Microsoft admits Xbox console is not profitable in Epic Games testimony

A Microsoft executive confirmed during the Epic Games vs Apple case that it doesn't make a profit from Xbox consoles.

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Apple and Epic Games are in the midst of what will surely be a lengthy legal battle. During the court hearings, we’ve seen the companies point to different examples around the industry that support their given cases. As a part of Epic Games’ testimony, the company brought in Xbox Vice President Lori Wright as a witness. While on the stand, Wright admitted that Microsoft does not make a profit from selling Xbox consoles.

It was during the third day of the Apple vs Epic Games trial when the latter brought in Xbox VP Lori Wright as a witness. With Epic Games trying to prove Apple’s wrongdoing in the way it handles its App Store, the company has looked to other publishers that have had to deal with the same policies. While on the stand, Wright was asked a series of questions. One such question was "Does Microsoft ever earn a profit on the sale of an Xbox console?" to which Wright responded “No.”

In a follow up question, the Xbox VP was asked why does Microsoft continue to sell Xbox consoles if they aren't making a profit on them. Wright answered, saying that the “hardware is critical” for supporting a user end-to-end experience.

It’s been highly speculated that Microsoft doesn’t make a profit from its console sales, given the price in comparison to the parts it takes to make an Xbox. This would also further underline why the company has such a focus on services like Xbox Game Pass to bring in its revenue.

As a byproduct of the ongoing court case between Apple and Epic Games, we’ve learned a lot about internal statistics and upcoming projects. This includes the fact that Psyonix is working on two new Rocket League mobile games, and that PlayStation accounts for nearly half of Fortnite’s revenue.

Contributing Editor

Donovan is a young journalist from Maryland, who likes to game. His oldest gaming memory is playing Pajama Sam on his mom's desktop during weekends. Pokémon Emerald, Halo 2, and the original Star Wars Battlefront 2 were some of the most influential titles in awakening his love for video games. After interning for Shacknews throughout college, Donovan graduated from Bowie State University in 2020 with a major in broadcast journalism and joined the team full-time. He is a huge Star Wars nerd and film fanatic that will talk with you about movies and games all day. You can follow him on twitter @Donimals_

From The Chatty
  • reply
    May 5, 2021 11:50 AM

    Donovan Erskine posted a new article, Microsoft admits Xbox console is not profitable in Epic Games testimony

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      May 5, 2021 11:09 AM

      In testimoney as part of Epic v. Apple , MS reveals they have never made a dime off selling an Xbox console. They work fully off the razor+blades model, profiting on game licenses and services.

      https://www.vice.com/en/article/akgg7a/microsoft-says-its-never-made-money-selling-an-xbox-console

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        May 5, 2021 11:14 AM

        Also, as part of the discovery documents, included an Xbox presentation from August 2020 (publicly available here: https://app.box.com/s/6b9wmjvr582c95uzma1136exumk6p989/file/807419743283 ) which had Xbox thinking that Breath of the Wild 2 and Metroid Prime 4 were going to be released in 2020.

        https://www.ign.com/articles/xbox-expected-breath-of-the-wild-2-to-launch-last-year

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          May 5, 2021 11:46 AM

          Wasn't 2020 the original target date for MP4 before they pushed it back because they weren't happy about it?

          I can't help think BotW2 was pushed back to time with the new hardware release. I don't really have a problem with that. Nintendo has done a pretty good job about flowing 1st party IP out at a decent pace.

          But, I still want a sequel for Metroid Pinball.

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        May 5, 2021 11:37 AM

        MS's fight with Apple to get xCloud on iOS caused Apple to temporarily kick Shadow, an app that let you stream games from your PC to the iPhone, off the app store for a year. (This wasn't MS's intent, they used Shadow as an example of an app that did what xCloud did, and Apple went, "not anymore!" effectively)

        https://www.theverge.com/2021/5/5/22421290/microsoft-apple-xcloud-ios-shadow-cloud-gaming-removal-app-store

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        May 5, 2021 11:40 AM

        This was known IIRC

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          May 5, 2021 11:45 AM

          We knew Xbox OG was a lot of sunk costs (a pretty large figure they lost money on), but going forward it wasn't clear how close they were to the manuf. costs, outside of estimates of part breakdown costs.

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            May 5, 2021 11:47 AM

            Is that for the entire life of the console? Pretty much a given for launch, but they usually bring down the mfr cost with the revisions. Not sure if they ever hit a profit on the nth revision.

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        May 5, 2021 12:18 PM

        I wonder if X360 hardware was sold at a profit but the replacement program turned it into a loss.
        Consoles become cheaper to make as the manifacturing process improves and the parts get cheaper. It's part of the reason they make new skus and reduce prices so much.

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          May 5, 2021 3:08 PM

          It was going to lose billions before the RROD

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        May 5, 2021 1:59 PM

        This is not a surprise at all.

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        May 5, 2021 2:59 PM

        That’s been true for most consoles since the 360, I thought?

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          May 5, 2021 4:49 PM

          The XB1 was break even when it started IIRC. But that meant it would start profiting over time. But that ended up making the console underpowered and overpriced when it had the Kinect bundled.

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      May 5, 2021 12:31 PM

      $499 seems like a bargain on these consoles considering how expensive PC graphics hardware is.

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        May 5, 2021 2:56 PM

        Yeah and they are built in a quantity you can actually get one with a little effort compared to just GPUs these days.

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      May 5, 2021 12:57 PM

      news to no one. the only console manufacturer that doesn't sell at a loss (at least at the start of the cycle) is nintendo because people gonna buy dat mario even if it's running on a potato.

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        May 5, 2021 1:10 PM

        Even estimates of the Switch's cost by components has the price super super tight, if not at a loss. I think the last estimate I read was only a few dollars per unit, at most. They're in the same razors + blades model - heck, they're the ones that established that approach in the industry.

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          May 5, 2021 1:13 PM

          they were close on launch, apparently. only $40 profit (which is likely not actually profit to them once they pay for distribution and distribution). buy one today and i assume they're making quite a bit more.

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            May 5, 2021 1:15 PM

            that should've been "distribution and retail".

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        May 5, 2021 3:10 PM

        They also don’t have the luxury of Microsoft or Sony where other divisions have paid for losses in their entertainment divisions. Entertainment is literally all Nintendo is, it doesn’t make sense to lose money on their products from day one

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          May 5, 2021 3:34 PM

          PlayStation is like the only thing propping Sony up right now, isn't it? They've been relying on games to prop up the rest of the company for awhile i thought.

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            May 5, 2021 3:47 PM

            Yeah, I posted below that Playstation was one of the few divisions turning up a good profit during the PS4 era. After losing billions on the PS3 they pivoted away from selling loss-leader hardware with the PS4 towards making money on each unit sold from day one, and it clearly worked out for them.

            During the PS3 era they had the luxury of selling loss leaders and losing $5 billion in the process. Its a terrible idea but they went in knowing that they would lose money on hardware and that the rest of the company could buffer that. Same with Microsoft where Office and Windows can result in them buying Nokia for $7.2 billion and then writing it off only two years later and its totally not a huge deal. Nintendo is not in a position where they can give away hardware just because of how narrow their focus is as an entertainment company.

            One of the few times they did that was when they dropped the price of the 3DS by $80 after only five months. They ended up eating shit on the hardware for a few years, then they ate shit on weird/expensive hardware again with the Wii U.

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      May 5, 2021 1:00 PM

      Haven't we known this for decades?

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        May 5, 2021 1:28 PM

        Only OG Xbox. Since mid-360, MS has not talked anything on sales numbers to its consoles, so we can only speculate if they were losing money or not, though given their strong head-first play on services, this was pretty much the sure bet.

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          May 5, 2021 3:38 PM

          Nope. They only stopped reporting console sales during the Xbox One era by rolling them into everything else in entertainment. Losses in the Xbox 360 are a known quantity, same with the PS3. The 360 lost around $3 billion while the PS3 lost Sony nearly $5 billion.

          Its why both companies took big swings the other direction with very conservative console hardware in the PS4 and Xbox One, there was a goal to make them not loss leaders. MS did lose both money and marketshare because of their miscalculation with the Kinect, but the common spec with the Jaguar SoCs was an attempt to avoid losing billions like they did with the 360/PS3.

          It at least worked for Sony, they lost billions with the PS3 while the PS4 ended up being one of the most profitable parts of the entire company during the mid-2010s

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          May 5, 2021 8:01 PM

          ive always understood it as all consoles sold at a loss, except nintendo consoles

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        May 5, 2021 4:12 PM

        Yes, we have. As people have said, everyone but Nintendo. It's normal.

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      May 5, 2021 2:15 PM

      I forgot about all this xCloud app nonsense during yesterday's thread. So absurd.

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      May 5, 2021 3:39 PM

      "your honor i rest my case" - Tim Sweeney Bird Law Attorney

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      May 5, 2021 7:30 PM

      Doesn’t this fact undermine Epic’s goal?

      Seems like platform manufacturers get to say “we sell the hardware at a loss to make profit on software, so no, we don’t want to give Epic a free lunch via their own storefront on our hardware.”

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        May 5, 2021 10:48 PM

        Not that iPhones are sold at a loss. I dunno what I’m saying, ignore me!

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          May 5, 2021 11:38 PM

          I think they are setting up for the "why is it ok for Microsoft/Sony/Nintendo to charge 30% but not Apple" argument. And yeah it is different because Microsoft is assuming risk here by selling consoles for no profit or a loss and needs to charge the 30% in order to continue to do so.

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            May 6, 2021 5:38 AM

            Yes, Epic has been clear that the 30% fee on consoles is justified due to their current razor /blade approach, but doesn't make sense on open platforms like PC

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