According to Phil Spencer, the CEO of Microsoft Gaming, the company loses up to $200 on every Xbox console sold. It was also disclosed by Spencer that the company subsidizes production costs from anywhere between $100 to $200 per console.
To clarify any confusion that may have arisen from this, Spencer issued a statement that 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 storefront and accessory sales.”
Spencer went on to claim that Microsoft intends to compensate for the difference by selling accessories and games, which are known to have superior profit margins. Unfortunately, the report mentioned no information regarding the costs of subsidization for the Xbox One versus the Xbox Series S versus the Xbox Series X.
The industry has known for quite some time that consoles tend to lose money. Of course, this is among the first time that an executive is coming out with a specific dollar amount or range to the cost extent. These comments were made around the time that Spencer also claimed that the Xbox Game Pass is a profitable endeavor. However, he did not provide anyone with specifics about the service or its economics.
Furthermore, Spencer talked recently about how the company is likely going to implement increases to the price of their line of consoles, but not until the holidays. Rising costs of production in response to issues in the logistics and supply chain have led Sony to also announce a price hike for the PlayStation 5 in certain regions.
It comes as no surprise that the Xbox is being sold at a loss. For multiple generations, Microsoft and Sony have both been selling their hardware to make up the difference from other means. Microsoft also revealed that it never made a profit selling hardware from as far back as the original Xbox in the recent court case with Apple and Epic. Conversely, given the increasingly low cost of production for weaker hardware, Nintendo sells the Switch for a profit.
Despite the fact that Microsoft loses money on every Xbox sold, the company has achieved more profits in the past 3 months than ever before in its 20-year history.
Spencer also acknowledged the lack of focus on exclusives in recent times, stating that 2023 should be a better year given Redfall, Starfield, and many other games.