Microsoft has alleged that it has never been able to make a profit through the sale of its Xbox consoles.
Lori Wright, Vice President of business development at Xbox, spoke about the tech giant’s console business in her testimony during the ongoing Epic Games vs Apple trial, where she is a third-party witness, according to Protocol report.
During an examination by Epic Games’ lawyer Wes Earnhardt, Wright was asked a series of questions about the profitability of Xbox’s console hardware. “How much margin does Microsoft earn on the sale on the Xbox consoles?” Earnhardt asked.
To which Wright responded: “We don’t. We sell the consoles at a loss.” The Xbox exec then explained that Microsoft keeps selling its hardware at a loss because its business model is built around an “end-to-end consumer experience”, which involves more profitable avenues such as video game sales and subscription services like the Xbox Game Pass.
“Just to be clear, does Microsoft ever earn a profit on the sale of an Xbox console?” Earnhardt questioned. Wright answered with a simple “No”, according to IGN.
Niko Partners senior analyst Daniel Ahmad later noted in a lengthy Twitter thread that most console makers sell their hardware at a loss, saying that it “isn’t too unusual for the console space”. However, he also pointed out some outliers, such as the Nintendo Switch and Sony’s PlayStation 4.
Hardware being unprofitable certainly played a bigger role in the late 90's and early 2000's (oh and PS3 era lol).
Both the PS5 and Series X/S are being sold at a loss right now, but will become profitable down the line most likely.
Nintendo is somewhat of an outlier.
— Daniel Ahmad (@ZhugeEX) May 5, 2021
Ahmad also reiterated Wright’s point that “the platform holder recoups the investment in hardware via its own first-party game sales + services + the cut it takes from third parties that sell games / DLC”. He later noted that even though the PS5 and Series X|S are currently not profitable. The consoles will likely be “profitable down the line”.
Wright’s assertion is the latest revelation about the video game industry to come out of the Epic Games vs Apple trial. Earlier this week, court documents revealed that the upcoming zombie action role-playing game Dead Island 2 will apparently be an Epic Games Store exclusive.
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