Digital Nerd

Tuesday, June 07, 2005

Microsoft to lose $75 on every Xbox 360

Forevergeek reports:

What many of you might not know is that in the game industry all console manufacturers take a hit on the hardware profits for their systems because they can make it up in licensing fees. With that in mind it comes as no surprise that Microsoft is going to take a $75 hit that GamesIndustry reports.

I do believe this is less than what they were losing on the intial Xbox so it's really no big deal. And before any of the Sony fanboys start laughing, Sony would be doing much worse reportedly if they tried to compete at the $299 price point that Microsoft is launching at.

The $75 subsidy reportedly required to hit the launch price is quite high, but not unusual for a new console. Platform holders routinely subsidise their consoles at launch in order to build an installed base, and then make back the money from software sales and the rapidly falling price of hardware manufacture late in the lifespan of the console.

However, Microsoft found it more difficult to do this with the original Xbox, since it had to continue buying components from partners such as NVIDIA and Intel at high prices - unlike Sony, which has been able to hugely reduce the manufacturing cost of the PS2 as it builds most of the core components itself.


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