According to Microsoft Gaming CEO Phil Spencer, Microsoft loses as much as $200 on every Xbox it sells. According to CNBC‘s writeup of a recent WSJ Tech Live event, Spencer disclosed that Microsoft subsidizes the production cost of a new Xbox by about $100 to $200 per console.
There was some confusion about Spencer’s comments, and Microsoft followed up with GameSpot to send through exactly what Spencer said during the event. He said:
“Consoles as a business model, in the overall scope of gaming, is fairly small relative to the places people play. Consoles evolved to a business model much different from phones where consoles are actually sold at a loss in the market. So when somebody goes and they buy an Xbox at their local retailer we’re subsidizing that purchase somewhere between a hundred and two hundred dollars, with the expectation that we will recoup that investment over time through accessory sales and storefront.”
Spencer added, the report said, that Microsoft expects to make up the difference by selling games and accessories, which are known to have better profit margins. The report had no information on the subsidization costs for the Xbox Series X versus the Xbox Series S versus the Xbox One.
It’s been known for some time that consoles are loss leaders. But this is among the first times that an executive at a console producer is putting a specific dollar amount, or in this case, a range, to the extent of the cost. The CNBC piece doesn’t directly quote Spencer, and GameSpot has followed up with Microsoft in an attempt to get more details.
Spencer made these comments around the same time that he confirmed that Xbox Game Pass is profitable, but he shied away from offering any further specifics about the economics of the service. Spencer also recently talked about how Microsoft will likely implement Xbox price increases in the future, but not until after the holidays. Rising production costs due to supply chain issues and logistics for consoles led Sony to announce a PS5 price hike for some regions, and Microsoft may be next to follow.
The Xbox being sold for a loss is not a surprise. Selling hardware for a loss and making up the difference has been the strategy from Microsoft and Sony for multiple console generations. As part of the Apple vs. Epic court case, Microsoft revealed that it has never made a profit selling Xbox hardware, dating back to the original Xbox. Nintendo is a rare example, as it claims to sell the Nintendo Switch for a profit.
Even though Microsoft loses money on every Xbox it sells, Xbox made more money in the past three months than ever before during a Q1 in the company’s 20-year history.
Spencer also recently acknowledged that Xbox hasn’t had many exclusives lately, going on to state that 2023 should be a bigger year with Starfield and Redfall, among others.
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