Microsoft, like Sony, has focused on high-end video game consoles with an emphasis on graphics technology. As a result, these consoles tend to be very expensive to produce, and it typically takes years before production costs come down and they start turning a profit per console sold. But apparently in the case of Xbox, there has never been a point where Microsoft's made money.
“Has Microsoft ever earned a profit on the sale of an Xbox console?” asked a lawyer to Microsoft VP of Xbox business development Lori Wright today, as first noted by The Verge reporter Adi Roberterson.
“No,” said Wright in response.
The surprising disclosure was made today during the ongoing Apple vs. Epic games lawsuit, in which the Fortnite developer is pressing Apple about the closed nature of its App Store. Other companies have been roped into the proceedings, forced to answer awkward questions or disclose private conversations. It's how we've learned about Sony's aversion to cross-play and that Apple CEO Tim Cook didn't know who Epic CEO Tim Sweeney was.
And it's also how we've learned that Microsoft's never made any money selling an Xbox.
Where Microsoft makes its money—and a question at the heart of this lawsuit—is by taking a percentage of profits from every game sold on the Xbox platform. It's standard practice in the console business to take 30 percent of every transaction. That's also how Apple handles the App Store, though Apple announced that cut drops to 15 percent for developers of a smaller scale.
Microsoft wouldn't be in the Xbox business if it wasn't helping the company.
It's also been transparent about such losses before. In 2017, Xbox head Phil Spencer told Business Insider the company wasn't making a profit on its then-new Xbox One X. But Spencer was also quick to point out it wasn't a loss, either. It could've been breaking even.
"I don't want to get into all the numbers, but in aggregate you should think about the hardware part of the console business is not the money-making part of the business," said Spencer. "The money-making part is in selling games."
Sony operates the same way, with Nintendo, a company less invested in services and digital subscriptions, tending to value making a profit on hardware as soon as possible.
"Hardware being unprofitable certainly played a bigger role in the late 90's and early 2000's (oh and PS3 era lol)," said senior Niko Partners analyst Daniel Ahmad on Twitter. "Both the PS5 and Series X/S are being sold at a loss right now, but will become profitable down the line most likely. Nintendo is somewhat of an outlier."