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Forums - Microsoft Discussion - XBOX 360 profitability - an analysis

d21lewis on 10 May 2009

This thread sucks!




Okay, it doesn't suck. It's pretty awesome, actually. I'm just jealous of all of the praise the OP is receiving. Where's MY praise!? I got a new avatar!



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DirtyP2002 on 10 May 2009

Great thread. It was about time to do this. Respect and thank you.

I will send you a friend-request for this one. Since you are new here, to be in MY friendslist is probably the highest level of respect you can get on VGC. :D

anyway: great job.



Imagine not having GamePass on your console...

sethnintendo on 10 May 2009
d21lewis said:
This thread sucks!




Okay, it doesn't suck. It's pretty awesome, actually. I'm just jealous of all of the praise the OP is receiving. Where's MY praise!? I got a new avatar!

 

Nice avatar although it might not be as good as your zap naked one. 



On Topic: I understood most of your post although it is pretty early morning for me on a weekend.  It was a good read and good response (especially to that ill thought thread).  If only my post / threads could be this well thought out with tons of facts then I would be a better contribution to this site.



Slimebeast on 10 May 2009
aderoche said:

Reposting from the MS can either make $$$ or outsell PS3, NOT BOTH. thread.

It seems that alot of people are prepared to use the EDD profit/loss figures as a surrogate for actual XBOX profitability. Doing so is increadibly missleading. If you look at the latest 10Q filing from Microsoft you can actually get somer sense of the actual XBOX business, this is because they give you deltas as both dollar value and percentage offset.

 

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

EDD revenue decreased primarily due to decreased Xbox 360 platform and PC game revenue and included an unfavorable impact from foreign currency exchange rates of $47 million or one percentage point. Xbox 360 platform and PC game revenue decreased $51 million or 1%, primarily as a result of decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 10 million Xbox 360 consoles during the first nine months of fiscal year 2009 compared with 7.5 million Xbox 360 consoles during the first nine months of fiscal year 2008.

EDD operating income decreased primarily due to increased research and development expenses, partially offset by decreased cost of revenue. Research and development expenses increased $317 million or 30%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform, driven by recent acquisitions. Cost of revenue decreased $60 million or 2%, primarily driven by decreased Xbox 360 platform costs.

-----------------------------------------------------------------------------------------------------------------------------------------------------

The bolded sections are the important ones. Gaming related revenue decreased $51 Million, or 1%. If $50million is one percent then 100 percent is 5Billion. This gives us gaming revenue. Cost of revenue decreased 2% or $60million which gives ua a total cost of revenue for the EDD of $3 billion. A 30% increase in R&D at 317million gives you about $1 Billion before, $1.3Billion after.

 

When I went to skool I was taught to always question the results of my calculations, to ask if the numbers were reasonable. Looking at the number '$5 billion' in gaming revenue, as u claim, makes me instantly realize there's an error somewhere. That number is nowhere near the true number of MS' game department revenue in 9 months (it shouldn't be more than $2 billion in 9 months, even with PC games and console hardware sales included).

I don't know where the error is, but your numbers and conclusions are totally messed up. 
(well, probably u drew the wrong conclusion from the "Xbox 360 platform and PC game revenue decreased $51 million or 1%" sentence, thinking they meant only revenue from gaming when in fact they meant the EDD division as a whole)



Legend11 on 10 May 2009
Slimebeast said:
aderoche said:

Reposting from the MS can either make $$$ or outsell PS3, NOT BOTH. thread.

It seems that alot of people are prepared to use the EDD profit/loss figures as a surrogate for actual XBOX profitability. Doing so is increadibly missleading. If you look at the latest 10Q filing from Microsoft you can actually get somer sense of the actual XBOX business, this is because they give you deltas as both dollar value and percentage offset.

 

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

EDD revenue decreased primarily due to decreased Xbox 360 platform and PC game revenue and included an unfavorable impact from foreign currency exchange rates of $47 million or one percentage point. Xbox 360 platform and PC game revenue decreased $51 million or 1%, primarily as a result of decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 10 million Xbox 360 consoles during the first nine months of fiscal year 2009 compared with 7.5 million Xbox 360 consoles during the first nine months of fiscal year 2008.

EDD operating income decreased primarily due to increased research and development expenses, partially offset by decreased cost of revenue. Research and development expenses increased $317 million or 30%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform, driven by recent acquisitions. Cost of revenue decreased $60 million or 2%, primarily driven by decreased Xbox 360 platform costs.

-----------------------------------------------------------------------------------------------------------------------------------------------------

The bolded sections are the important ones. Gaming related revenue decreased $51 Million, or 1%. If $50million is one percent then 100 percent is 5Billion. This gives us gaming revenue. Cost of revenue decreased 2% or $60million which gives ua a total cost of revenue for the EDD of $3 billion. A 30% increase in R&D at 317million gives you about $1 Billion before, $1.3Billion after.

 

 

When I went to skool I was taught to always question the results of my calculations, to ask if the numbers were reasonable. Looking at the number '$5 billion' in gaming revenue, as u claim, makes me instantly realize there's an error somewhere. That number is nowhere near the true number of MS' game department revenue in 9 months (it shouldn't be more than $2 billion in 9 months, even with PC games and console hardware sales included).

I don't know where the error is, but your numbers and conclusions are totally messed up. 
(well, probably u drew the wrong conclusion from the "Xbox 360 platform and PC game revenue decreased $51 million or 1%" sentence, thinking they meant only revenue from gaming when in fact they meant the EDD division as a whole)

I'm not sure of the numbers in the original thread but the amount would definitely be over $2 billion.  I mean the 10 million consoles alone (assuming that they weren't all arcades sold in the United States which would be ridiculous) would be over $2 billion.  Then licensing fees for every game on the Xbox 360, Xbox Live subscriptions, first and second-party game sales, Xbox 360 peripherals, PC game sales, other revenue generated by Xbox Live (movies, Xbox Live Arcade, ad revenue, etc), Xbox Live Casual web games, Games for Windows Live, Microsoft gaming keyboards and mice, etc.

 



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Carl on 10 May 2009

Great Post!

Im impressed.



                            

dbot on 10 May 2009
Legend11 said:
Slimebeast said:
aderoche said:

Reposting from the MS can either make $$$ or outsell PS3, NOT BOTH. thread.

It seems that alot of people are prepared to use the EDD profit/loss figures as a surrogate for actual XBOX profitability. Doing so is increadibly missleading. If you look at the latest 10Q filing from Microsoft you can actually get somer sense of the actual XBOX business, this is because they give you deltas as both dollar value and percentage offset.

 

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

EDD revenue decreased primarily due to decreased Xbox 360 platform and PC game revenue and included an unfavorable impact from foreign currency exchange rates of $47 million or one percentage point. Xbox 360 platform and PC game revenue decreased $51 million or 1%, primarily as a result of decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 10 million Xbox 360 consoles during the first nine months of fiscal year 2009 compared with 7.5 million Xbox 360 consoles during the first nine months of fiscal year 2008.

EDD operating income decreased primarily due to increased research and development expenses, partially offset by decreased cost of revenue. Research and development expenses increased $317 million or 30%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform, driven by recent acquisitions. Cost of revenue decreased $60 million or 2%, primarily driven by decreased Xbox 360 platform costs.

-----------------------------------------------------------------------------------------------------------------------------------------------------

The bolded sections are the important ones. Gaming related revenue decreased $51 Million, or 1%. If $50million is one percent then 100 percent is 5Billion. This gives us gaming revenue. Cost of revenue decreased 2% or $60million which gives ua a total cost of revenue for the EDD of $3 billion. A 30% increase in R&D at 317million gives you about $1 Billion before, $1.3Billion after.

 

 

When I went to skool I was taught to always question the results of my calculations, to ask if the numbers were reasonable. Looking at the number '$5 billion' in gaming revenue, as u claim, makes me instantly realize there's an error somewhere. That number is nowhere near the true number of MS' game department revenue in 9 months (it shouldn't be more than $2 billion in 9 months, even with PC games and console hardware sales included).

I don't know where the error is, but your numbers and conclusions are totally messed up. 
(well, probably u drew the wrong conclusion from the "Xbox 360 platform and PC game revenue decreased $51 million or 1%" sentence, thinking they meant only revenue from gaming when in fact they meant the EDD division as a whole)

I'm not sure of the numbers in the original thread but the amount would definitely be over $2 billion.  I mean the 10 million consoles alone (assuming that they weren't all arcades sold in the United States which would be ridiculous) would be over $2 billion.  Then licensing fees for every game on the Xbox 360, Xbox Live subscriptions, first and second-party game sales, Xbox 360 peripherals, PC game sales, other revenue generated by Xbox Live (movies, Xbox Live Arcade, ad revenue, etc), Xbox Live Casual web games, Games for Windows Live, Microsoft gaming keyboards and mice, etc.

 

I don't think MS sold 10 million 360's in the nine months these numbers discuss.  

 



Thanks for the input, Jeff.

 

 

Skeeuk on 10 May 2009

in the last edd profit margin, how much of that was xbox?



...not much time to post anymore, used to be awesome on here really good fond memories from VGchartz...

PSN: Skeeuk - XBL: SkeeUK - PC: Skeeuk

really miss the VGCHARTZ of 2008 - 2013...

Lord N on 10 May 2009

^^

Microsoft has never sold ten million 360's within any nine month period.



 

Consoles owned: Saturn, Dreamcast, PS1, PS2, PSP, DS, PS3

EaglesEye379 on 10 May 2009

I was inspired to summarise.

 

For 9 months:

Total EDD revenue = $6.5bn

Total 360 and PC games revenue = $5bn (based on 1% is $51m)

 

This means nearly 77% of revenue is made by the 360 and PC.

 

Total EDD costs = $6.2bn (based on profit at $300m, 6.5 - 6.2 = 0.3)

Total EDD cost of revenue = $3bn (based on 2% is $60m)

Total R&D cost = $1.3bn (based on 30% is $317m)

The remaining $2bn in costs would be due to administrative, legal, sales & marketing, procurement/acquisition, employee severance. 

 

For 3 months:

Total EDD revenue = $1.5bn

 

Total EDD costs = $1.53bn (based on loss of $31m, 1.5 - 1.53 = -0.3)

Total EDD cost of revenue = $0.9bn (based on 6% is $52m)

Total R&D cost = $0.4bn (based on 18% is $66m)

The remaining $0.2bn in costs would be due to administrative, legal, sales & marketing, procurement/acquisition, employee severance. 

 

 

This means:

23% of the 9-month revenue was generated in Q1 09 (1.5/6.5 = 23%). 

30% of the 9-month cost of revenues was incurred in Q1 09 (0.9/3 = 30%). 

30% of the 9-month R&D costs was incurred in Q1 09 (0.4/1.3 = 30%).

10% of the 9-month other costs was incurred in Q1 09 (0.2/2 = 10%).

 

The revenue is seasonal, most are generated during Q4 holidays of each year.