Microsoft Home - a sinking business?

[PricklyPete]

Article Here

While the fact that M$'s Home & Entertainment divistion is certainly losing money and will probably for the near future...I think the future of the Xbox 360 is much brighter than the original Xbox:

1) First out of the block with already half of all of the original Xbox's install base after a bit over a year.
2) Much better selection of titles from both first party and third party developers. Developers that used to only develop for Sony have changed their mind and are now providing their titles on both systems...often times without any type of delay between releases. Examples: GTA4, DMC4, Ace Combat, Assassin's Creed, UT3 and likely MGS4.
3) Microsoft has a strong set of exclusives this time around and not just Halo and a few forgettable other titles. Mass Effect, Bioshock, Gears of War, Halo 3, Forza, etc.
4) Xbox Live Arcade and Live Marketplace: Live Arcade is already very popular and selling game add-ons and movies/tv shows is a whole new revenue line that the original Xbox didn't have at the same level of useability (technically you can buy game add-ons...but not xbox live arcade games...and certainly not movies/tvs.
5) Cheaper than the other "HD" level systems (PS3).
6) IPTV. This may lead to a market penetration larger than just gamers.
7) Simple built-in integration (you don't have to mod it) with Media Center for easy viewing on TV.

It can't be denied that the 360 isn't doing all that well in Japan, but the Analyst seems to harp on that way too much as if that is the Holy Grail and the only way to win the market. In a market that has only been around for the last 30+ years (6 game system generations?), making a claim like that based on the relatively short history seems like a huge oversight/simplification.

Edit:
I realize that this division of MS is not solely the 360, but the 360 is a large portion and the article focuses on it.

 

[michaels]

Isn't this the same bunch of analysts who said the Xbox brand would be a failure?

 

[PricklyPete]

Originally posted by: michaels
Isn't this the same bunch of analysts who said the Xbox brand would be a failure?

Don't know...haven't read anything by this analyst yet.

 

[michaels]

I agree with you, Japan isn't the end-all it used to be. Hell just look at the crapo that tops their charts..horse racing, English sims etc:roll:

Western developers put out better products imo

 

[Queasy]

He focuses on Japan way to much and ignores the news of Japanese developers like Capcom and others throwing their support behind the 360 despite the lackluster sales in Japan.

Also, it is difficult to tell how much the Xbox360 is responsible for the losses in the Home & Entertainment division. They do more than just the Xbox. Zune, for example, has been a pretty big bust IMHO.

 

[PricklyPete]

Originally posted by: Queasy
He focuses on Japan way to much and ignores the news of Japanese developers like Capcom and others throwing their support behind the 360 despite the lackluster sales in Japan.

Also, it is difficult to tell how much the Xbox360 is responsible for the losses in the Home & Entertainment division. They do more than just the Xbox. Zune, for example, has been a pretty big bust IMHO.

Agreed. Zune might be a big part of the 2006 operating loss...and a lot of really big 360 exclusives are waiting at the gates (Mass Effect, Halo 3, etc) not to mention GTA4. With Halo 3 and GTA4 coming out in the fall and if the 360 is still signifcantly cheaper than the PS3...I see a lot of 360's getting sold over the holidays.

I see the zune as the same thing as the original Xbox and just about every MS product. They never hit a home run with their first major product in that category...it is usually the second or third run before they get it right. SQL Server is another good example...SQL server 6.0/6.5 was a disaster compared to 7.0. Now with 2000 and 2005 they are a majore contender. I expect Zune 2.0 to really be an improvement. I already like the interface and widescreen of the Zune better than the Ipod...just waiting for a better form factor (current is too large) and a more portable option (like the Nano) before I'm willing to give it a shot.

 

[arod]

Originally posted by: PricklyPete

Originally posted by: Queasy
He focuses on Japan way to much and ignores the news of Japanese developers like Capcom and others throwing their support behind the 360 despite the lackluster sales in Japan.

Also, it is difficult to tell how much the Xbox360 is responsible for the losses in the Home & Entertainment division. They do more than just the Xbox. Zune, for example, has been a pretty big bust IMHO.

Agreed. Zune might be a big part of the 2006 operating loss...and a lot of really big 360 exclusives are waiting at the gates (Mass Effect, Halo 3, etc) not to mention GTA4. With Halo 3 and GTA4 coming out in the fall and if the 360 is still signifcantly cheaper than the PS3...I see a lot of 360's getting sold over the holidays.

I see the zune as the same thing as the original Xbox and just about every MS product. They never hit a home run with their first major product in that category...it is usually the second or third run before they get it right. SQL Server is another good example...SQL server 6.0/6.5 was a disaster compared to 7.0. Now with 2000 and 2005 they are a majore contender. I expect Zune 2.0 to really be an improvement. I already like the interface and widescreen of the Zune better than the Ipod...just waiting for a better form factor (current is too large) and a more portable option (like the Nano) before I'm willing to give it a shot.

agreed... im sure the next versions of the zune will be better and start to take some serious marketshare from the ipods. just look at xbox to xbox360 (where sony was even more entrenched with the playstation series than apple is with the ipod).

 

[Scarpozzi]

Originally posted by: Queasy
Zune, for example, has been a pretty big bust IMHO.

True, but they couldn't have spent too much on the development of Zune. I'd say the marketing cost them more than anything. Toshiba made all the money on the hardware side of the deal.

 

[Queasy]

Originally posted by: Scarpozzi

Originally posted by: Queasy
Zune, for example, has been a pretty big bust IMHO.

True, but they couldn't have spent too much on the development of Zune. I'd say the marketing cost them more than anything. Toshiba made all the money on the hardware side of the deal.

I was giving that as one example of other products in the Home & Entertainment division other than the Xbox. There's IPTV development and plenty of other stuff. I'm trying to say, I think it is hard to place the blame solely on the Xbox 360 when we don't know the profit/loss make-up of every product in that division.

 

[PricklyPete]

Originally posted by: Scarpozzi

Originally posted by: Queasy
Zune, for example, has been a pretty big bust IMHO.

True, but they couldn't have spent too much on the development of Zune. I'd say the marketing cost them more than anything. Toshiba made all the money on the hardware side of the deal.

Also building the "store" infrastructure probably cost a good bit more than the hardware for MS.

 

[PingSpike]

I dunno, I think from an investors standpoint he's right that they kind of suck. The 360 is doing decent elsewhere, but given sony's willingness to shoot itself in the foot, then reload and do it again its surprising they aren't doing even better. I think the Japanese will always hate microsoft...they see them as either an evil american company or a "me too!" company that is easy to paint as the enemy. And lets face it, Microsoft as a company hardly has an overall image a lot better then sony...although sony has been trying hard to get on top of the most hated list lately. I disagree that Japan is a huge indicator though, its just a piece of the puzzle and if they do well elsewhere it won't even matter.

The 360 is laying a pretty solid foundation for what it does, but the question is whether the market really has room to grow in that direction? The wii has really thrown a monkey wrench into what otherwise would be a standard console slugging match. A wii game isn't a PS3/xbox360 game. If the wii builds up a decent base and enough developers get on board it can go pretty far. It may not dominate the hardcore gaming market, but its reaching out into other markets the PS3 and 360 aren't even trying to cater too...all while stealing a little bit of the traditional model's thunder.

One things for sure, whether the Zune or 360 or anything else in the division is the cause of the losses, the fact that the entire division is unprofitable and has been for 5 years certainly isn't good. Every division has products that don't perform, but they usually have a couple that do perform to mitigate the losses and keep things profitable. 5 years is a pretty long time for a division to have not developed one of those products. Microsoft certainly has the cash reserves to keep plugging at it. But I wouldn't blame an investor to be pissed about that.