The executive attributed the anticipated profit to sales of first-party Microsoft games, royalties from third-party games, Xbox Live subscriptions, Xbox Live Marketplace sales, and peripheral sales. "Game attach rate [is at the] highest level in history for a game console at this stage in the life cycle," he said. "The same with our peripheral attach rate. Xbox Live has over 6 million members." Systems, which are typically sold at a loss or at cost, do not often generate a profit for hardware manufacturers.

Due to research and manufacturing costs, Microsoft has steadily been losing money on the Xbox brand since it was introduced in November 2001. A Forbes article from 2005 revealed that, at the time, Microsoft had lost over $4 billion on the Xbox division. For the third quarter of 2006, Microsoft posted a loss of $315 million for its Entertainment and Devices sector--which covers the Xbox unit, Microsoft Game Studios, Games for Windows, and Zune.

"We think of our [Xbox] P&L (profit and loss) as a life-cycle P&L. And in the early phases you lose some money, you try to keep that as low as you can, and then in the later phases you try to harvest as much as you can," explained Bach. "Right now we're doing a pretty good job. We're humming pretty well in the business. Our costs are a little higher than we'd like, [but] we're pushing those down; there are good initiatives underway to drive that."