Microsoft loses up to $200 on each Xbox console it sells.
Speaking at the WSJ TechLive event on 26th October, Xbox head Phil Spencer admitted its Xbox Series X/S consoles are sold at a loss, with the expectation that revenue will be made up elsewhere on accessories and games.
“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,” he said.
“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.”
Of course, console manufacturers often sell consoles at a loss – with the usual exception of Nintendo.
It’s a widely accepted business practice to then recoup money elsewhere, such as from software sales (where platform holders take a cut) and subscriptions, such as Xbox Games Pass.
But Spencer’s comments take on new meaning in the context of current console prices.
Last week, the Xbox boss said the company won’t be able to avoid price hikes forever.
“We’ve held price on our console, we’ve held price on games and our subscription. I don’t think we’ll be able to do that forever… I do think at some point we’ll have to raise some prices on certain things, but going into this holiday we thought it was important to maintain the prices,” he said.
Back in August, Sony announced it would be increasing the price of its PlayStation 5 console in an unprecedented move, which it blamed on inflation.
At the time, Spencer said Xbox would not be following suit. Yet with consoles sold at such a loss, perhaps this won’t be the case after the holiday period.
Spencer did admit that he doesn’t think Microsoft will be able to keep game prices constant forever, but they do provide long hours of entertainment. “People can play video games for hundreds of hours,” he said.