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Microsoft reports 29% drop in Xbox revenue

Company's overall revenue grew 3%, earnings down 3%

Microsoft turned in a quarter largely in line with Wall Street estimates, posting revenue of $21.46 billion with net income of $6.38 billion. The revenue was 3 percent higher than the same quarter last year, but earnings were down 3 percent. The Entertainment and Devices Division, home of the Xbox, had 11 per cent lower revenues of $3.77 billion compared to $4.24 billion in the same quarter last year, though operating income was $596 million versus $517 million last year.

The big factor for the Entertainment and Devices Division was the large drop in Xbox revenue. According to Microsoft's statement, "Xbox 360 platform revenue decreased $1.1 billion or 29%, due mainly to lower volumes of consoles sold and lower video game revenue, offset in part by higher Xbox LIVE revenue. We shipped 5.9 million Xbox 360 consoles during the second quarter of fiscal year 2013, compared with 8.2 million Xbox 360 consoles during the second quarter of fiscal year 2012. Video game revenue decreased, primarily due to $380 million of revenue deferred associated with the Video Game Deferral."

Microsoft explained the rise in EDD revenue: "EDD operating income increased, due mainly to lower cost of revenue and sales and marketing expenses, offset in part by decreased revenue and increased research and development expenses."

Microsoft also reduced marketing spending on the Xbox platform by 21 per cent, or $92 million. The only hint of the next generation of console hardware was the increase in research and development expenses of $98 million or 25%, primarily reflecting higher headcount-related expenses.

Analysts mostly focused on Microsoft's Surface and Windows 8 results, with no questions about the next generation of console hardware. Microsoft did say they expect growth in the next quarter in the "high teens" with overall growth for the year in single digits.

Microsoft will doubtless continue to have difficulty boosting Xbox revenue, particularly after a new console is announced. If, as is speculated, Microsoft launches a new console this year it would probably ship in the last three months of the year, which means it would probably not affect overall Microsoft revenue much one way or the other this year, regardless of its acceptance.

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Latest comments (12)

Bruce Everiss Marketing Consultant 3 years ago
This is with Xbox having subscription backed purchase in the States which reduces the up front cost of ownership.

All 3 established console platform holders are doing very badly.
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Andrew Animator 3 years ago
All 3 established console platform holders are doing very badly.
Nothing to do with consumers starting to hold off in anticpation of next gen hardware, and the longest console cycle to date?

Edited 2 times. Last edit by Andrew on 25th January 2013 8:56am

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Dave Herod Senior Programmer, Codemasters3 years ago
@Alex - Probably not actually. The people who know about the next gen coming up are gamers, i.e. people likely to already own an Xbox and wouldn't have been buying anyway. Although it may be affecting their game purchases - they may be holding off buying games to save up cash for the next gen.
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Show all comments (12)
Andrew Animator 3 years ago
@Dave

Does my last point still hold true though? How big is the market for "current gen" consoles when they have been around for so long? Surely the biggest sales market is now just replacement (ie, upgrading to a slim model) or the consoles which develop faults?

Edited 1 times. Last edit by Andrew on 25th January 2013 9:19am

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Dave Herod Senior Programmer, Codemasters3 years ago
@Alex - I'm not sure, didn't most of the PS2's sales come towards the end of the cycle because the price dropped to "impulse buy" category? Harder to do these days with the economy as it is. And the subscription model Bruce mentions is a great idea for the next gen, but for current generation, I'm not sure customers want to get roped into a contract for such an old piece of hardware. I think it'll be far more successful a business model in the next gen.
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Daniel Hughes Studying PhD Literary Modernism, Bangor University3 years ago
Not surprising. The 360's had a great run, but anyone expecting sales or revenue to increase or remain stable at this point is deluded. It's completely natural that the system declines before and as it is replaced by a successor system. The much more interesting numbers to watch, will be how 360's successor offsets these declines, and how the whole eighth generation fare versus this last cycle of consoles.
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Greg Wilcox Creator, Destroy All Fanboys! 3 years ago
Not mentioned are the thousands of console gamers who aren't gaming because they don't have homes anymore (we did have some bad disasters around here that took out an incredible number of homes across a few states) and thus haven't bought a game or console since. Does any of that analysis ever figure disasters into things or does it automatically ignore them as part of any data collection because all that matters are end results (even if a small to good portion of a state was under water during the quarter in question)?
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robert troughton Managing Director, Coconut Lizard3 years ago
I'm getting seriously bored with Bruce's constant propaganda about "bad" things happening in the console market... every time a development studio closes, or makes redundancies, every time there's a story about high street sales being down, or console sales, Bruce is there to remind people that mobile gaming is the future.

Bruce: http://www.cinemablend.com/games/It-Official-Mobile-Gaming-Kill-Console-Gaming-43563.html ... read it - and that take a deep breath. The mobile market is fine, Kwalee can no doubt make a good buck if they start to make some decent apps. The console market is definitely much stronger than the mobile one at the moment - and that's forecasted to be like that for some time yet - but that's not to say that you can't make a profit. Find a niche and go for it - but try to concentrate on that rather than trolling these websites because I don't see how that helps Kwalee at all.
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Andrew Goodchild Studying development, Train2Game3 years ago
Last year there was a massive boost from Kinect. But if the profits are up on the Xbox business even though revenue is down, (presumably because the margins on Xbox live are higher than on hardware), I don't know that they are hurting much.
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Dave Herod Senior Programmer, Codemasters3 years ago
I'm getting seriously bored with Bruce's constant propaganda about "bad" things happening in the console market
Join the club.
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Fran Mulhern , Recruit3D3 years ago
I've decided to just ignore him from now on - I'd suggest others do the same.
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Justin Biddle Software Developer 3 years ago
To quote the Joker from Dark Knight Rises "And here we go!"
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