Xbox Platform decreases Microsoft's gross margin by $400m for FY2013/14

[Arkaign]

Another easy way to explain why Microsoft and Sony are probably not making net profits purely from X1 or PS4 yet, despite Sony saying 'PS4 is profitable already' and similar statements :

Imagine opening a burger franchise.

You buy the land, you hire an architect, you pay the franchise fee, you hire a construction firm, you pay the city/state/county/misc fees for licensing and regulatory items, you pay for marketing, you pay all of the deposits for water/electric/phone/sewer/trash/security/etc, you hire a GM and management team, you hire a regular staff, you buy the hardware for the store (registers, cameras, booths, signage, fridges, storage racks, ovens, fryers, etc), you buy mandated insurance, you setup accounting either in-house or outsourced (for withholding and paycheck/tax management for your company and its employees and ongoing relations with suppliers), you pay the suppliers to get your first batch of food in, you run a few days of closed door testing with your new employees to establish routines and test the product, you run major advertising to hit the ground running, and THEN :

You start selling burgers for $4 that cost you $2.18 in food cost, drinks at $1.39 that run $.27 in food cost, you have labor costs that leave you with 20% gross margins, and boom :

You can rightfully say "I'm making profit every day we sell food!", but in reality you have many months if not years before ALL of those expenses are covered and you are done paying off your initial investments (which are even higher if you had to take out a loan or multiple loans to finance the opening).

This is very similar to observing that while a $399 console that costs $371 to make may be profitable on a per-unit basis, it will take a LOT of online subs and game royalties to overcome the combination of operational expenses and startup expenses to get numbers that are purely in the black. And we're not even crossing into corporate taxes and regulatory expenses.