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Xbox FY25 Q1 Gaming revenue up 43% up year-over-year; Hardware declined 29%
- Thread starter Topher
- Start date
ZehDon
Member
To your point, that timeline is only true if you hold ABK in isolation. Contributions to overall platform and brand revenue are multiplicative; COD driving Game Pass subscriptions, for example, or ABK's mobile games driving wider mobile growth for Microsoft as a whole, would significantly contract the timeline for the deal to be considered profitable.
Didn't they have till 2027 planned to keep going with HW or something like that? Maybe they're conscious enough to finish this gen like planned and not just abandon everything on the spot leaving their core fanbase hanging and angry at them for doing so
fudgybrownie
Member
Revenue and profit are different things. Revenue should go up after becoming a 3rd party publisher.
Mibu no ookami
Demoted Member® Pro™
Microsoft can hope that GTA6 really helps out their fiscal year and prevents an embarrassing decline, but what's more likely is that Phil is going to have to port some big games to keep the software numbers up.
They've given up on hardware and that's clear as day. The more interesting thing is assuming they'll deliver on a next generation hardware rather than getting out of the hardware business at this point.
They'll be better off bringing xbox consumers to PC and some non-3rd party version of GamePass on PS like EA Play/EA Play Pro.
They've given up on hardware and that's clear as day. The more interesting thing is assuming they'll deliver on a next generation hardware rather than getting out of the hardware business at this point.
They'll be better off bringing xbox consumers to PC and some non-3rd party version of GamePass on PS like EA Play/EA Play Pro.
Mibu no ookami
Demoted Member® Pro™
Because the first problem is assuming they'll even get to 30 million again. You put out new hardware and it only hits 15-20 million units, you're in trouble. It's at the point where you may not recoup R&D costs and you won't find software assured to come out on your device. I don't think they'd get as much software now if Sony wasn't x86.
Klayzer
Member
I disagree. Even with all their problems, Xbox still has a hardware base of at least 30/40 million customers.
Microsoft is not going to totally abandon that revenue. Subs, peripherals, DLC, etc. That's too much money to ignore.
ZehDon
Member
Estimates have them at 31 million for the current generation. If you're referring to the next generation, we'll know when we see it, I suppose?
A lot of assumptions here. For example, if the device is sold for profit, in theory they could shift 1 million and be totally OK. With regards to the software support, Xbox has worked hard since day one to make sure cross-platform development with PC ensures support. Their next generation is supposed to be a console-PC hybrid, further guaranteeing support. So, we can loop back to my original post: I'm curious what a successful hardware platform looks like for Xbox once its finished becoming third party. Divorcing their platform from their hardware means success looks dramatically different for both hardware and software.
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Insanemaelstrom
Member
That's not how profit works though. You can only account for direct costs using your methodology. But often indirect costs can be bigger. The cost of manufacturing, electricity, employee salary, r&d, etc. not to mention marketing.
You will approximate all these costs and set a break even point. This decides the price. Selling just 1 million units based on console development cost will be a huge disaster. Even 15 million will probably not be enough.
Mibu no ookami
Demoted Member® Pro™
Microsoft's customer base has been in decline since the X1. There is no guarantee the Series hits 40 million units, let alone a successor, especially with games coming to PS5.
You sell the devices for profit and you're looking at even fewer unit sales...
Just because you move to Console-PC doesn't mean your customers will go with you if they have to pay a premium to do it. Some sure. The majority? We'll see. I doubt it.
IntentionalPun
Ask me about my wife's perfect butthole
Companies don’t need to “make back the money from the price of an acquisition” to have it be a good investment.
The thing they bought doesn’t suddenly lose all value and go to 0 and then they have to profit the $70 billion back.
They still own Activision and jts IP’s.
In the end all they give a shit about is their stock price going up and investors seeing something as a good investment, and all investors care about is…. The stock price going up lol
What will matter is the overall profit of Xbox, and that’s now going to be hugely tied just to gaming itself growing (including mobile, that they now own a significant portion of.)
Can MS also fuck up their stewardship of the huge chunk of overall gaming they now own? Of course. They have at best a mixed track record, but they certainly won’t be crunching the numbers trying to “make $70 billion back” and neither with Wall Street.
The thing they bought doesn’t suddenly lose all value and go to 0 and then they have to profit the $70 billion back.
They still own Activision and jts IP’s.
In the end all they give a shit about is their stock price going up and investors seeing something as a good investment, and all investors care about is…. The stock price going up lol
What will matter is the overall profit of Xbox, and that’s now going to be hugely tied just to gaming itself growing (including mobile, that they now own a significant portion of.)
Can MS also fuck up their stewardship of the huge chunk of overall gaming they now own? Of course. They have at best a mixed track record, but they certainly won’t be crunching the numbers trying to “make $70 billion back” and neither with Wall Street.
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ZehDon
Member
Actually, that's exactly how profits work. They set their retail price based on all factors versus how many they intend to sell. Some products need to sell 1 to be profitable, some need to sell 1 million. We won't know until we see it. Once again, we back to my original post: I'm curious what a successful hardware platform looks like for Xbox once its finished becoming third party. Do they scope down their hardware targets to tiny numbers, where 1 million Xboxes in the wild is a successful product? Or, do they have one last crack at selling 100 million Xboxes before throwing in the towel?
Correct. So, once again, we're back to my original post: I'm curious what a successful hardware platform looks like for Xbox once its finished becoming third party.
That's Microsoft's game to play, frankly. Can they make that approach work? Who knows. A next gen Xbox that can support the Steam and Epic stores is already a pretty terrific proposition for hardcores like myself. And if their handheld actually pans out, I imagine they'll have a very desirable product for a good number of people. The question becomes "how much?". That kind of tech ain't cheap, and then that leads into: "how many?". Hence my original post.
twilo99
Member
we are all with you in prayer my child
Fess
Member
In 2023:Hardware in freefall. Microsoft response
”In an interview with Bloombergyesterday, Xbox head Phil Spencer said that he doesn’t “feel an imperative” to release a more powerful console than the Series X. “That’s not the feedback we’re getting right now,” Spencer said. “Right now, we’re pretty set on the hardware we have,” the exec added.”
Out of touch.
I used to main Xbox. Now I’m on PC and have a PS5 Pro coming soon.
Microsoft has dropped the ball harder than anyone I can remember going decades back. It’s that ”la-la-la-la can’t hear a thing!” that annoys me. How can they think there will be any Xbox gamers left to buy their next console if they do nothing until 2026?? People are jumping ship right now. Imagine another 2 years from now… phew! It has taken me about 6 months to almost completely phase out PS5 because of the frequent PC ports and a PC in the living room. Still getting a Pro for rare exclusives I don’t want to wait for but why would I in any way stay on Xbox? And until 2026?? They would have to lure me back as if I was new to the platform.
ChiefDada
Gold Member
Ok, ping me when any of this actually comes to fruition. It's nice to adopt an uber-optimistic, Michael Pachterish investment thesis but we ultimately need to measure against actual results. Microsoft has officially owned Activision for a year now and have a $1.3b operating loss to show for it, on top of the $70b purchase price. Which means they're starting off even worse than my original example which i only put together for illustrative purposes.
Mibu no ookami
Demoted Member® Pro™
In 2023:
”In an interview with Bloombergyesterday, Xbox head Phil Spencer said that he doesn’t “feel an imperative” to release a more powerful console than the Series X. “That’s not the feedback we’re getting right now,” Spencer said. “Right now, we’re pretty set on the hardware we have,” the exec added.”
Out of touch.
I used to main Xbox. Now I’m on PC and have a PS5 Pro coming soon.
Microsoft has dropped the ball harder than anyone I can remember going decades back. It’s that ”la-la-la-la can’t hear a thing!” that annoys me. How can they think there will be any Xbox gamers left to buy their next console if they do nothing until 2026?? People are jumping ship right now. Imagine another 2 years from now… phew! It has taken me about 6 months to almost completely phase out PS5 because of the frequent PC ports and a PC in the living room. Still getting a Pro for rare exclusives I don’t want to wait for but why would I in any way stay on Xbox? And until 2026?? They would have to lure me back as if I was new to the platform.
Very difficult to put out yet another SKU and ask not only 3rd parties but internal developers to support the XSS, XSX, XSX Pro, and PC...
Not to mention they hadn't developed their own machine learning solution, so they'd still be on FSR.
As soon as they frontloaded their sales via Series S they were locked out of a Pro. It wouldn't even make back the R&D and manufacturing costs...
Mibu no ookami
Demoted Member® Pro™
You take in 3rd party stores and now there is little reason for anyone to buy anything from your store. There goes your revenue...
So you're selling fewer units albeit at a profit, and now you're selling less software and getting fewer royalties...
Insanemaelstrom
Member
The sell price for profit depends on estimated units. A sell price of 100 can be a profit if the product sells the estimated 10mil, but a huge loss( per product) if it sells just 1mil. The total cost( direct and indirect) is decided by the amount of units sold. Indirect costs can be in billions, you can make up that cost if you are only selling 1 million units, unless you are getting a profit upwards of 1000$ per device sold at the very minimum( assuming indirect cost is just 1 billion usd).
Not to mention how most of the time, companies have a contract with manufacturing firms about units to be produced. If ms makes a contract with amd for 10 mil but sells just 5 mil, odds are their cost per unit will increase. The more units you produce, the bigger the discount you usually get from manufacturers and suppliers. Vice versa of you are selling fewer units you have to pay a higher price to manufacture each device.
If ms makes a premium device that is expected to sell just 1 million units at 1000$ each, they will have to pay manufacturers and parts suppliers more money for the same products as compared to Sony who might be making a 500$ device expected to sell 50 million units.
I think the only way it makes sense is that they might not care about selling games at their store. They're trying to kill those with gamepass anyway and what better way to have games that aren't on there than to entice people with an "xbox but PC" sold at profit. They're trying to kill the console business model.
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Mibu no ookami
Demoted Member® Pro™
If you don't care about selling games via your own store, there is no reason to have your own hardware.
Easier to zero out R&D and focus simply on GamePass and software...
What exclusives would it have?
The reason would simply be to have a prebuilt gamepass machine that they will try to market against the PS5 and Switch. Why did MS do their own for profit hardware with Surface when they had windows on other machines? Because Apple was starting to eat their lunch.
It's the Surface team in charge of "xbox" now.
Likely very little just as PC has little to none now. I can't really name any big PC exclusives released this year apart from that Valve GaaS game I forget the name of.
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ZehDon
Member
I imagine kick backs for the store loading would be on Microsoft's agenda, however, I'm actually not sure what the regulations are on that kind of profit share. Given their current business practices, they don't really seem to care about platform royalties - they just seem to want Game Pass subscribers. Their Xbox hardware will likely fall into the same level as their Surface hardware: sure, they make and sell plenty of it, but they're no threat to Apple anytime soon. Their Xbox hard becomes, effectively, pre-built gaming PCs at that point - and there's definitely a market for those. If they're making a profit on the hardware, it stops being a zero sum game. Which is why I'm curious what their future looks like. If they really can magic up some kind of next-gen Xbox Steam Deck, they'll certainly have my business for a while yet.
You're just repeating the same concepts from above without adding anything. Addition detail doesn't change the fact that: Microsoft sets the price based on their factors versus how many they intend to sell. That's the whole deal. We won't know anything to have a more informed opinion until we see what Microsoft are cooking up. For all we know, they're pricing these things at AUD$3500 and expect to sell 5k of them. I'll just repeat myself one last time: I'm curious what a successful hardware platform looks like for Xbox once its finished becoming third party.
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James Sawyer Ford
Gold Member
1. Allow legacy users to keep playing their libraries
2. Sell hardware at a profit
3. They will not worry about how many units it sells after going third party.
So the next Xboxes will be.....quite niche. But they don't need them to be popular if they are making a profit and keeping their users happy at the same time. I don't see any way of them selling anything close to XSX/XSS for next generation, whatever that means to them.
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Cyberpunkd
Member
You know what’s next - share buyback baby!
dragonyeuw
Member
I understand that, me saying 'pay it off' was intended as a simplistic, kinda tongue in cheek response to the other poster saying that Xbox is still grinding away. I'm actually curious as to what Microsoft would do next gen had they not bought ABK. The acquisition may be the only reason they even bother trying another round of hardware but as I said, I can't see it just being a regular console. It may have to be this 'Xbox branded PC' that people keep talking about.
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mansoor1980
Gold Member
Because he's trying to explain economies of scale to you and software support. As
Mibu no ookami
said, you sell only 15M as a console then you're in trouble. Both in terms of cost while maintaining competitively priced hardware and in terms of software support (unless you become a prebuilt). Competitively priced is the key word here because these products don't exist in a vacuum.
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dragonyeuw
Member
Yes, in retrospect they could have sold the PS5 for what they're now charging for the Pro, people were paying even more than that to scalpers. But that may have been because everyone was at home and there were stimulus checks being handed out. I don't think the PS6 will be $699, but I can't see it being less than $599.
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bitbydeath
Member
Assuming GamePass survives once the hardware is gone.
ZehDon
Member
Not at all, that's just reiterating the sample simple concepts that lead to questions no one can answer - the answers to which contribute heavily to sales expectations.Because he's trying to explain economies of scale to you and software support. As
Microsoft are clearly transitioning their business model. As I've said multiple times, this makes me curious about what success looks like. This is because that transition means Xbox's goals can't be the same as they previously were. Something has to give. They're self-evidently deprioritising their hardware, meaning if they're staying in the hardware game - and they are - their sales expectations have to drop. The above simple, repeated points start to get wonky when Xbox's hardware is sold for a profit and the expected volume is low. This is because this has an inverse-reflection on what they can stick in the box and how much they can charge for it while still being successful. Microsoft are clearly not looking to ship 100 million cheap consoles like Sony. So, that makes me curious: are they looking to sell 10 million very expensive Xboxes instead? Perhaps 30 million reasonably priced ones? We can't know the answer till we see it. What we can deduce is that the hardware won't be "priced competitively" relative to traditional console prices. We know this because their de-prioritised hardware approach - meaning lower sales volume - and Bond's statements about "greatest technical leap ever". This means the next Xbox is going to be powerful, thus expensive, and they don't intend to sell oodles of them.
As for software, as I mentioned above, Microsoft has taken the necessary steps to ensure their platform can be targeted by any developer also developing for Windows. Software support also becomes pretty trivial if they're launching a console-PC hybrid, which appears to be the case. Sony releases TLOU2 on Steam? You can play it on your Xbox console-PC hybrid thanks to Steam.
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This is what I mean by it's not a product in a vacuum. Some people are complaining about prices for a Sony console right now. So while MS/you sit down and contemplate selling 10 million "expensive consoles". Sony can project 30 million at similar specs and price it more competitively due to economies of scale. Then your 10M projections fall out the window. These products don't exist in a vacuum. MS expected both the One and Xbox Series to sell more but competition killed their projections.
They're unlikely to target $3500 with only 5k sales either (your previous post) because what's 5k extra gamepass subs? Nothing really. They want big scale.
Yes but this answers your question on that front. The console will likely be no different to a PC both to reduce R&D cost and to get support by proxy.
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Insanemaelstrom
Member
I agree. I feel like they are planning to go the direction of windows as a platform with surface as a halo product. MS will make a software platform for consoles and handhelds and make their slown surface type premium consoles. They will allow third party manufacturers like Asus to license the Xbox name and make Xbox machines( like windows laptops). The content on the other hand will be made universal. You will be able to access Xbox content from playstation devices, Nintendo devices, TVs, cloud, mobiles, etc. some may even have cross-buy.
Esparadrapo
Member
Series is sold at loss. Phil is on record saying they lose up to $200 per unit.
There's also how easy is for a game to skip your platform if it doesn't have enough customers, if it's a nightmare to develop for or said customers are more and more used not to buy games.
Setsuna Mudou
Member
How about the loss of revenue for those copies of cod that will no longer sell because a few million people already had gamepass?
For this to have a net positive effect, they would not only need to gain enough long term subs to cover the cost of a full priced cod (for those new users) + cover the loss of revenue of the already existing gamepass users that no longer will buy the game.
It cuts both ways and we're still to see if there's any significant increase in subscribers anyway.
Alan Wake
Member
I know he's said that but I just don't understand the math here if Sony's making a slim profit on every unit. The inside is more or less the same? How could the Series X possibly be $200 more expensive to manufacture?
JohnnyFootball
GerAlt-Right. Ciriously.
They missed the boat for that game. If it had been sold day and date with Xbox, it would have likely sold 5-10M copies.
Right now after mid-reviews and a rather poor DLC, I'd say its a 2-3M seller at best on PS.
Mibu no ookami
Demoted Member® Pro™
Sony's not making a profit on their hardware. They've reported hardware losses consistently year in and year out. Everyone points to this one Bloomberg article that isn't backed up by any verifiable interviews or statements.
We're in this weird position where everyone is waiting for the other shoe to drop and because its Microsoft and not Sega its taking its time, but this is over.
Nintendo actually has a huge opportunity to jump in here with an actual console should they choose.
JohnnyFootball
GerAlt-Right. Ciriously.
Microsoft should ditch Xbox and just sell the OS. Allow 3rd party to make it.
It would legit be the best thing MS/Xbox could do.
DenchDeckard
Moderated wildly
30 percent decline in console sales.... Just a decline. Nothing insane.
Esparadrapo
Member
There's no doubt that the Series X is much better built than the PS5 and is definitely more expensive to make but not that much. I think the problem is, again, that Xbox' only real markets are the USA and UK. Putting and selling a Series S|X in, let's say, Spain or Japan is much more expensive than the countries mentioned earlier. The economy of scale might have its weight too.
ZehDon
Member
As I said before: is it a good strategy? I don't know. But it's their strategy to run.
Self-evidently not as far as hardware is concerned. Xbox is changing, for better or for worse.
We're talking about the next gen hardware, not the current, and I've addressed the support angle already.
Obviously. Software at scale is what Microsoft does, see their Office 365 offerings. But, so far, it's delivered the single largest one day Game Pass gain ever. We'll check back in in a month and see if those numbers hold.
nowhat
Gold Member
It worked out great for 3DO!
SweetTooth
Gold Member
Not true, PS5 shipped with 36CU APU while Series X with 56CU and that simply highlights the genius of Cerny who managed to get better performance with cheaper silicon.
Insanemaelstrom
Member
Depends on a lot of things. For example, and might be asking more price per apu from Xbox as compared to Sony as Xbox might have given estimation of 50 million units whereas Sony might have given an order of 80million usd. This will be true for every component . Another difference can about where they are being manufactured/assembled. Even there, Sony might get a lower cost per unit due to them ordering more.
Another thing, from what I can recall, is that xbox's cooling solution is costlier.
Finally, there are other costs. The r&d cost for two series consoles will be greater than the single ps5. Not to mention salaries and other costs. It might be a similar case for marketing.
Alan Wake
Member
Yes, sure. I get all of this and that it adds up. I just thought the 200 difference was incredible.
Felessan
Member
RnD, marketing, salaries etc are general expenses are usually not included into cost of unit. Some of them are not even attributed to Xbox division.
Cost of unit is expenses that can be directly attribute to a particular unit -production, packaging, logistic, shop/marketplace share
Mr.Phoenix
Member
You know... I have been advocating for this exact same thing and I am of the same mindset.
However, the more I think of it, the more I think (or assume) that MS cannot be that stupid. Surely, even they know that gamepass cannibalizes sales. Imagine a world where you pay $6/month for a version of gamepass that gives you all Xbox games on PlayStation and something. Thats what? $72/year.
Now imagine a year where a COD and say elder scrolls 6 is released, that's a potential $140 in sales from any one gamer. They simply stand to make more money from just selling the game directly to consumers than having them be on gamepass.
Astray
Member
This is one of the reasons why any new Xbox console is not gonna come cheap at all.
If you look at surface devices, they have some of the worst value for money ratios despite having some seriously sleek design, this is because they need to extract profits upfront.
Which is why these two franchises will likely never release on the same fiscal year. It's in Microsoft's best interest to not have a year that is so utterly stacked with super hyped releases to the point where games start to step on each others' toes.
They want each tentpole release to be there to anchor a FY of its own.