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Analysts warn of struggle for Xbox

 
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PostPosted: Fri Jun 06, 2008 3:04 am    Post subject: Analysts warn of struggle for Xbox Reply with quote

http://www.gamesindustry.biz/articles/analysts-warn-of-struggle-for-xbox

Quote:
"When you look at an installed base basis, the Xbox 360's going to come in third place when all's said and done," said DFC Intelligence analyst David Cole. "The concern I would have with a company like Microsoft is, one of these days they're going to have to make a profit on this business otherwise why are they in it?"


Well with the Xbox costing Microsoft 4 billion dollars in losses making it the most financially unsuccessful platform of all time, it is a bit of a worry. While the Xbox 360 is doing much better, profitability is still not in sight, let alone taking into consideration the already burnt 4 billion dollars for the Xbox 1.

Also, dont be mislead by reports that Microsofts Xbox division has profitable weeks or months. Making more money then spending it in a single week or month or quarter does not make up for overall losses the division has made.
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PostPosted: Fri Jun 06, 2008 3:15 am    Post subject: Reply with quote

Wasn't their plan from the start was to piss away billions and gradually steamroller their way in?
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PostPosted: Fri Jun 06, 2008 4:02 am    Post subject: Reply with quote

Well they did think the first generation would be profitable. They wouldn't of anticipated them still to not be profitable.

There next console still might not be profitable either. Fortunately Microsoft has deep pocket (some of the deepest).... but... money has to be made eventually...
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PostPosted: Fri Jun 06, 2008 7:32 am    Post subject: Reply with quote

There have been a lot of articles and rumblings about Microsoft lately. Their old technique of simply throwing money around and hoping to land in a majority position in any given market (OSes, keyboards, game consoles, music players, software, etc.) doesn't work anymore. There is too much competition, and the market works on slightly different principles than when they muscled their way into the PC industry.

Oddly, the Xbox and Xbox 360 are their best products, brand-wise. The Xbox moniker is a household name for many people, especially here in North America. Despite all this, yeah, they can't seem to make a cent off anything.

I blame this mostly on terrible management and bad resource allocation. The poor build quality of the 360 alone is costing MS extra millions. They can't just burst through the door, start shooting, and hope to come out alive; they need to start thinking like a small company again if they hope to make any inroads with disgruntled users and the users of their competitors. It was reported in the latest Fast Company that Apple has less than half of MS's marketing budget, but spends it wisely and sees results from that. Microsoft could do great things with their size and resources; they need to ditch the uninspiring suits running the show and start thinking intelligently about what they want to do.

Similarly, Nintendo, for all their faults, at least knows how to balance its books. By selling all its hardware at profit, not a loss, they make money no matter what happens. Microsoft's reliance on admittedly excellent, but relatively scarce software properties to balance all its loss-leading hardware is further weakening their ability to compete, I think.

It's been well-documented in recent years how Sony really hurt itself through poor internal management and infighting. They lost so many opportunities to Apple and other hardware competitors (Samsung, etc.) because they couldn't get their shit together. I think Microsoft is going through a similar process. Sony is starting to bounce back in some fashion; if Microsoft wants to do the same, they'll need to embark on a similar period of re-evaluation.
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PostPosted: Fri Jun 06, 2008 9:08 am    Post subject: Reply with quote

I don't think this surprises them all that much. The 360 is the longest console to go without a significant price drop, multiple SKUs aside, to try to squeeze all of the profits they can out of the system. In the end, the Wii's overall success has been a surprise to all, apparently even to Nintendo, but MS knew that Sony is both a dominant name and platform. So you have a console that is now going on 4 years old, about the same price as at launch (slightly more or less, going by which version chosen), against the third iteration of the strongest console to come around since the NES and the home of the NES. Profitable weeks and months, from past interviews, is all they've been shooting for. It's a gradual process that they knew would be, and are capable of, grinding out. The Xbox doesn't have to be an out-the-park figure - or even in the positive.

Every other division at the company - as far as the 2007 records show - was extremely profitable, including Vista, business (Office), and online; and the entertainment division (Xbox) is profitable at this point. Every day they keep the 360 on the market is a day they hump to covering the divisions current costs (and past, in minds of readers), and they could lower the price to earn more back but I'm guessing they are assuming it's almost too late for that and might, if anything, give a token drop around the holidays. The company has all a large stable of software titles - Encarta, Money, Trip - that sell well but that aren't the flagship titles (as it is).
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PostPosted: Fri Jun 06, 2008 9:29 am    Post subject: Reply with quote

Here in the UK, the premium 360 has gone down in price by about £100 since it first came out.

Which is about $200 if you convert it with normal human maths, or $100 if you use absurd console pricing maths.
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PostPosted: Fri Jun 06, 2008 10:16 am    Post subject: Reply with quote

North America got got a few bucks off and at one point two pack-in titles (pretty good ones at that).

For comparison, the original PSX launched in December 1994 for $299.99 and by November 2006 it was selling for $129.99. The 360 Premium launched for $399.99 in 2005 and now it's $349.99.
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PostPosted: Fri Jun 06, 2008 11:18 am    Post subject: Reply with quote

Well, as linear rates of price reduction go, those are pretty close!
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PostPosted: Fri Jun 06, 2008 5:50 pm    Post subject: Reply with quote

Analysts say a lot of things.
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PostPosted: Fri Jun 06, 2008 7:35 pm    Post subject: Reply with quote

The drop then would equal $241 now. Adjusting for inflation, the present value of the PSX would have dropped from $425.23 to $184.34.
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PostPosted: Fri Jun 06, 2008 9:52 pm    Post subject: Reply with quote

Warn of struggle to lift the Xbox.
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PostPosted: Sat Jun 07, 2008 1:11 pm    Post subject: Reply with quote

Well Apple have about 5% if the market so they cant be spending there marketing to wisely in comparison to Microsofts. And if indeed Apple have 50% of the marketting budget with those sorts of returns then the bang for buck is terrible.


In regards to the failure of the original Xbox.

Console sales of last the 6th generation

PlayStation 2 - 127 million (as of December 31, 2007)
Xbox - 24 million
GameCube - 21.74 million

The GameCube era was more profitable then the Nintendo 64 era despite selling far far fewer units. The GameCube was out selling the Xbox right up to 2004.

The reason for this is;

GameCube
- Game Cube wasn't sold at a loss
- 20 of the top 26 selling games are Nintendo owned. 20 games sold over 1 million copies.
- Nintendo makes lots of money off peripherals, memory cards, four controllers, kongo drums, mario dance mat etc etc
- Equally successful in all regions
- Nintendo is the largest and most profitable publisher on the platform

PlayStation 2
- The PlayStation 2 was quite quickly no longer sold at a loss.
- 17 of the top 46 titles are Sony owned. 28 Sony games sold over 1 million units.
- Sony makes money off peripherals like EyeToy, SingStar and Buzz.
- Equally successful in all regions
- Sony is the largest and most profitable publisher on the platform

Xbox
- Was never sold for profit
- 4 Microsoft games sold over 1 million units.
- Had very few Microsoft peripherals, Xbox Live wasn't profitable.
- Only successful in North America and Australasia.
- Microsoft is one of the smallest publishers on the platform.



The Xbox 360 while doing much much much better this time around. Indeed the Xbox 360 has penetraded the European market to an extent, has already had 28 titles that have sold over 1 million copies whereas the Xbox 1 only had 17 in total! Plus the Xbox 1 sold 24 million units and the Xbox 360 has *already* sold 19 million

But with the Xbox 360 being less popular in Japan then the Xbox 1, and consistent losses on the project for 9 years straight now (besides the quarter when Halo 3 was released), it is a worry for them.

Sales of consoles in April;
Xbox 360 - 188,000
PlayStation 3 - 187,000

The Xbox and PlayStation 3 are neck and neck already with growing PlayStation 3 sales. But Home, LittleBigPlanet, Tekken, Gran Turismo, Final Fantasy, Metal Gear Solid, Team ICO etc etc aren't even out yet.


It's hard to deny the Xbox 360 is now *starting* to wind down in terms of sales in much of the world. Of course Microsoft doesn't have to be number 1 to have a successful console. Whether Nintendo or Sony come first doesn't matter, both are a success because they both will make a lot of money.
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PostPosted: Sun Jun 08, 2008 8:50 am    Post subject: Reply with quote

Wow, this is a rather un-TGQ like almost-advocacy thread. Not really, but more business oriented than most here.

I guess a feeling of wind-down for the 360 (which I haven't really felt yet) is going to be amplified by the Blu-Ray boost PS3 should be getting now that the format war was decided.

I just hope 360 remains a standard platform for multiplatform games, and life doesn't become PS3 and Wii exclusives.
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PostPosted: Sun Jun 08, 2008 10:49 am    Post subject: Reply with quote

Oh it very much will be around, the Xbox 360 isn't going anywhere. It enjoyed first place for a while, and will enjoy second place for a while to come. But not forever. If your lucky enough to be in North America or Australasia Xbox 360 and PlayStation 3 will be both viable platforms for the span of the platform and will have very similar numbers.

However in Europe the PlayStation 3 will most likely outsell the Xbox 360 by 20 - 40%

With the Xbox 360 still being completed neglected by Asian markets.

The markets are mature enough to support both in some capacity. And as we should be able to tell by now, the Wii isnt in direct competition with the Xbox 360 or the PlayStation 3.

I'm actually mystified how well they have pulled that off actually.

I knew Nintendo had something up there sleeve, most think it was the motion sensor - but it wasn't. The greatest trick they ever pulled was convincing us they werent in competition with Sony and Microsoft. If a few years ago you asked me if it was possible I would of thought you were crazy. But here we are, talking about the PlayStation 3 versus Xbox 360... and then think "oh yeah Wii too". Even to us Gamers they have completely set themself aside. Remarkable, imagine if the Dreamcast or 3DO had managed to do that.

People should be really impressed.
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PostPosted: Sun Jun 08, 2008 1:19 pm    Post subject: Reply with quote

I most likely would have bought a 360 within the last two years, except there was only one title on it I wanted to play, and I didn't want to buy a console I had to assume was going to break within the eight months. They still haven't fixed the hardware issues; what type of educated consumer would buy one, at this point?

Then the one-two punch of the original 60GB PS3 beginning to disappear and the Bluray announcement drove me to the other side. A 360's entirely out of the question for me now, even if they eventually make one unbrickable.
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PostPosted: Sun Jun 08, 2008 3:48 pm    Post subject: Reply with quote

kirkjerk wrote:
Wow, this is a rather un-TGQ like almost-advocacy thread. Not really, but more business oriented than most here.


Glad I'm not the only one to notice. This thread definitely seems more like something you'd find on NeoGAF.

The biggest drawback to having two viable HD consoles is the bifurcation of the online player base. It especially sucks when relatively niche games like Armored Core 4 have their already small player base split between two consoles.
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PostPosted: Sun Jun 08, 2008 4:34 pm    Post subject: Reply with quote

jjsimpso wrote:
The biggest drawback to having two viable HD consoles is the bifurcation of the online player base. It especially sucks when relatively niche games like Armored Core 4 have their already small player base split between two consoles.


That reminds me about how I try to roll in such small user bases to my concept of "small world syndrome"... when you see a little community of, I dunno, 50-100 folks or something, it seems amazing that in a world of billions that that's all you get.

In so much in life it seems so difficult to do something that no one, or even very few, people are doing. Because the world is so big. Then other times it seems like such a small interconnected group of people... like i can't decide if, say, the greater Boston software development community seems large enough to get lost in or small enough to know everyone, or know someone who knows someone.

And then when I try to use that to figure out how companies make money, when I see what I know of professional salaries, and then what I know of per-unit prices...

Numeracy is hard.
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PostPosted: Sun Jun 08, 2008 9:59 pm    Post subject: Reply with quote

jjsimpso wrote:
Glad I'm not the only one to notice. This thread definitely seems more like something you'd find on NeoGAF.

I'll check it out. Im searching for a new home, and dont know where I belong yet. haha
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PostPosted: Sun Jun 08, 2008 10:28 pm    Post subject: Reply with quote

Access wrote:
jjsimpso wrote:
Glad I'm not the only one to notice. This thread definitely seems more like something you'd find on NeoGAF.

I'll check it out. Im searching for a new home, and dont know where I belong yet. haha


Well, I certainly don't think NeoGAF is a good substitute for TGQ! But, you will find a lot of industry discussions on there. Lots of debate/predictions over sales numbers, etc.

Just an observation, not trying to scare you away Smile
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PostPosted: Mon Jun 09, 2008 4:19 am    Post subject: Reply with quote

Access wrote:
Fortunately Microsoft has deep pocket (some of the deepest).... but... money has to be made eventually...


Why? I know this is a business and all but isn't Microsoft kind of an exception here given that it can afford to lose money like this and not be affected by it? Anyway aren't Bill and Melinda Gates actively trying to give away most of their fortune to charities and such before they die? Seems kind of disingenuous (probably the wrong word for what I'm trying to say) to compare how Microsoft operates next to the likes of Nintendo (who actually are profitable) or Sony (who I guess are breaking even?).

Yeah I'm not very good at business threads.
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PostPosted: Mon Jun 09, 2008 6:50 am    Post subject: Reply with quote

Fuck it, I bought a Saturn at launch, I bought a Dreamcast at launch, and I got a 360 as close to launch as possible.

I guess the Saturn failed for its horrible reception in America (due largely to Sega's own lack of advertising + ps1 release + Sega's consumer-confusing systems release combo).

The Dreamcast was doing well in America but sruggling in Japan IIRC. The Japanese division decided to pull the plug. (Or their lack of money decided for them).

The 360 has a good American install base and decent European install base with a horrible Japanese install base. Microsoft is a huge American company. Does it have a "Microsoft of Japan" with any weight in the decision making process?

I'd be willing to bet owning a 360 in Japan feels like owning a Saturn did in America in the later 90's.
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PostPosted: Mon Jun 09, 2008 7:39 am    Post subject: Reply with quote

I kinda wonder which situation is better to be in from a consumer mindset perspective. Is it best to have the system that most people own but nobody buys games for or the one that fewer people own but sells by far the most games. The hardware is traditionally thought of as where money is lost and software where money is made, but theory dictates that the most money should be made by the ones selling the most hardware. Then again, the ones currently selling the most hardware are also the ones whose first party games do the best. Unfortunately this also means that third party games don't do anywhere near as well. So if you're a third party and you're going to make a game for the Wii, you're making it for a system on which few owners ever even look at the game wall and the ones that do (kids) don't even buy their own games.

It's a pretty strange situation.

I hear there's a rumor that Microsoft is going to announce a $400 Blu-Ray capable Xbox 360 this afternoon. I'm assuming this means the other skus would drop in price? We'll see!

-Wes
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PostPosted: Mon Jun 09, 2008 8:12 am    Post subject: Reply with quote

jjsimpso wrote:
Access wrote:
jjsimpso wrote:
Glad I'm not the only one to notice. This thread definitely seems more like something you'd find on NeoGAF.

I'll check it out. Im searching for a new home, and dont know where I belong yet. haha


Well, I certainly don't think NeoGAF is a good substitute for TGQ! But, you will find a lot of industry discussions on there. Lots of debate/predictions over sales numbers, etc.

Just an observation, not trying to scare you away Smile

Yeah, it wasn't meant as a criticism.

I know the urge to look for homes. I've tried a few that never felt right. RIght now I'm seeing too if I can supplement my fun w/ this place with TIGsource forums...
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PostPosted: Mon Jun 09, 2008 2:36 pm    Post subject: Reply with quote

Well the hardware itself doesn't matter. Get the platform with the most games that appeal to you, then ideally, get them all.


DaleNixon wrote:
I guess the Saturn failed for its horrible reception in America (due largely to Sega's own lack of advertising + ps1 release + Sega's consumer-confusing systems release combo).

Oh it failed for a lot more reasons then that.


DaleNixon wrote:

Does it have a "Microsoft of Japan" with any weight in the decision making process?

No, Peter Moore was hired specifically because of his understanding of Japanese markets.
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PostPosted: Tue Jun 10, 2008 6:42 am    Post subject: Reply with quote

Sorry to stray off topic, but will you elaborate on the "more than that" about the Saturn's failure?

I'm not trying to be a jerk here. I'm just curious about your thoughts.

Could it have something to do with the infamous Del The Funkee Homosapien's line from "Proto Culture"?:

Quote:

"Bernie Stolar dropped the ball with the ram cartridge, X-Men vs. Street Fighter could have expanded the market"

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PostPosted: Tue Jun 10, 2008 10:57 am    Post subject: Reply with quote

I can think of three core Reasons;

1) Hardware
Sega had some creative hardware. Im a massive fan of Sega's arcade division, and I think if people understood architecture they would see that Sega Model 1 would be considered a great works. (I guess Virtua Fighter is in the Smithsonian, so someone somewhere does agree with me).

Sega fans dont like me saying this but its quite true - Sega's arcade division did not make their Consoles until the Dreamcast (which was NAOMI based). And all the prior hardware had very "interesting" designs at best and "incompetent" at worst. Big call, I know - but im prepared to back it up.

The Sega Saturn was clearly build with no future in mind, and was a throw back to the 16bit era. The bottom line is, the Sega Saturn was designed for 2D games and made it extremely difficult to produce 3D. The Cell Architecture in the PS3 has nothing on the difficulty at producing 3D on the Saturn.

The Saturn had duel processors. One of them built specifically with all the hardware calls to load/unload sprites, move and blend sprites and perform 2D scrolling and manipulating sprites and mode 7 style scrolling and a whole raft of other 2D functions. However because its API was 2D focused it made 3D games nearly impossible.

The designers idea though was that 2D manipulation would occur in one processor and it would free up the other processor to deal with sound, AI, and everything else. (They did bottle neck with a single bus though which is a shame, but a duel bus would of been more complicated to work with, in fact the balanced load is one of the most impressive things about the CELL processor, it really is incredible).

Anyway I digress, the problem was that in the 32 bit age, 3D was all the rave so their carefully constructed duel processors became useless. Some people tackled it by using the 2D processor for 3D by using the rotating sprite manipulator as a 3D calculator. So genuinely converted all the triangle polygons literally into 2D arrays, so you couldn't just use modeling software and import directly into it. It was crazy. Trying to wrap your head around it is insane, I really don't know any programmers who could manage it. What made it worse was it didn't actually use Triangles like 99% of all modeling software used, it used quads, so EVERY model would have to be converted from Triangles to Quads anyway. On top of this, even just using the 2D manipulator couldn't maximize the processor, so it was impossible as far as I can tell to use more than 40 - 50% of the second processor for 3D titles.

Plus rendering is the most intensive thing games do these days. So you could dedicate all the AI, sound and everything to one processor then dedicate rendering to 50% of the other? Well its not as if everything maxed out the first processor, so now imagine trying to load balance 3D rendering over both processors with one being hampered by its crazy API for manipulating sprites. Absolute mess! I dont know anyone who successful load balanced 3D over both processors, Yu Suzuki came the closest though.

So the two options were, use half a processor for 3D calculations in a horrible and difficult way, something 99% of all company's could not afford, nor had the talent to do. Almost all developers were forced to make 3D games on the Saturn using only one processor. Absolute mess. Plus for a platform that had a CD drive it didn't provide very good support for FMV's. Its really hard to know what to make of the platform.

If it was still the early 90's the Saturn would of been the perfect platform for 2D games, but that era was long gone, and the Engineers who made the Saturn hadn't realized that yet. Although games like Bomberman, Street FIghter Alpha, King of Fighters and other high quality 2D games were far easier to develop, and operated much faster then the PlayStation could ever muster.

Sony early on refused any game that were 2D and encouraged exclusively 3D development, so 2D games on the Sega Saturn enjoyed a mecca in Japan whereas they couldnt find themself a home on PlayStation which explains why despite PlayStation sold more units early on, the Sega Saturn sold way more software units because Japanese 2D fanatics were getting there final send off. While 3D games tended to be developed for PlayStation.

American developers are always more technology focused and developers knew the limitations of the Saturn in 3D so most just snubbed the platform completely, the few that did attempt were soon turned off because of my next point.


2) E3
E3 1995, what a year. It was the first major games exclusive trade show set up in the States, second largest in the world. And Sega wanted to dazzle.

It must have been an exciting time for Sega. They knew something no one else did..... and I mean no one. They had already successfully launched before Sony in Japan, and despite not doing that well on the hardware side, were selling an amazing number of software units (and this is a software business).

The official US release was in four months with
E3 taking place 11th - 13 of May with the official launch of the Saturn set to be 2nd September 1995 with the PlayStation release a few days later on the 9th September.

Sega was obsessed with not only launching before Sony but also doing there keynote speech before Sony.

Sega got up and shocked the entire room! They announced the Sega Saturn is not launching in four months, but had already launched!!! And stock was already shipping to select Stores around the country as they spoke going on retail for $399. The crowd was stunned.

NO ONE, knew this was happening.
- Developers were making games for a 9th September release - software wasnt ready. It annoyed a lot of developers.
- Marketting had not started because it was a secret launch, so consumers didnt show up. It annoyed a lot of retailers.
- Video game journalists werent ready to allocate resources to review the console let alone inform the public of its launch when only they had just heard about it and were stuck at E3 for the next few days. It annoyed alot of journalists.
- Sega annoyed many retailers who weren't "in on" the quiet launch, so many stores boycotted them. And many specific stores that were meant to be in on it, simply werent and when the stock arrived they had no clue what to do with it.

It sounds horrible, but thats exactly what happend - everyone was annoyed, and many questioned the high $399 price as well.

Then the final nail in the coffin.... Sony followed up Sega's keynote. They approached the microphone, and said one word. "$299".... the crowd went ballistic cheering.

That was it for the Sega Saturn in the West.


3) Inverse Osbourne Effect

Another problem was the constant release of Sega hardware like the 32X and the SegaCD had been flooding US stores and not selling. Stores were already skeptical of Sega's commercial success, the E3 fiasco was the final straw and some large chains just boycotted them.

It also had annoyed many consumers as well. Parents who had just forked out for a 32X and/or SegaCD certainly weren't going to turn around 6 months later and buy a Sega Saturn like Sega wanted.

The SegaCD and 32X didnt make a profit for Sega, and I bet they actually *hurt* the sales of the Sega Saturn.


They would be my top three reasons.
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