Xbox Consoles Never Turn a Profit

During the court case between Apple and Epic Games, Xbox vice president Lori Wright was called to testify. In her testimony, Wright was asked by Epic Games lawyer Wes Earnhardt about the overall profitability model of Xbox. Wright revealed that no Xbox console has ever been sold at a profit for the company. While that might not seem like a good business model, Wright revealed that Xbox profits off the software and subscriptions it sells, instead. Wright's testimony was meant to establish that gaming companies need to charge publishers 30% to sell their games, while smartphone companies like Apple do not.

This is actually not uncommon for the video game industry. In February, Forbes reported that the PlayStation 5 is selling at a loss, despite record gaming profits. Not all video game consoles have historically sold at a loss; on Twitter, Niko Partners senior Analyst Daniel Ahmad says that the Nintendo Switch currently sells at a profit for Nintendo. Often, the value of console losses lessens during a console generation. When a console generation begins, the technology that powers the system tends to be cutting edge. But, as the console generation moves forward, it becomes less expensive. As a result, the loss shrinks, and sometimes the manufacturer ends up seeing a profit per console.

Unfortunately, Wright did not reveal exactly how much Xbox is losing per system, particularly at the start of the Xbox Series X era. The next-gen system is a technical powerhouse, so it's possible the amount could be pretty significant. Of course, this console generation has the benefit of Xbox Game Pass to help the company bolster profits. Last month, the service reportedly passed 23 million subscribers. As long as fans continue to subscribe to services like Game Pass and purchase games, Xbox should continue to find success.

It will be interesting to see whether or not Epic Games is able to convince the court that Apple's current profit model is unfair, or represents a monopoly. The case has revealed a lot of interesting details about the video game industry, and it stands to reason that will continue as the case continues on.

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[H/T: IGN]