Xbox Consoles Sell At A Loss, Says Phil Spencer [Updated]

Update:

Previously we stated a specific amount loss for each console. This was a theory and not accurate information from the recent interview.

It might come as a surprise to learn, but apparently, Microsoft makes a fairly substantial loss on every Xbox console sold. According to a new report, both the Xbox Series X and its more budget-friendly counterpart the Xbox Series S sell at a loss on each unit.

As reported in Exputer, Xbox boss Phil Spencer has been sharing some further details on exactly where and how Xbox turns a profit. Surprisingly, console sales aren’t actually where the company generates the best income. It’d be fair to assume that Microsoft made its largest chunk of revenue from sales of its flagship current-generation Xbox consoles, but this doesn’t seem to be the case. With the Series X costing $499 and the Series S costing $299, there are options for consumers on both ends of the budget spectrum. Phil Spencer stated that consoles are actually sold at a loss in the market. Instead, companies are able to recoup the investments through accessory sales and their storefronts.

Although this sounds like pretty concerning news for Microsoft overall, it’s actually a hit that the company seems willing to take. This is down to an expectation that Xbox will recoup losses made on console sales through sales of subscriptions to its Xbox Game Pass service and through sales of other software such as games, accessories such as headsets and hardware, as well as other digital items. Speaking in an interview with WSJ TechLive recently, Spencer reportedly confirmed this to be the case.

“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.”

Phil Spencer, CEO, Microsoft Gaming

Spencer also took the time to explain that while there’s been relatively steady sailing for subscribers to Xbox Game Pass over the last few years, there’s no guarantee of Microsoft being able to keep today’s console and Game Pass subscription prices at the same rate as they are now in the long-term. Still, that’s just part and parcel of today’s economy, really. With Microsoft missing its internal targets for the growth of Xbox Game Pass subscriptions for the second year in a row recently, it’s fair to say the company may soon be reevaluating its current offering.

Console prices are a hot topic today, with Sony publishing some interesting figures for the first half of this financial year this morning. As far as sales of the PlayStation 5 go, Sony has managed to shift an impressive 25 million console units to date. This is in spite of Sony hiking up the overall cost of the PS5 console in August, which was in response to high inflation rates across the “global economic environment.” However, despite the console continuing to sell well, overall profits have taken a bit of a nosedive, which evidently has a lot to do with the company’s revamped PlayStation Plus subscription service, as well as ongoing costs.

As far as Xbox goes, it’ll remain to be seen how long Microsoft is prepared to subsidize console sales with the expectation of making the losses back through subscriptions, game sales and accessories.

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