In an interview with eWeek.com, Robbie Bach, president of Microsoft’s Entertainment and Devices Division, talked about profitability (or lack thereof) and their chief rival at the moment, the Wii. He starts off by saying that he thinks one should look at the lifecycle of Xbox, not just a quarter or fiscal year. As he puts it, “in the early phases you lose some money, you try to keep that as low as you can, and then in the later phases you try to harvest as much as you can.”
“The second thing you try to do is you make money on the games themselves, and there are two models there. One is first-party games that Microsoft produces. The other is games that Electronic Arts or an Activision produces, and we get paid a royalty on those games.
The third place you make money is on Live, and where we actually have a very nice service that’s scaling very well, and that is a business model that’s subscription, ad-based, and download-based. It kind of has the full gamut of business models associated with it, and I think you’re going to continue to see that grow.
And then the final place you make money is on peripherals, so game controllers, cameras, steering wheels, a whole other set of things,” he concludes. Great, so when is Microsoft’s Xbox division going to make a profit? “So, it’s a business that will be profitable next year – we’ll make money next year and that will be the first time, which is pretty exciting.”
And now it’s the fun part… time to talk about your competition! “It’s a very nice product [the Wii], but it actually has a relatively specific audience and a fairly specific appeal, frankly, based on one feature, which is the controller itself. And the rest of the product is actually not a great product—no disrespect, but … the video graphics on it aren’t very strong; the box itself is kind of underpowered; it doesn’t play DVDs; there are a lot of down-line components [that] aren’t actually that interesting.”
Seemingly fair points, but please do go on… “The challenge they have is that third parties aren’t going to make much money on this platform because Nintendo is going to make all that money, and their ability to compete with something like a Halo or produce an experience like Madden on their system is going to be tough. They don’t have the graphics horsepower that even Xbox 1 had. So it makes sort of the comparison set a little bit difficult.” The facts would disagree with Mr. Bach on his point about Wii being less powerful than Xbox.
Finally, when he’s asked to assess the battlefield, he responds: “I think Nintendo and Microsoft are clearly in the driver’s seat on what’s happening in this generation. And they’re different driver’s seats. In a way, … our circle and Sony’s circle overlap I would say 90 percent. Nintendo’s circle and Microsoft’s overlap say 20, 25, 30 percent, something like that. We had people laughing and call it the Wii 360 because you already see a lot of dual-household ownership.
But Sony I think has some real challenges. They’ve got a pricing problem, they have a cost problem, they have a content problem, and they don’t have an online service. But I’m just talking about the psychology of me doing an interview with you as a reporter coming in and not uttering the word Sony without me bringing it up.”
