@Legend

I dont think Microsoft is building up its loses selling the Hardware. Here are few findings on the internet, if you search for Xbox 360 console profits.

1. "..Redmond will sell every Xbox console at a big loss, says researcher iSuppli. Not to worry, the profit is in the associated software.."

 "...An up-close look at the components and other materials used in the high-end version of the Xbox 360, which contains a hard drive, found that the materials inside the unit cost Microsoft $470 before assembly. The console sells at retail for $399, meaning a loss of $71 per unit -- and that is just the start..."

Source [http://www.businessweek.com/technology/content/nov2005/tc20051122_410710.htm]  as of NOVEMBER 22, 2005

2. "..According to iSuppli’s most recent analysis, the premium version of the Xbox 360 game machine equipped with hard disk drive has a manufacturing and materials total of $323.30, based on an updated estimate using costs in the fourth quarter of 2006. This total is $75.70 less than the $399 suggested retail price of the Xbox 360. .."

source [ http://www.xbitlabs.com/news/multimedia/display/20061120132150.html] as of 11/20/2006

3.  "...The Entertainment and Devices Division as a whole showed financial progress in Microsoft's first-quarter earnings report last week, which the company credited largely to the Xbox 360 business. The division posted revenue of more than $1 billion for the quarter, a 70 percent increase. Meanwhile, the division reduced its loss to $96 million, from a $173 million loss in the same quarter a year before..."

source [http://seattlepi.nwsource.com/business/290375_software30.html] 

They started with loses at the begining in early 2006, but the manufacturing costs have reduced and are earning a little profit on each console sale. They will also not reduce the price of the console anytime soon as they already have a advantage over PS3's pricing. So they can continue to reep as much as they can, until they find it utterly necessary to drop the pricing of their console. 

Though Wii is a clear leader in the game consoles now, i think it would be wrong the put off microsoft in this market xbox will be the center to their vision of connected  devices and entertainment. Their products complement each other and they have a lot of them coming.  So any tiny profit they night earn from these Xbox sales is actually increased by the software sales (games) and they are safe as for now. Their future will be to provide lower costing consoles with great sames ( as they do now) and get a group of connected devices like the next generation of Zune's.

Agreee, this is what I was tring to say in the previous post. 360 starts earning profits when PS3 is released. While Sony cannot reduce the of PS3 for a long time from now ( may be end of this year or early next year). MSwhich is starting toget little profits from its360, has ample time to stay with its current price plans ( which are better than PS3) and get more profit as the manufacturing cost decreases.  They can do this, until the PS3 starts to break even and reduce its price points. and may be add a few more s/w feature updates.. keeping up the interest among consumers.

So i think 360 will have a long run (may be similar to PS2) and earn profits to MS than losses. This can compete with PS3 for a loong time with profits, rather than the opp. case for PS3, which has to compete with 360.. loosing money.

Very soon MS will not have to subsidize publishers.  The insane attach rate of 5.5 is making profitability of x-box games highly possible.  Certainly higher than the profitability of PS3 games this year.  This is making publishers flock to the 360 (note all the games that have added 360 port from PS3 exclusive).  Subsidies of existing and favored publishers will continue for a while, but they can cut back from that and publishers will still publish 360 games.  It's looking to be the console that sells the most games of any home console in NA for 2007(PS2 game sales are declining)

I think that they have to still subsidize the customers for at least one more year on Live (they are already profitable on the hardware).  But, through the Live Arcade, many users are buying games and paying for additional content.  I think in about a year, the Arcade will have a critical mass of content and subscribers that will make it self sustaining (even without the subscription fees).  At that point MS can drop the fee for Gold and compete directly with PS Home.

IPTV is something that will be a money sink for at least 2 years.  They just don't have the mindshare on itunes and it's going to take a lot of subsidies and persuasion to get content. 

As you can see, most of the aspects of the 360 are self-sustaining or approaching that.  Sure, I don't see profitability for the next 12 months.  But I can certainly see the MS games division profitable before 2010

5.5m for the first year isn't anything spectacular. The PS1, N64, PS2, PSP, DS, Wii, all achieved this and then some.

Publishers and gamers don't really care how much money the 360 loses, but shareholders and investors do, and to date, it's lost over 5 billion dollars.....a video game console. Even with accessories, games, and Xbox Live, MS is still losing money. They aren't going to just do a complete 180 from that in the next few years.

The 360 isn't even as popular as its fans like to believe. It is pretty popular in NA, but it's rather mediocre in Europe and a failure in Japan(in spite of Blue Dragon). The article takes note of this when it mentions the 360's software. It has a slew of first and third-person shooters(basically every other game on the system) and other "macho" games, but they all appeal to a very narrow audience. It has nearly nothing in the way of platformers, offbeat titles, decent RPG's, and it has by far the weakest first-party.

Of all the 7th generation consoles(DS, PSP, Wii, 360, and PS3), the 360 is in 4th place. It hasn't even managed to outsell the PSP, which for most of the time has been a 200-250 dollar handheld with virtually no system selling titles. It has a chance of outselling the PS3, but even that isn't guaranteed, and even if it did succeed in doing this, it wouldn't be by a very large margin.

Either Sony or Nintendo or both will deny Microsoft every time. Microsoft will simply never be able to make a console as wildly popular as the PS1/PS2/DS Lite/Wii. They can't even make one as popular as the PSP.

You combine all this with billions of dollars of losses throughout two generations, and there would be no reason for Microsoft to keep making consoles despite its cash reserves. They aren't just going to keep throwing money away.

I think guys like Malstrom are missing the real longterm sights of the Xbox series... A gateway into the living room. They want to provide content through your television. In this regard, MS isn't even really fighting Sony. Sony hasn't done anything to prove themselves as a big time digital content provider. MS is fighting two battle with the 360... Firstly, the game side against Sony. This is hugely important in that if MS loses this war, people will not buy 360s and they lost the battle before it even began. Secondly, and the one that probably worries MS the most, is the second war after they've established themselves and there are plenty of 360s sitting under television sets around the world... And that's the battle not against Sony, but against Apple. I guarantee you that MS is more scared of the iTunes/AppleTV behemoth that is slowly unfurling than they are of Sony's entry into the digital content war. Apple is poised to win not the battle, but the war. And this war will last a long, long time. It probably won't be won until the fourth Xbox is on shelves. And if MS was to pull out of this war without getting their piece, they wasted billions of dollars in a market that could be 10x bigger than the iPod. MS can't afford to back down or walk away from this. There's too much at stake for them. As convergence becomes reality, a gaping hole in the living room will cost Microsoft dominance across several of their divisions. Besides looking like a Nintendo fanboy, Malstrom doesn't seem to realize that this war isn't even about video games and that it will last for years, if not decades. And MS can't afford to lose it.

I just finished reading every line of the "article" (I had scanned it previously)... The guy just doesn't get it.

The thing is that they don't have to "win" the console war to achieve their goal. They just have to remain competitive. And they're doing just that. And the USA is far and away the most important market to them, much more so than Sony or Nintendo since content delivery is difficult to launch worldwide. Shoot, MS isn't even offering TV or movie content on the 360 anywhere else in the world yet.

I'm not saying that MS doesn't want to be first in the market in video games, they most certainly do. But they don't have to be there to get what they want.

Besides, Nintendo isn't even fighting this war. They're going for the "strictly games" approach. The only time MS cares if a Wii is sold is when it stops the person from buying a 360.

I really don't know. It all depends on what percentage of people are buying into their content service. Only MS knows that for sure.