It looks like MS may never make a profit with their gaming division, at least not any time soon.
As you can see here: http://www.vgchartz.com/forum/thread.php?id=57802 for the first time in 2008, MS gaming division reported a profit of $267 million for the year. Of course they are still over $9 Billion in the hole overall since the first Xbox.
Things looked good until MS went right back to reporting losses. Last quarter they posted losses of $31 million despite a 60% INCREASE in console sales from the same time last year(Jan-May 2008).
http://www.gamesoption.com/2009/04/microsofts-xbox-360-division-loses-31-million/
How did this happen you may wonder??? Coincidentally it pretty much happened shortly after the $199 price drop back in September. Obviously in order to slash $80 off the then-current $279 price for the arcade 360, they had to sell at a loss again(it was believed that MS was either breaking even or maybe making a slight profit on hardware).
Now why the hell did they drop the price when their main competitor, the PS3, was already $120 MORE EXPENSIVE than the 360??? Because before September 2008($199 price drop), the PS3 was consistently outselling the 360 worldwide on a weekly basis. Maybe they also thought that being $50 cheaper than the Wii would allow them to outsell it? LOL, guess not.
It must have been quite embarrasing for MS to be outsold by a console that costs $120 more than theirs(a console that, according to MS, has an inferior game library, an inferior online service, a worthless Blu-ray drive, etc.)
So MS decides to drop the price(even though they are already way cheaper) and once again, sell consoles at a loss. It seems that MS wants marketshare so bad that they are willing to never make a profit in order to accomplish this goal. At 3.5 years after launch, no console maker should still be selling hardware at a loss.
So the big dilema for MS is what will they do when the PS3 drops to $299??? It may very likely happen sometime this year as this year the Cell and RSX are both moving to 45nm chips which will signifigantly drop PS3 manufacturing costs. This along with a very strong 2009 game lineup(FFXIII in Japan, God of War 3, Uncharted 2, Ratchet and Clank, Heavy Rain, Infamous, MAG, and possibly GT5).
It's already been proven that consumers see the PS3 as a higher value than the 360 by a signifigant margin. The fact that for months up until the $199 price drop, the PS3 outsold the 360 shows that over 50% of gamers who bought a console during that time were willing to shell out an extra $120 to buy a PS3 instead of a 360.
When the PS3 drops to $299 it will surely outsell the 360 by an even greater margin than before. It will be $100 cheaper as opposed to $120. What will MS do then???
option A: Suffer more embarrasment and lose more market share to their more expensive competiton.
option B: Drop the price to $149 or even $99 and kiss the notion of ever making a profit this generation goodbye.
Knowing MS, they will surely go with option B. They're used to losing $$$ so it's nothing new to them. They will have to play this game with Sony for the rest of this generation.
Currently $199 360 = losses. At the time they finally get to break-even, PS3 drops to $299.
PS3 $299, 360 drops to $149 = back to taking losses. They get to break-even and PS3 drops to $199.
PS3 $199, 360 drops to $99 = back to taking losses.
And this will continue until the end of this generation. Maybe then MS will get the hint. It was a little easier for them to monopolize the PC operating system business when it was still in it's infancy. However, trying to monopolize the giant 25 year old gaming industry is a different story. Sorry MS, the only way you'll ever monopolize console gaming is if you buy both Nintendo and Sony's games division and even you don't have that much money
UPDATE: FYI to those of you posting that PS3 is also selling at a loss. At launch, the PS3 was taking a $240 loss per console. Last December(2 years later) PS3 was selling at a $45 loss per console http://www.psxextreme.com/ps3-news/4340.html.
Today. at the current rate of reduced manufacturing costs, they are probably selling at break-even or maybe a little profit. Sorry to rain on your hate parade
