Head of Xbox, Phil Spencer, reveals how much Xbox loses with each console sold in a new interview. Contrary to what a lot of gamers may believe, new game consoles are usually sold at a loss. The respective company then recuperates the money over time with other business transactions, such as software sales and subscription services. This is usually done to keep the cost of the console reasonably low and attract consumers to buy the new console. In addition to revealing how much money each Xbox console sold loses, Spencer also detailed other business transactions and what he hopes for the future.
Phil Spencer has served as the head of Xbox since January 2022, but has held a lot of roles at Xbox and with Microsoft. Despite his direct and strong ties to Xbox, Spencer has also expressed interest in working with other companies, like PlayStation and Nintendo, to further business dealings. For example, despite Microsoft owning publisher Activision, Spencer still wants to keep Call of Duty on PlayStation and expand to Switch.
During the WSJ Tech Live event, Spencer revealed that each Xbox console that is sold nets a loss of up to $200 per console. Spencer went on to describe consoles as a business model. "Consoles evolved to a business model much different from phones where consoles are actually sold at a loss in the market," said Spencer. He then went on to explain that Xbox's investment strategy is to recuperate the money loss from each console with accessory sales and "storefront." The company also uses Xbox Game Pass as a service that is profitable and does not accumulate any losses for the company, according to Spencer. Spencer previously gave an update on the price of the Xbox Series X/S and said that there were not any current plans to raise the price of the consoles but also wouldn't rule it out in the future.
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Even though Xbox loses money on every console it sells, it has also been reported that Xbox has had one of the most profitable years since its inception, according to a Microsoft earnings report. Spencer seems to want to increase that further with him promising a stronger year for Xbox in 2023. Spencer acknowledged in the interview that there weren't many exclusive titles released this year, and he hopes that next year is different with the releases of games like Starfield and Redfall.
It has been a common practice for Xbox and PlayStation to sell their consoles at a loss for the past few console generations, as prices increase for components and new innovations in technology allow for new experiences, but the fact that Xbox is so profitable for Microsoft, should give gamers a sense of security. With a new Xbox prototype Keystone console being spotted on Phil Spencer's shelf, and he has teased Xbox products with his surroundings in the past, maybe an updated console is in the near future.
Source: WSJ Tech Live (via CNBC)