Is Microsoft’s Xbox 360's Success Really All That Successful?

As you may have read here on CB Games, Microsoft had some wins and losses with their entertainment division throughout 2006. But while they netted an income from the entertainment division of $2.63 billion at the end of December 2006, according to Internet News, what was the exact costs and catches for the Xbox 360? Well, let’s have a look and see what we find.

One of the things we’ve all wondered about is how well Microsoft is making due with the costly next-gen hardware, considering that the original Xbox was abandoned for being costly, if memory serves me correctly. But Microsoft is apparently faring rather evenly with last year’s entertainment division losses (which included the Xbox 360), as the operating downside of $414 million was the total expenditure at the end of 2006.

Microsoft’s overall entertainment division was 75 cents up from the previous year, and at the end of the quarter the company posted nearly $3 billion in revenues from the entertainment division, adding a striking $1.27 billion in additional revenues for the company. That seems rather significant, actually. But significance doesn’t matter if the dollar signs don’t add up. Yeah, the Xbox 360 is definitely doing better than the original Xbox during its second year running – in which most analysts had pegged the original Xbox at only 3.85 million units to be sold by the end of 2002, according to Cnet. Although, it did do slightly better than the analysts projections, with around 5 million units sold by the end of 2002.

And there’s no doubt that the Xbox 360 is doing better as a second generation to Microsoft’s console brand. At the end of just one year running, the Xbox 360 is already established with nearly 10 million units in homes worldwide. But at the same time, it costs Microsoft $323 – according to iSuppli – to manufacture just one Xbox 360 unit. So with the $399 price tag, it’s not like the company is hurting too badly when it comes to evening out the profit score with hardware sales. This wasn’t always so, as the Xbox 360 was actually much more expensive to manufacture, as reported by Joystiq, with costs reaching up to $715 per unit. And as hardcore gamers are well aware, the consumer is paying for the cost re-adjustments with what seems like an endless supply of upgraded, modified and altered Xbox 360 units (i.e., Xbox 360 Elite). Yet despite all the alternative forms of Xbox 360 gaming, whether it's the Core or Premium package, the Xbox 360 is definitely making huge waves in shifting units across North American and European territories.

Still, we all know that profits are really garnered from software and not [necessarily] hardware. So what does the software share look like for the Xbox 360? Well, if you’ve followed even the scantiest details regarding triple-A titles released for the Xbox 360, you’ll have noted that Capcom’s Lost Planet and Epic’s Gears of War, both pegged at $60 (i.e., Gears of War collector’s edition was $70) both broke the 1 million mark in less than 3 months time. Even more-so, Gears of War sold 3 million copies faster than any other Xbox 360 game could even break the 2 million mark. Simply put – and just to name a few – Gears of War, Dead Rising and Lost Planet have already made back their $10 million in development costs and have gone on to cumulatively garner well over $300 million in worldwide sales. Now this doesn't include other best sellers, such as Tom Clancy's GRAW, Call of Duty 2 and 3, Chromehounds, Perfect Dark Zero or any of the Xbox Live accouterments. But on a general scope, the Xbox Live has already reached 6 million subscribers, and more than 25 million XBLA downloads (microtransactions = M$), and many Gold subscribers joined on after the launch of Gears of War, making it the first Xbox Live title for the Xbox 360 to beat out Halo 2 for the number one most played game on Live.

Hands down, it’s quite indisputable that the Xbox 360 has far surpassed its first-generation sibling, in both hardware and software sales. So in essence, it appears the success of the Xbox 360 is quite successful, so far. I mean, it’s certainly not a blockbuster success like the Nintendo DS, the Nintendo Wii, or the PS2, but in regards to Microsoft’s console efforts the Xbox 360 isn’t quite slothing around like the original Xbox. We’ll have to track how well Microsoft fares by the end of this year to see if the software continues on an upward trend, especially with triple-A PS3 titles on the horizon.

Speaking of which, next week we’ll take a look at Sony and the PS3, and see how well things are going so far for the company. Heck, you might actually be surprised at what we find.