Phil Spencer: Microsoft subsidizes the cost [of Xbox consoles] to the tune of $100 to $200 per console

[DynamiteCop]

Not sure I believe that either. That makes no sense. There is no way the SoC for the xsx is that much more than the ps5.

If it IS 200+ more to make than a ps5 that just seems like piss poor engineering.

Sounds incredibly made up.

 

[peter42O]

Not much of a surprise here. Microsoft can easily absorb the losses and long term, they'll make it all back anyway.

 

[PropellerEar]

There was a rumour MSFT was paying for priority at TSMC at the worst point of shortage, that might have bumped the price some.

Also series S has been on sale under MRSP all the time.

Still hard to believe these numbers are right.

 

[ethomaz]

I imagine part of this subsidy stems from MS paying over the odds to get priority for components. They can't have thought they would be willing to accept long term subsided consoles hitting the market like that.

They don’t have priority on components… in fact they have way lower wafers from TSMC/AMD than Sony.

 

[ethomaz]

There was a rumour MSFT was paying for priority at TSMC at the worst point of shortage, that might have bumped the price some.

Also series S has been on sale under MRSP all the time.

Still hard to believe these numbers are right.

They didn’t… TSMC/AMD allocation was already set.

What happened is that MS changed the Series X and Series S wafer ratio… they choose to use more wafer on S than X and so it gives the increase in S stocks over the X but Sony that has a lot more wafer from TSMC continued having more PS5 worldwide than S + X combined.

 

[PropellerEar]

They don’t have priority on components… in fact they have way lower wafers from TSMC/AMD than Sony.

at the worst time of the shortage, there was a rumour of MSFT paying for priority.
Currently there is abundance of 6nm wafer, AMD wanted to get rid of their allotment, and might just be that Sony has claimed majority of that seeing they will come with a new 6nm revision and Sony says they will ship 30M consoles next year.

 

[ethomaz]

at the worst time of the shortage, there was a rumour of MSFT paying for priority.
Currently there is abundance of 6nm wafer, AMD wanted to get rid of their allotment, and might just be that Sony has claimed majority of that seeing they will come with a new 6nm revision and Sony says they will ship 30M consoles next year.

MS changed the amount of wafer used to production between X and S allocating less for X and more for S…. that way they increased the amount of Xbox produced without need any increase the number of wafer from TSMC/AMD (that was impossible at time because everybody wanted more TSMC wafer but they could not delivery more and when I say everybody MS and Sony are minor players that got a small part of AMD allocation… Sony and MS doesn’t even negotiate directly with TSMC..: they buy part of AMD allocation on TSMC thought AMD).

At worst PS5 shortage period Sony was still shipping more units worldwide than MS combined X + S.

What happened here is that Sony key markets like US have more stock to Xbox than PS5… that happens because Sony has to distribute worldwide way more units than MS that focus 60% of their production in US while Sony send to US around 30-40%.

 

[ethomaz]

Just to make it more clear… that was the TSMC production allocation for the last quarter of 2021.

Just take in mind Xbox and PS5 are inside these 4.39% of AMD allocation… Sony 2.54% are for others chips not PS5 related… and that is the reason MS is not even listed.

 

[Sircaw]

Simple as Sony buying more components = cheaper prices. They have the added advantage of unified APU and major component production, which are shared between digital and disc versions.

Xbox not only buys fewer components but they have to source parts for two completely different consoles.

i totally agree with what you're saying but i still don't get how the difference can be so high, it's not just high it's Sky high.

I am also looking at innovation cost, Sony's controller and SSD are much more advanced than Microsoft's yet the whole product still comes in cheaper.

Going by those numbers, Microsoft have been really piss-poor in their negotiations or they just don't care.

 

[Gediminas]

i totally agree with what you're saying but i still don't get how the difference can be so high, it's not just high it's Sky high.

I am also looking at innovation cost, Sony's controller and SSD are much more advanced than Microsoft's yet the whole product still comes in cheaper.

Going by those numbers, Microsoft have been really piss-poor in their negotiations or they just don't care.

Also sony's I/O and Sound engine plus compression tech. Plus assembling with liquid metal and etc.. It one of the most impressive tech piece of machine.

 

[Alabtrosmyster]

People can play video games for hundreds of hours," he said

Ironically, this is why gamepass makes no sense if your platform has really good games on it.

 

[Alabtrosmyster]

i totally agree with what you're saying but i still don't get how the difference can be so high, it's not just high it's Sky high.

I am also looking at innovation cost, Sony's controller and SSD are much more advanced than Microsoft's yet the whole product still comes in cheaper.

Going by those numbers, Microsoft have been really piss-poor in their negotiations or they just don't care.

Sony owns a lot of these technologies, there are no royalties to pay on each units for them... It probably makes a difference.

 

[thicc_girls_are_teh_best]

I imagine part of this subsidy stems from MS paying over the odds to get priority for components. They can't have thought they would be willing to accept long term subsided consoles hitting the market like that.

But if that's the case, where is the increased supply, particularly for Series X? I remember a while ago the rumor was MS had paid for chip priority early in the year hence why they had really good supply and Sony didn't. Honestly, that rumor was probably only ever half-right: I think MS DID pay for chip priority but it was back around or slightly before Summer 2021, when they were kitting out Azure servers with Series X chips and probably bulked up their order amounts (and paid a premium to do so).

That in turn likely allowed them to also get a lot of Series X units for regular customers, and they just rolled those out in time for Forza & Halo's releases and a few months afterwards. AKA if the chip priority stuff were true it was mainly due to needing increased Series X blade capacity in Azure centers, and regular customers just happened to also benefited.

But for the previous quarter and this one, MS have already said their supply for consoles will remain relatively flat YoY, and Series X systems reportedly have been harder to find in some places like NA compared to earlier in the year. Maybe they are paying a premium for priority of APUs for Series S systems and associated components? I guess that could be it.

But then that just leads into my thought that maybe the subsidization they're speaking of is their way of saying a "loss" (I mean they are practically interchangeable terms in this context anyway) and given Series S systems are readily available in almost all territories yet here in America for example, systems like PS5 have been outselling Series combined for multiple months of late (in part due to better supply), and we see with the recurring Series S sales, promotions, giveaways etc., I don't think it's too far-fetched to believe the costs he's mentioning here are due to some excess of unsold Series S inventory in some various markets, or the markdowns they are taking through retailers cutting prices of the systems in sales promotions (which are recurrent) to help move inventory (including potentially unsold inventory that may have been languishing for some weeks or even a month or two).

Otherwise I simply can't see in what ways if any Series X and S have a BOM, assembly, shipping, distribution etc. costs combined resulting in subsidizing $100 let alone $200 per system. I would argue that maybe marketing costs are tied into that but MS barely do any form of traditional advertising for Xbox consoles these days, that I notice anyway. Virtually zero TV ads, for example, and I don't think any advertising for specific games would be tied to the hardware itself. Plus it's not like when platform holders talk about subsidies/losses etc. they are factoring in advertising & marketing budgets.

Not much of a surprise here. Microsoft can easily absorb the losses and long term, they'll make it all back anyway.

Are you sure?

I think if you look at the total losses they took with OG Xbox, the 360, the XBO and now depending on how you look at it the costs they'll need to cover for acquiring Zenimax and ABK (tho IMO I think ABK is more something of the whole company, while Zenimax acquisition was more geared specifically on Xbox & GamePass), has Xbox as a division earned back in net profits the equivalent of ~ $17 billion or so?

Let's assume their revenuerofit ratio is similar to PlayStation's and let's assume Xbox takes in on average 55% of the amount in net profit PlayStation does, and give PlayStation an average of $2.5 billion in net each FY (FY 2021 was ~ $3.2 billion - $3.4 billion but their net in prior fiscal years wasn't always that high). So that's $1.375 net profit average per FY for Xbox going back to OG Xbox to now.

That's $27.5 billion in profits over 20 years, then. So I guess it is possible they can make back the losses after all, it's a question of in what timeframes would that be possible, among other things.

So I opened this asking if you were sure and ended with myself thinking that maybe you are right on this, but to say for sure (given the way MS conduct business with their Xbox division) cannot be said.

 

[Dick Jones]

But if that's the case, where is the increased supply, particularly for Series X? I remember a while ago the rumor was MS had paid for chip priority early in the year hence why they had really good supply and Sony didn't. Honestly, that rumor was probably only ever half-right: I think MS DID pay for chip priority but it was back around or slightly before Summer 2021, when they were kitting out Azure servers with Series X chips and probably bulked up their order amounts (and paid a premium to do so).

That in turn likely allowed them to also get a lot of Series X units for regular customers, and they just rolled those out in time for Forza & Halo's releases and a few months afterwards. AKA if the chip priority stuff were true it was mainly due to needing increased Series X blade capacity in Azure centers, and regular customers just happened to also benefited.

But for the previous quarter and this one, MS have already said their supply for consoles will remain relatively flat YoY, and Series X systems reportedly have been harder to find in some places like NA compared to earlier in the year. Maybe they are paying a premium for priority of APUs for Series S systems and associated components? I guess that could be it.

But then that just leads into my thought that maybe the subsidization they're speaking of is their way of saying a "loss" (I mean they are practically interchangeable terms in this context anyway) and given Series S systems are readily available in almost all territories yet here in America for example, systems like PS5 have been outselling Series combined for multiple months of late (in part due to better supply), and we see with the recurring Series S sales, promotions, giveaways etc., I don't think it's too far-fetched to believe the costs he's mentioning here are due to some excess of unsold Series S inventory in some various markets, or the markdowns they are taking through retailers cutting prices of the systems in sales promotions (which are recurrent) to help move inventory (including potentially unsold inventory that may have been languishing for some weeks or even a month or two).

Otherwise I simply can't see in what ways if any Series X and S have a BOM, assembly, shipping, distribution etc. costs combined resulting in subsidizing $100 let alone $200 per system. I would argue that maybe marketing costs are tied into that but MS barely do any form of traditional advertising for Xbox consoles these days, that I notice anyway. Virtually zero TV ads, for example, and I don't think any advertising for specific games would be tied to the hardware itself. Plus it's not like when platform holders talk about subsidies/losses etc. they are factoring in advertising & marketing budgets.



Are you sure?

I think if you look at the total losses they took with OG Xbox, the 360, the XBO and now depending on how you look at it the costs they'll need to cover for acquiring Zenimax and ABK (tho IMO I think ABK is more something of the whole company, while Zenimax acquisition was more geared specifically on Xbox & GamePass), has Xbox as a division earned back in net profits the equivalent of ~ $17 billion or so?

Let's assume their revenuerofit ratio is similar to PlayStation's and let's assume Xbox takes in on average 55% of the amount in net profit PlayStation does, and give PlayStation an average of $2.5 billion in net each FY (FY 2021 was ~ $3.2 billion - $3.4 billion but their net in prior fiscal years wasn't always that high). So that's $1.375 net profit average per FY for Xbox going back to OG Xbox to now.

That's $27.5 billion in profits over 20 years, then. So I guess it is possible they can make back the losses after all, it's a question of in what timeframes would that be possible, among other things.

So I opened this asking if you were sure and ended with myself thinking that maybe you are right on this, but to say for sure (given the way MS conduct business with their Xbox division) cannot be said.

I dont know where you live but in Ireland but we are swimming in Xboxes. You could go into any game shop and buy an Xbox X or S. Better off moving some of that stock to countries where supply is constrained. The supply is like that here for around a year. Poor planning in distribution could answer part of your question as to where the increased produced stock is.

 

[PropellerEar]

Is Sweden Series X has been available of the shelf whole year.
Series S since Launch.

PS5 stock clears in minutes.

 

[Sircaw]

Is Sweden Series X has been available of the shelf whole year.
Series S since Launch.

PS5 stock clears in minutes.

Stop lying, it's seconds not minutes.

 

[Gamernyc78]

So many times (from fans to executives) thy have lied I don't believe anything thy say.

 

[Dabaus]

If you really analyze what he’s saying it’s that cloud gaming isn’t taking off like how they expected, gamepass isn’t growing at the pace it needs to, we’re bleeding money on hardware, and they want to expand to mobile which is dependent on Apple and Google letting us on their stores through brute force of courts forcing them to allow a gamepass app. Now I assume he’s doing a bit for cma regulators to be woe is me but I also believe him. Xbox has been, is, and will be a failure under his leadership and vision.

 

[thicc_girls_are_teh_best]

I dont know where you live but in Ireland but we are swimming in Xboxes. You could go into any game shop and buy an Xbox X or S. Better off moving some of that stock to countries where supply is constrained. The supply is like that here for around a year. Poor planning in distribution could answer part of your question as to where the increased produced stock is.

That's what I've been arguing in favor of the whole time . Was wondering why so many other answers I've seen on the topic do not factor in something like oversupply of Xbox systems in the distribution channels (namely Series S).

But it might be better to phrase that loss (MS calls it a subsidy but same difference) not as oversupply, but nonoptimal supply, or poor distribution of Series units in various markets, as you've put it. Your example WRT Ireland is exactly the type of phenomenon I'm talking about lending credence to the idea part of that cost Phil's giving is a general loss (averaged out) across the systems due to misplaced supply in several global markets.

Though I personally also think simple oversupply in general of Series S systems (relative to demand) might be a part of that as well.

 

[Killer_Sakoman]

It means that we'll stop hearing Xbawk guys complain about $70 games

But here they can control only their own 1st party games. There is another implication for that which will eventually follow "We cannot put every new release on Gamepass day one"