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Xbox cops another loss

$209m down in Q3, despite rising revenues

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Third quarter results for software giant Microsoft have shown that revenues from the division responsible for the Xbox console rose significantly, but the business still made a $209m loss in the three month period.

Revenue from the Xbox operations was up by some $81m for the three months ended 31 March, with the bulk of that improvement being down to higher volumes of software sales - although the company sold 30 per cent more hardware in the quarter than it did in the same period last year, it was sold at a substantially lower price point and therefore had a diminished effect on revenues.

Overall, the Home and Entertainment Division which houses the Xbox project (along with Microsoft Game Studios and other consumer hardware projects) reported quarterly revenue of $530m, up from $453m last year.

However, the operating loss at the division was a very substantial $209m - illustrating just how difficult Microsoft is finding it to make money out of the Xbox. Compare this with closest rival Nintendo, which made just shy of half a billion dollars profit in the year to 31 March - and expects a billion dollar profit in the current financial year.

Of course, Microsoft has arguably never needed to make money out of the Xbox, only to establish itself as a market player. After all, despite the losses incurred by Xbox, the company as a whole still made $1.32bn in the quarter (down slightly due to $1.89bn in settlements with Sun Microsystems and the European Commission) and added over $3bn to its cash and short term investment reserves, bringing the cash pile to an astonishing $56.4bn.

However, it's questionable if the company ever anticipated just how much money it would have to spend in order to build market share in the games industry. With losses on the Xbox running into multiple billions of dollars, and the company still owning a global market share of the home console market that's slightly behind Nintendo's (albeit certainly leading the GameCube in North America), the console may have been an important stepping stone for Microsoft's console ambitions, but the cost of building that stepping stone must surely have been enough to make even the cash-wallowing beancounters of Redmond blanch.

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