The company has always sold its Xbox at a loss, they confirm in the Epic Vs. Apple lawsuit.
Xbox admits it has never made a profit on console sales
Epic Games’ lawsuit against Apple that began last Monday revolves around a very specific issue: monopolies in digital stores. And with that, its sessions bring us authentic pearls coming from the biggest companies and manufacturers in the sector. For example, yesterday it was the turn of Lori Wright, vice president of Xbox, to testify as a witness, who confirmed a detail that many suspected about the brand’s strategy. Whether Xbox Series X or Xbox One, like the original consoles, Xbox has never made a profit on console sales.
Microsoft has stated to clarify Lori Wright’s statements. In it, they make it clear that their Xbox division is a profitable business, and as we explained below, that selling their consoles at a loss is a common industry practice. “Companies sell their consoles at a loss to attract new customers. Profits are generated from game sales and subscriptions to online services”, they explain.
Asked by Epic Games attorney Wes Earnhardt about the profit margin Microsoft makes on each console sold, Wright replied, “We don’t have one. We sell the consoles at a loss.” To this, Earnhardt, asked if Microsoft has ever generated any profit from the sale of an Xbox console, to which Wright added simply “no”. It should be noted that much of this lawsuit revolves around the 30% App Store fee, with Epic forced to demonstrate why Apple’s ecosystem would amount to a monopoly versus similar closed platforms such as consoles.
Hence the importance of determining whether manufacturers such as Xbox make a profit on hardware sales, or whether all of their profit comes from such fees. Selling consoles at a loss is a common occurrence in the industry, not unique to Xbox. In the case of PlayStation, for example, Sony itself has admitted that it is selling the new PS5 at a loss. And as Wright explained below, Xbox’s strategy is to deliver “an end-to-end gaming experience,” where console sales are critical to then drive sales of games and services like Xbox Live Gold and Xbox Game Pass. Which is what generates profits for them.
Of course, it is usual that the cost of manufacturing consoles is reduced over time, and their sale becomes profitable after several years of generation, as shown by analyst Daniel Ahmad on Twitter. So it’s surprising that Xbox so bluntly states that they have never made a profit on the sale of their consoles.
