Research and development costs skyrocketed at Microsoft's video game division during the July through September quarter, as the company continues to prepare for the next generation of video game consoles.

R&D expenses were up 44% from the same period last year in Micrsoft's Entertainment and Devices Division (which in addition to Xbox also includes Skype, Windows Phone and its IPTV division), totaling somewhere in the neighborhood of $318 million for the three-month period. Part of this expense was attributed to related hires after its Skype acquisition, though it appears that the majority came from staffing up its Xbox division.

As a result of that, as well as hefty payments to Nokia as part of its Windows Phone partnership, EDD only made $19 million during the quarter, versus $340 million during the same period last year.

The Xbox 360 itself is still doing well, though things are slowing down: Microsoft says it shipped 1.7 million consoles during the period, versus 2.3 million last year. Overall video game revenues were down, though Gears of War 3 can take some of the blame -- it shipped during the same period last year, and Microsoft had nothing comparable to make up for it this time around.

Xbox Live revenues specifically however are up, as the company continues pushing its digital entertainment content.