so just as a particular video card can be $300 today but $200 next year and $100 the following, so do consoles get cheaper and cheaper to make.

Having said that, Microsoft original errors cost them their first lap in the race. First, the price... $100 more expensive than the PS4. Second, their original stance in that the console had to be 'always-online' for you to play games. People flocked to preorder the PS4 when they announced that. They later stepped back on that, but the damage was done.

As far as games go, still too early for both consoles, nothing 'must have'. MS was hoping Titanfall would be the must-have title, but it fell well short of expectations.

Yes this is why I linked this article, because he understands that consoles are always initially loss leaders. I was thinking that the 360 too earned quite a bit as well, so it offset the losses.

The real money comes in after two years when the license and royalty money comes in from completed games. The costs of the product are down by then too..severely. Which also indicates that its an out of date product which most suits didn't understand in the first decade of consoles.

I'm not sure how company can can look at R&D as an asset. Its a loss. Only the results, if successful, can be counted as potential.

As for the Kinect, it really is a good device, better than the Wiimote or more future proof than fake guitars. Especially if you run two of them at a time. There are a few good games for them - especially dance games - but it has been tricky obviously.

MS did learn their lesson on the Kinect. They put out a reduced version of it because the PS4 was kicking them in price point.

We'll see what comes next though. These machines are glorified PC's and people are aware of it. I just can't see them overcoming mobile and the cheap set top mobile devices that are coming. Smart TV's/Embedded systems should have already taken this over but I don't know why they didn't catch on.