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Forums - Sales Discussion - Another price-cut for Microsoft? How much money are they losing with Xbox One?

Angelus on 28 October 2014
Sentient_Nebula said:
smroadkill15 said:
Why does it matter? If any of the three companies can suffer from a loss, it's MS.
You make it sound like a price-cut is a bad thing? The only thing that could be bad about the situation was if MS wasn't being competitive.

Of course MS can take the loss. But they're not in the console business to "win". They're in it to make money. It doesn't matter if Xbox One sells 10 trillion copies if it won't make money.

Phil Spencer has repeatedly stated he's in it to win



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Munkeh111 on 28 October 2014
jlmurph2 said:
Munkeh111 said:
Well they can get the game for around $30. No money for the retailer and in fact as they're the publisher of Sunset Overdrive they can get that even cheaper

But they're clearly losing money on each console, not PS3 levels, but not ideal. They've already done some of these discounts in other parts, see the UK FIFA bundle, but I think they do need the sales

Still don't understand why there's no Master Chief Collection bundle. I know my friend would buy one in a heartbeat

So that can be a game people buy for $60

Better to get a higher install base to get more Live subscriptions and Halo 5 sales next year

A good deal will push people who would otherwise wait 6 months to 1 year to get it for Halo 5



daredevil.shark on 28 October 2014
pokoko said:
The PS4 is getting dangerously close to critical mass. Attacking now is necessary, as waiting just gets you more and more behind. Being passive is asking to be buried by a snowball effect. Besides, the Xbox One might never again have an edge in released exclusives.


I love the term.



Landguy on 28 October 2014

Not sure how many times this type of thread gets going. Nobody knows what the cost is to make a PS4 or XB1. People can guess what the cost is based on off the shelf pricing. But, there is no way a manufacturer is paying anything close to that.

But, if we go off the guess that the cost of the Kinect version at launch was $470 and the fact that the price of the Kinect was actually guessed to be more like $130+, we end up at $340 A YEAR AGO...

After producing (not selling) 8 million of them, don't you think that they have been able to get better pricing?

My guess is that the cost of the current XB1 without Kinect is $310-325. Their cost of the game is probably $25-35 depending on the title. So, they might be breaking even on the systems and maybe losing $10-20 on a bundle.

Any losses are cheap at this point, as market share and consumer mindset are more important. If M$ can get the XB1 to sell even close to the PS4 during the holidays, that would be a massive win.

The reality is, Sony will likely drop their price or offer free PS+ or something to make it a virtual price match. If that is the case, the XB1 will not really get much out of the price drop.



It is near the end of the end....

method114 on 28 October 2014
Mr Puggsly said:
Is this the first generation we don't anticipate losses?

The 360 and PS3 lost billions for various reasons for the first few years. I imagine the goal is to make it back down the road.


Yea that used to be the way it was done except Nintendo always made me on there consoles apparently. This generation though the goal was to make money on the console from the get go that way you end up with more money overall. MS has obviously had to revise that plan and with investors already complaining after what many felt was a great victory for 360 taking a huge step back like this can't be a good thing.



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Ashadian on 28 October 2014
Vasto said:
If they are losing money who here would even know how much?

They have to declare the financials!



method114 on 28 October 2014
walsufnir said:
Protendo said:
Sentient_Nebula said:
There was some information somewhere regarding how much each console cost to make.

I think the Xbox One w/ Kinect was $471. Without would cost about $395. This is at launch however. But I doubt production costs would've dropped too significantly.

This, combined with bundling games (Publishers aren't going to give out bundle copies for free!) Microsoft is definitely losing at least some money on each console sale. Other than the 1TB CoD bundle. They'll have to rely on software royalties on future purchases, and get some stable income from XBLG subscriptions.

... the price of DDR3 actually increasing since launch ...

 

Don't use prices for consumers to infer what hardware manufacturers pay for chips/parts.

Actually that's a great way to tell if prices have increased across the board then they increase for everyone. Unless wer'e talking a few cents or something then no MS probably pays the same. From a quick google I did though prices seem to have gone up anywhere from 20-40%. I think MS is paying more.



method114 on 28 October 2014
Angelus said:
Sentient_Nebula said:
smroadkill15 said:
Why does it matter? If any of the three companies can suffer from a loss, it's MS.
You make it sound like a price-cut is a bad thing? The only thing that could be bad about the situation was if MS wasn't being competitive.

Of course MS can take the loss. But they're not in the console business to "win". They're in it to make money. It doesn't matter if Xbox One sells 10 trillion copies if it won't make money.

Phil Spencer has repeatedly stated he's in it to win

Yes because Phil Spencer is in it to win it. MIcrosoft and his bosses on the other hand are in it to make money.



Dr.Henry_Killinger on 28 October 2014
DJEVOLVE said:
Dr.Henry_Killinger said:
shikamaru317 said:

Last year the production cost of the system with Kinect was estimated at $471. $75 of that was for the Kinect, which was removed in June, it's now optional. That would put the production cost of the system at $397. However, system construction costs decrease over time, and given that nearly a year has passed since the initial cost breakdown, it's likely that production costs are around $350 now. So the only money they're losing is on the bundled game, and they've been bundling digital codes to cut costs on that front.

It's also worth noting that the estimated production costs for Xbox One accessories are low enough that they're making a nice premium on accessory sales, which offsets what they're losing on console sales. The standalone Kinect sells for $150 but costs $75 to make. The controllers sell for $50 but cost $15 to make. The play and charge kits sell for $25 but likely cost less than half of that to make.

Remember, selling a console at a loss isn't always a bad idea. The more consoles you sell earlier in the generation, the more software and accessories you sell throughout the generation. And console manufacturers get money for every game sold due to licensing costs, and even more for 1st party games. Anything they're losing now they'll make back later in the generation through increased game sales, increased accessory sales, and increased XBL subs.

Manufacturing costs do not drop that fast.

I think he is pretty close, When you are selling millions of units.  Also what's you reason for stating this? Just a random thought?

Its a correction. 

Selling a couple million units isn't going to drop manufacturing prices by 50$ in a year. They aren't shipping 100 million xboxes. 



In this day and age, with the Internet, ignorance is a choice! And they're still choosing Ignorance! - Dr. Filthy Frank

Intrinsic on 28 October 2014
shikamaru317 said:
Dr.Henry_Killinger said:

Manufacturing costs do not drop that fast.

I'm sure that it's at least down from $397 to $365 in the last year. Pretty sure that 500 GB hard drives are down about $10 in the last year.

Also, like I said in the other post, they're almost assuredly making back anything they're losing on consoles in accessories, game sales, and XBL subs. Many Xbox One accessories are selling for double what they cost to make or more. 

Everything else you said is true. But MFQ costs does not drop anywhere near as fast as that. Especially when considering components like HDDs.

The HDDs in the PS4/XB1 actually cost them around $23 right now. Thats including whatever profit the HDD manufacturers are making per HDD sold to sony/MS. Things like that never really drop in price. If anything, and this is the funny part... they get more expensive. Heres why; a 500GB HDD may be the highest demanded model the OEM provides. Economies of scale means that they are also the cheapest in their range of HDDs that are still in production. When the industry starts demanding bigger HDDs, then their manufacturing floor goes up to say 750GB as their base model. At that point, a 750GB HDD would cost $23. Then the lower demanded 500GB actually becomes more expensive. Thats why you see HDD revisions across the generation for consoles.

Manufacturing costs really only drop when the APU is made on a smaller fabrication process and thus costs less. Or theer is a board revision where certain components are combined...etc. MS would be really lucky if the XB1 costs tehm $10 less to make right now than it did at launch. Another thing to consider is that this is MS we are talking about. Agressive hardware designs or revisions is not their strong point.

Having said that, MS can aford to take a $150 hit if it means boosting tehir market share. Cause they really can't afford to let the PS4 pull away with the generation this early in the cycle. They should jsut hope sony doesn't match their price. Cause I don't se sony not being able to make a $350 PS4 bundle with some of their older first pary tites. Technically nothing stops them from doing that.