Xbox’s Data Suggests They Might Have A Better Profit Margin Than PlayStation

Microsoft revealed how much they have been profiting for the FTC court case, and the results, well, they will probably surprise you.

As reported by Tweaktown, Microsoft shared what had usually been confidential data about the Xbox division’s sales and profit numbers. So let’s break it down one by one.

For the first nine months of FY2022, which runs from July 2022 to March 2023, Xbox had an accountability margin of $ 1.5 billion. Xbox shared a chart where they discussed their margins, in comparison to their competitors, PlayStation, and Nintendo.

If you’re wondering what an accountability margin is, there is actually a record of a conversation in the court where Phil Spencer explains Microsoft’s terms to an FTC lawyer:

“Phil: On the other side we have Sony with PS5 and a very analogous hardware subsidy. Sony’s gaming P&L runs at lower GM and AM percentage margins than our gaming business, even though they have 2 times the console installed base.

FTC: GM means gross margin, right?

Phil: Gross margin percentages.

FTC: And AM means accountability margin?

Phil: Accountability margin percentage, yes.

FTC: Is that like profit?

Phil: That’s the percent of your revenue that you keep in profit.”

Xbox also shared a table comparing the revenue and operating profit ratios between the three companies. You can see the table below.

Now, this information needs to be understood in terms of what we don’t know as much as what we do know. Mainly, we don’t know how Sony and Nintendo does their accounting, so it may not be possible to make this much of a 1 is to 1 comparison. We may assume that Microsoft made these estimates of their competitors, or perhaps hired an external company to make those comparisons.

But looking at the charts make something abundantly clear. There is a bigger gap between Sony’s revenue and operating profit, compared to Microsoft and Nintendo. What that suggests is that Sony is spending more to make more money, but they aren’t making as much money because of it. It costs them far more to invest in video games than their competitors.

We should also put this in context of what we know publicly as well. Out in public, gamers have labeled Sony and Nintendo as the top two console companies, with Microsoft a distant third. Most gamers also consider to be the top company between themselves and Nintendo. Their PlayStation 5 is considered the most powerful console, and it carries a solid lineup of first party and third party games. Those games are even often the highest rated games on Metacritic.

So is all of this success costing Sony too much after all? We have to assume, even if Microsoft or their analysts are making estimates, those numbers aren’t too far from the truth.

It’s worth considering these opinions on the issue, from HaveYouSeen and Shpeshal Nick, who is a frequent source we use for rumors:

Do you all realize that this is pure proof that Microsoft knows how to run a business? Criticize them for whatever you want, but they know how to make money. 3rd place, worst console of last gen, losing console market share, criticized that it’s players don’t buy game, yet 2nd in… pic.twitter.com/BO5UGe8Igu

— HaveYouSeen (@haveyouseen01) September 21, 2023

If the Revenue/Profit numbers that came from the FTC leak are accurate and there isn’t much context missing, then it totally explains why Sony is pivoting toward GaaS. To be making that much more revenue but less profit than the other two is insane.

— “Good guesser” Nick  (@Shpeshal_Nick) September 20, 2023

Whatever the case is, it certainly makes you wonder if it would really be worth it for a console company, any console company, to get to brag to be number one in the industry, when their competitors are actually taking home more profits after all.