PS3 vs. XBOX360

[super_freak]

Last month, Piru_Lee posted an interesting bulletin about MicroSoft losing billions on the Xbox... which sadly, some people didn't believe. Rather than post at the bottom of a dying thread that no one is likely to read, I've posted the actual numbers here, and some speculation as to the eventual launch of the PS3.

So, without going into the usual forum-type "they r teh suck" or "ps2 ownz!!1!!!!" uselessness, here are the actual numbers for revenue over the last 3 years (2005 still to be seen), as taken from Microsoft's financial report, available on their site:

The Home and Entertainment division (mostly Xbox, but includes PC games and interactive TV as well) posted the following revenue (total incoming cash):

2002 - $2,453,000,000
2003 - $2,748,000,000
2004 - $2,876,000,000

... and the following is the "operating loss" (how much more money was spent than what was made) generated by the Home and Entertainment division:

2002 - $1,135,000,000 (loss)
2003 - $1,191,000,000 (loss)
2004 - $1,215,000,000 (loss)

This means they spent more than they made... much more... all three years.

Basically, we're talking about a whole division here, but the descriptions associated with the numbers list the primary reason for losses being the Xbox... some other parts of the division are probably turning profits, so in all likelihood, Xbox is probably loosing more money for MicroSoft than is immediately apparent. The sum total in losses for the division is at $3,541,000,000 over three years... and you can easily expect this year to push it to $4 billion (or more, if the trend holds true).

Now, MicroSoft wasn't stupid, they did realize this whole platform gaming thing was a long-term strategy... but the numbers seem to indicate that they got in far over their heads. The business model, as posed by our beloved Sony so many years ago, was to sell the console at a loss and recoup on licensing fees for the games. This has worked well for Sony because PS2 sells a LOT of games. But the Xbox sells Halo... and nowhere near the numbers of other games. In effect, this business model has worked for Sony (lose money initially, make up the loss and get a ton of profit later) in spades... but clearly, it has done nothing but hurt Microsoft... who is $4 billion in the hole on this platform gaming excursion.

Now, next question... does this money hurt M$?

It does a bit, believe it or not. Ever wonder what a company like MicroSoft makes in reality? Here's some profits (not total sales... just profits):

2002 - $8,272,000,000
2003 - $9,545,000,000
2004 - $9,034,000,000

Okay... so losing a billion a year in that perspective isn't a HUGE travesty... but we're talking 12% of their profit, per year, thrown to a venture which is anything but a guaranteed success. Now, they know how to invest, and they know that it is long term... but even MicroSoft's MSN, which was second in losses, turned a profit in 2004.

The big hit for MicroSoft won't actually be in seeing these numbers as "big losses in the big picture", per se, but if you compare it to the profits they're making in other areas... and the profits that Sony and Nintendo are making in console gaming (precisely where they're losing money hand over fist)... well, that's a different beast.

You can bet the people in charge know where MicroSoft's profit is coming from too... it's from Windows and Office (which made $15 billion profit in 2004... so look again at their end profit to see how much they're losing on "other" ventures)... and you can bet too that they know the biggest money pit in the company, four years running, is a gaming console with only one big selling game franchise.

And do you think the people in charge don't watch the competition? I'll bet they do... and I'll bet they also notice Sony's PS2 profit for 2004 was almost 2 billion more than theirs (making $650 million in profit, rather than $1.2 billion in losses)... and that Sony's profit on PS2 the year before was around $1 billion compared to their own $1.1 billion in losses for 2003 (another $2 billion disparity). Hell, even Nintendo is turning a profit (net income... 2005: $816 million, 2004: $316 million, 2003: $640 million... all positive, no losses).

Even if you step away from profits/losses to look at total sales figures (in order to try to get a picture of where consumer money is going), in the 3 years above, MicroSoft did a total of about $8 billion in Xbox sales (actually ALL PC gaming and home entertainment sales are included here) to get their $4 billion in losses over 3 years. But Sony does that much in sales on any one of those years (last year was LOWEST of 2002-2004 at $7.5 billion in sales... 2002 and 2003 were in the $9 billion sales range).

So... in essence, what you have is one platform that dominates the landscape and turns a heavy profit (Sony)... another platform that holds it's own with a niche, albeit quality, market (Nintendo)... and one that only exists because the parent company is willing to throw a lot of money after a hope that they will eventually turn profitable despite the ongoing trend of increasing losses (MicroSoft).

And here's a kicker: Sony still has more experience in console gaming (they invented the business model they all work on here)... they have better relationships with developers (anyone want to bet how much it hurt MS to see Electronic Arts showcasing it's next gen games over at Sony at E3?... and that was just the beginning)... and they have a lot more experience in hardware, plus the ability to cross-pollinate one technology to another (they don't just make game consoles, you know). Besides, they've already had their version of the massive money pit... it was called Betamax... and they learned from the mistake.

Ready for another kicker? Who do you think owns the rights for movies to base games on? Sony bought MGM in 2004, and they already had their own studio and Columbia Tristar... they now own the largest library of color movies in the world. We're talking big franchises here too... like Rocky, James Bond, etc. Want more? Who owns the music developers license for their games? Oh... that would be Sony too. They've got the second largest music label in the world to boot (Sony Music merged with BMG in 2004) with a huge library of existing music. In short, they've got the capital AND the resources to cause a lot of trouble for the future of the Xbox, in more ways than one.

...

So... what's the speculation?

Here's the fact: you've got MicroSoft releasing a slightly-to-noticeably lower-tech machine... and up to a year earlier than the PS3 (maybe less, but probably a year earlier).

What does this mean? Well, given that the revenue model is to make money on game sales, it will KILL them unless they have the game sales to back it up over a long period of time. So what is a competitor like Sony to do?

First... you don't launch right away... even if you could. You wait.

Then you giggle at the MS fanboys saying "oh, but we have the 360 right NOW" Why is this funny? Because, so what? Nice console... but where's all the games to recoup the losses on hardware sales?

Then... you wait some more...

And you chuckle at the billions MicroSoft is losing on hardware sales in the first 2 quarters of 2006... not only because it is staggering... but because you're just about in a position to make it even worse.

Nope... wait some more...

You wait up until the time some real games are about to hit the shelves (like a Halo 3, for example). THAT is when Sony will release the PS3 (and not before)... because you release at the moment at which it will hurt MicroSoft the most. They'll have sold a ton of machines at a loss... won't be anywhere near recouping that loss... in effect, they're at their weakest point. You hit them when they're ready to make their "real" move. Besides, in the meantime, even if Sony's profits go "down" because of 360 sales, MicroSoft's losses will go up even MORE than that. Think long term strategy here... it's not just about selling units... it's about beating the competition. Beating competition on the level of MicroSoft doesn't just mean selling more units... it means driving them out of the business entirely with more losses than their shareholders will allow. Anything less and they could ride it out.

In simplest words... wait until MicroSoft has lost as much money in consoles as to have a noticeable installed base, but before that base is wholly committed to the platform (ie. has a lot of good games that the owner's enjoy)... then hit with superior hardware at a competitive price, and with a lot of launch titles to hammer the choice home. Hit at the right moment, and hit hard with the intention of causing serious financial trouble to your opponent as much as increasing your own profits.

I don't know about you... but I can almost FEEL the stockpile of traded in Xbox 360's at EB Games when the time comes.... and all of that will add up to a huge loss for MicroSoft... because the business model is to profit on game sales... and without games enough to compete against a stronger platform (expecially when they couldn't beat Sony even WITH better hardware THIS time around), they're going to be in serious trouble. Remember too that this is very much like the strategy MicroSoft employed unsuccessfully against the PlayStation 2 (they launched at a perfect time with somewhat better hardware... but were, and still are, unprepared to take advantage of such an edge).

...

So when will PS3 launch be? Not totally sure, but I bet it won't be until right around the time of Halo 3... just long enough to get a bunch of Xbox 360 owners annoyed that they don't have Halo and have had a mostly useless machine for 10 months. My bet is that Sony comes out of the gate with as many launch titles as the 360 has at the moment, plus a few "killers" that we've already been drooling over to seal the deal. In effect, don't expect a spring launch as the 360 will need to lose more money than that before Sony cares (hey... they're still making lots of money on the PS2... why bother rushing it?). Think this time next year.

But again... the launch date is just speculation... the financial data above is not.

And... in case you doubt the numbers:

MicroSoft's financials: http://www.microsoft.com/msft/ar04/nonflash/10k_fr_da.html
Sony's financials: http://www.sony.net/SonyInfo/IR/financial/ar/2004/Segment.pdf
Nintendo's financials: http://www.nintendo.com/corp/report/fiscal2004.pdf
and: http://www.nintendo.com/corp/report/NintendoAnnualReport2005.pdf

[justinkoo]

nice research super_freak, spoken like a true economist. Get all the fanboy rubbish out of the way and let real life economics do the talking. As economics governs the world we live in. So after all this i never knew that xbox was running at such a great loss.

[woodyear99]

Well a comparison of Xbox 360 and Dreamcast....pretty interesting though don't take it too seriously hehe


http://www.1up.com/do/feature?cId=3145154&did=1

[TriniXaeno]

man that is a damn good article.

don't let the comedic format fool you. Should definitely take it seriously.

[TinyGrasshopper]

I don't about take the 1up article seriously, there's another article right after it that shows just as many important distinctions between the two.

Didn't the developers at id say that the xbox360 was easier to develop for and just like the ps2 taking advantage of the console, it's gonna happen till late in the life cycle?

Aren't Japanese developers slowly migrating to cross-platform this generation?

xbox live is amazing, and as Ctrl-Alt-Del commented on(http://www.ctrlaltdel-online.com/?t=archives&date=2005-11-04), sony's got nuthin for that.

I still think it's too early to say. I've seen and love the media functions behind xbox, supporting ipods and psps and all that. i've not heard any stories on the ps3's media capabilities, except of course, blu-ray. and the ongoing battle of hd-dvd and blu-ray is gonna make adoption of next-gen dvd formats slow.

[TriniXaeno]

it's one and the same article.

page 1 and page 2.

Page 1 shows the similarities of the xbox 360 with the dreamcast.

Page 2 on the other hand shows the differences and more importantly, the reasons the xbox is likely to succeed.

Just about as sure a bet as there ever was.

[Kaizen]

Man viva la 360!!!
we aint goin down without a fight i loved DREAMCAST
loved loved loved i would leave my gf if a real dreamcast2 came out XD~!!!
kudos to MS ..man i cant wait


>_>  "can you smell it?"     O_o"smell what?"     "i can smell it!"

"HALO 3!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!"

[shivadee]

Very detailed article

However after personally speaking with the production manager of EA vacouver it is clear they are backing Microsoft over SONY. Actually EA and Activision, the 2 biggest 3rd party developers were very upset with SONY for their PSP launch, which was announced to them the same time the public got wind of it. EA is VERY impressed with MS's campaign and their flexibility FAR more than SONY's. To be honest though they dont care who is in charge, they make money either way. Last battle they would make a game for PS2 and port it to XBOX, did you know this? Now its the other way around.

Another fact. EA displayed their knockout kings for PS3, which was very very dissapointing to many 3rd party developers, not graphically but as in presentation. They showed a 10 second clip, which could be anything, it may not even be the final product.

Something else. From 2004 MS broke even on their XBOX sales, and since that time they were making profits. Now the profits may not be as high as SONY's but they still are profits, meaning they were no longer loosing money on thier product, which mind you is not their primary source of income.

I was reading a PSM article on 360 vs PS3. I never read so much speculated nonsense. They pointed out that SONY has an entire division working on their online interface for the PS3 although MS has a headstart with their XBOX LIVE. And they gave SONY the edge in that department. Thing is no one said anything about FORZA coping 1st place from official reviewers as a better racing sim than GT4, which has 3 prequals to PROVE SONY has the experience in that field. Its the same scenario.

They also say that they do not agree with MS marketing their product so early. They think they should have waited. Not true atall. Look at PS2's early launch and their following success. You can eat up ALL the big 3rd party developers. as quoted by EA "YOU WIN THE LAUNCH, YOU WIN THE WAR" Its not WHEN you release it ppl, its HOW you release it. And people were WELL AWARE of the XBOX 360 LONG before its release date.

Another point. That was not the only thing. They are talking about processing power of the PS3, cell technology, Blue Ray.....none of these things are even playable yet for the system. Actually PS3 does not even have a conroler. All anyone has seen so far is a hollow box. When 360 specs were leaked and comming out what did we hear? Did we hear tripple core? did we hear about wireles controlers? NO, all we heard was processing power for speculation. The overall result of the 360 was a surprise to many in the industry. Blue Ray is still in debating stages for SONY who is getting heat about thier release. To add to this, after getting sued to hell with the Dualshock 2 controler they are VERY cautious about endorsing logos, and products. And MS has their own "Blue Ray" type technology, and is not backing Blue Ray technology....so i would ASSUME....so much for Blue Ray in MS Vista and support on PC gaming.

Another note from this article. SONY has resources to to make a great console, but that is not enough. They do not have resources like MS. In recent articles the PS2 is SONY's PRIMARY source of income, the XBOX is not for MS. WIndows, networking........well we know the rest. MS has their finger in everything. SONY is not leading the market in electronics as people think. when you think HDTV you dont jump to SONY.....Samsung, Panasonic or Phillips usually get the nod, even in DVD players, mp3 players and even portable gaming systems....etc etc. However i do give SONY's movie company a nod, they are doing very well.

Bottom line i think this article gives SONY too much credit. Again, i am clearly MS biased. I believe money talks, and in the business industry only the strong survive, ESPECIALLy the videogame industry. We can clearly see how smaller companies are merging or just fading into existence. It leaves many questions to the gamer::

What about inovation?

What about a chance for new developers?


Its funny people ask that, when a company as old as NINTENDO is almost totally controling the helm as far as inovation is concerned, and they are being completely overlooked in these console wars. However you dont see them advertising and firing cheap shots at other rivals. Its not really Nintendo's style. Remember how they handled the Genesis wars? Genesis with their "hey you cant do that on nintendo".....actually SNES owners just said "...and we dont want to" and that was that.

Anyway. I have seen so far that XBOX360 has started with some good games out of the gate. Im dissapointed in Activision's attempt at GUN (forgetable game anyway) and Tony Hawk AW (a dying franchise). However their COD2 for the 360 is actually better visually than the PC version, it even runs smoother, and that is a more memorable game anyway. Kameo did surprisingly well also

To add to this thread. SONY is going to depend heavilly on their first party games to pull them through. We know SONY for Rockstar and SquareEnix, who have both signed to Microsoft.  but do we really know them for SONY? God of War, Shadow of the Colossus and GT4 are all SONY releases. First class games indeed. I hope they can keep that going. the SoC series had Ico under the same developer, and that was 4 years ago. Look at the time it took for GT4 to release and GoW took 5 years. Great games take time, we all know this.

Im not gonna say MS has Ninja Gaiden, HALO, FOrza, DOA etc etc etc......What im saying is the newest company to the console wars has shown some SERIOUS promise with their exclusives. In 4 years look where they reach.

[TinyGrasshopper]

As a side note I heard that the Revolution won't support HD. IMHO that's mother-freekin crazy. Nintendo's really pushing it with the innovation that I'll tolerate here. First a remote control now this.

Also anyone's realised that historically the more technically superior console/handheld almost never makes it as no 1? How often has it ever happened? This generation ps3 is the technically superior. Hopefully they'll fare better than anything else we can think of. Also, Mr. Kojima has stated that the fancy-schmancy MGS4 trailer is doable on an xbox 360 so that kinda muddles things once again.

The Blu-ray stuff is again really doubtful. The atmosphere that surrounded the DVD and its inclusion in the ps2 was different. Movies didn't have a major upgrade since VHS at that time. Meanwhile the Blu-ray HD-DVD divide is tipping towards Blu-ray but only marginally and especially with the content providers split down the middle and technology providers somewhat neutral, having a ps3 shipping with blu-ray just doesn't look like it'll have the same impact.

[shivadee]

the question is what you trying to sell and to whom?

Are you trying to sell a whole media replacement system for the home that can handle music, video and stills etc etc? Is PS3 trying to do a PSP with an all in one divice? and WHO is going to buy this? You noticing the next gen game consoles are leaving people without HD and Broadband in their wake.

[shivadee]

daz tru. When the XBOX came with an ethernet card and HDD people were like WTF. Now if it doesnt come with one ppl saying wtf.

[TrinireturnofGamez]

  The xbox won't loose this round ,  if need be microsoft may release a blue ray  / HD-DVD upgrade , and move the production of the console to a smaller process = lower prices later on . Plus the massive marketing behind the box , Halo 2 had a Sh!tty single player and  nothing special in its multiplayer , but thanks to  the microsoft propoganda machine it made hundreds of millions.....   
   Nintendo won't die either , it has a niche market and fanboys to keep it running, the revolution is meant to be innovate and simple , not powerful ..
  Sony is a behomoth that won't be beat either  , if i had a choice i'd probably get a PS3 or nintendo before anything else ....
    The PS3 and Xbox 360 are about on the same level of  technology , not a massive difference as was with the PS2 and Xbox , PS3 is definately faster though . And i'm sure sony has much better backward support .

[Xenos]

i hate upgrades for consoles 

personally i'm going for ps3 rather than xbox360 basically cause it's going to have the games i want to play, future tekkens and gts

i don't think that xbox will go down as a console, i just think that it would be simliar to what use to happen back when sega and nintendo was fighting for control. there's always going to be competition and since nintendo seems to be going in a next direction, i terms of consoles that offer the "normal" gameplay, sony and microsoft will be battling for it.
xbox wasn't a big seller in japan (so i've heard) but the US seemed to love it so xbox isn't going anywhere
as for sony, well it did good in both places and lead the gaming market even though it competed with superior consoles.
this time around is seems like they would be having the best console but power isn't everything, its the quality of the games that get the nod and like i said, the ps3 will have the games that i'm interested in

[greyfox]

i think the same prob the xbox had with it being released later, but still having extra features, will fall upon the ps3 as much as i hate to say it. but u know i'll still wait for the price to drop

[TinyGrasshopper]

the question is what you trying to sell and to whom?

Are you trying to sell a whole media replacement system for the home that can handle music, video and stills etc etc? Is PS3 trying to do a PSP with an all in one divice? and WHO is going to buy this? You noticing the next gen game consoles are leaving people without HD and Broadband in their wake.

I personally think that the valueadd that Xbox Live and the Media Center stuff brings is worth it. It gives the console appeal to everyone in a household, if those who aren't gamers just wanna play some Breakout and listen to some music. There's a lot of discussion over how to give games a broader appeal, and this gives xbox something extra in that area. Nintendo has original titles and microsoft has feature creep.

Well do we have any idea what sony is really up to though? Although Sony has been stated as saying that playstation is their intended gateway into the living room, just as microsoft has so we'll see what they come up with.

Since half of the US already has HD and Broadband, it's a safe for them to move under that assumption. Almost everyone that would be buying a next gen console already has those things. Plus I think everyone who buys a ps3 or xbox360 console should get an HDTV, at least eventually, otherwise the upgrade is almost pointless. You won't be able to appreciate the major graphical update without it. That is part of the investment now, and inclusive of it the consoles do indeed cost as much as a PC but it's the only way for it to really be worth it.

my little belief is that the medium selected, whether blu ray or otherwise will not matter in the long run.

with coming improvements over the next 5- 10 years in internet access technology will allow for continuos downloading of any and all media directly to the system for which it is being used, in fact soem companies already started this trend and it has been successful to them, more than likely it will continue to improve.

And for that you'll need a broadband connection and an easy storefront. xbox live comes close to that at least for the overpriced micropayment stuff. and once again we have no idea what the sony mages are conjuring up. although joystiq has said that the boomerang might end up being the final dealie.

I know I sound totally xbox biased, cuz i like the system, but I don't want them to 'win' because as a company their greater philosphy at least for now is still lock-in. Right now to get the media stuff you must be running Windows Media Center, it doesn't work with MythTV. Come to think of it sony isn't all that open either... but it's more likely that any fancy schmancy solution would be linux based.

[greyfox]

i rather their be competition in the console market anyway wather than only 1 system available

[Trinitus]

Forget all that mumbo jumbo i want them all like pokemon i gotta catch em alllll, probably sell my dad and my mom but what the helll!!! But honestly wheter or not those companies make sales and lose what is seemingly big to us they will keep getting more sales to more than make up for it so they really dont need to worry, oh yeahhh i can smell it

[Jdcrys_Shinkuu]

Hmm, i sense a great evil close by.... he uses the copypaste jitsu....
i wonder if they actually read these scripts n understand them before posting...
but well done....

[shivadee]

yea but Grasshopper how often you need to upgrade a gfx card in a console to run the system at max specs?

But in all honesty upgradeable consoles ARE the future. Its the MERGE of PC and COnsole for a single gaming console. Did anyone know that the XBOX 360 has an extra PCI graphics card slot in it......just......THERE.....doing nutting until MS ready to pull blade on SONY

MS kissing some serious @ss this rounds to win the US market....we go see what happen. Personally their 3rd Party PR is by FARRRRRR better than SONY's.......but MS's marketing scheme for the public........is like wtf!!
People would argue that "the consumer is the bottom line" well yes.....but then the consumer can be influenced by the snap of a finger, so if you control the 3rd party you can control the consumer

Example. Look how people love SONY just because SONY and Square Enix have a boss relationship......SONY and Rockstar........SONY and Konami......SONY and Capcom.  Control the 3rd party, you control the consumer.

[Kaizen]

i rember some of the tried add ons for systems back in the day .
lol this one might work out but does the average consumer want to spend another ++$$ on an upgrade the gaming buisness is not full of our hardcore forum gamer guys . Its soccer moms and normal kids that mass up these sales so im not to fond of the upgrade thing but then again it can work out.  i have no favor for any system all 3 will be in my palm errr hands. and to me it stil seems that ps3 is a mere dream