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Xbox division spends more, makes less as next gen approaches
Xbox division spends more, makes less as next gen approaches
October 18, 2012 | By Frank Cifaldi

October 18, 2012 | By Frank Cifaldi
More: Console/PC, Business/Marketing

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.

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Adam Rebika
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More consoles are sold, but less games?
Then maybe the new Xbox owners are mostly buying secondhand games, since it has a pretty large backlog. Just imagine walking in a store with $60 in hand... Would you rather buy one new game or 4 - 6 old ones with pretty much the same graphical level and features?

ivan velho
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Games are pretty much the same thing in the last 3 or 4 years.
So equal that you can predict the variables in terms of polygon counts , effects, load times, frame count, progression, gameplay, etc.
It's boring, is always the same structures.
You can buy a 2012's blockbuster or 2008's blockbuster, there's no difference.

Merc Hoffner
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I'd weigh in that during the later years of a core loaded console's life (and year 7 is definitely a later year), more casual types and fewer core gamers are buying the machine than at the start of the generation. As these less serious gamer buy fewer games the average tie ratio necessarily reduces, hence more machines but fewer games.

In actuality you probably want it the other way around. High early ratios mean you're hitting the core (and or selling machines slowly), which means you're hitting your existing markets which you then need to try and expand. Low early ratios means you're hitting the non-core (and/or selling machines very fast), which means you're hitting new markets (already expanding), which you then need to try and entrench. It's been impressive that MS has maintained such late stage momentum - I presume largely on the 1-2 punches of reaching those magic price points and appealing to new comers with Kinect. It's too bad they didn't start this way or they'd have a REALLY huge base by now.

Bob Johnson
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Game revenues are down at MS. NOt necessarily for the 360 overall. MS had a 1st party title during this period last year (GoW3) and none this year.

I don't see how they shipped 2.3 million consoles this period compared to 1.7 million in same period last year when they sold roughly 30% less consoles this period. Was inventory that low going into holidays even with decreased sales? STrange.

Frank Cifaldi
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Yikes. That was a bad typo, I had the numbers reversed. They sold FEWER consoles, not more.

Craig Page
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Hopefully some of that R&D money went towards making push notifications work properly on Windows Phone 8. On WP7 it seems only the OS apps like hotmail, or messenger are allowed to push and run in the background. Skype, WhatsApp, KikMessenger, and everything else I've tried just sucks.

Lyon Medina
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This all seems kinda normal. I would like to know how things are going on at Sony rather than Microsoft though. Reason being is that Microsoft is doing well so they don't have the same issues as Sony is going to have launching a new PS4. (or whatever it is going to be called.)

I honestly think that if things do not go well for Sony coming out of the gate in the next generation. Then we could see Sony pull away from the hardware business and become the next Sega, or maybe even a digital provider format only. These are just wild guesses so take them with a grain of salt.

Marcus Miller
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Hardware doesn't matter anymore. Everything is going to be cloud based gaming. No more localized application.

Lyon Medina
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@ Marcus
Yes I agree, but how long is that going to take? Five years, seven, ten long years? The internet as nice as it is, is still very unreliable and very much unformed to allow every gamer to have cloud based gaming yet. Also you’re speaking to a generation that prefers physical media over to some cloud based operations.

I love having my game with physically with me, and I allow letting my friends borrow my games and them allowing me to borrow theirs. That is an avenue that should not be underestimated to sales. Cloud is coming no doubt about that, but how long is it going to take is my concern.

*edit- Last minute add in.
Also "Hardware" will always matter. Even if your on the cloud you need a device to use or view your product.