I can quite easily imagine my bank manager’s face if I went to him and said “I’m planning to work at a loss, if that’s okay, and build up a few million in debt” – in fact I can imagine the sound thrashing he’d give me – but things obviously work differently in games console land. We already knew that Microsoft had applied some still-leaky sutures to the gushing wound that is their Entertainment and Devices Division, bringing losses down to a mere $315m; now division president Robbie Bach has given an interview assuring us that through a complicated sum of Xbox Live revenue and game royalties the console will actually turn a profit next year.
This should be good news for anyone with stocks in Microsoft, but it makes for interesting reading even if you’re neither much of a gamer nor an investor. Apparently loss-leading sales of the 360 console itself make for a relatively minor figure on the sales sheet, whereas advertising, subscriptions and downloads on Xbox Live are are growing source of income. Revenue from Microsoft’s in-house game development and royalties from third-party studios, together with lucrative aftermarket peripherals, are all helping.
It’s often been said that Microsoft’s greatest strength is its ability to play – and fund – the long game, operating business models that are roundly derided for their lack of profitability at launch (and even years later) but, by virtue of a combination of far-sightedness and perhaps dogged ruthlessness, turn those around to maintain a sizable market share. Whether your preference lies with Xbox, PS3 or Wii, you’d be naive to discount Microsoft’s potential impact on the gaming world over the next few years.