One of the trial’s side effects, as it pits two of the most influential and connected companies in the field against one another, is a slow drip of interesting pieces of information. Wright’s testimony is one of many small revelations that have kept the games industry glued to Epic v. While its gaming division is posting billions in quarterly revenue, its actual hardware seems to have traditionally been its weakest link.
That, in turn, explains a lot about Microsoft’s recent moves to decouple the Xbox experience from the physical Xbox unit.
While it recently announced that it will reduce that cut to 12% for publishers who ship games for the Windows 10 store, the Xbox remains at a 70/30 split. Microsoft has made up the difference via taking a 30% cut of revenue from developers who ship games for the Xbox. It’s coming up on the Xbox’s 20th anniversary in November, and in that time, every individual console that it’s ever shipped was being sold at a loss.
What’s interesting about Wright’s testimony, if you take it at face value, is that Microsoft has never gotten to that point. However, as a console ages, its components become cheaper, which would theoretically translate to a per-unit profit near the end of the console’s life cycle. Neither Sony nor Microsoft are inclined to reveal their internal math, so we’re left with tests like various third-party “ tear-downs” that estimate each console’s per-unit costs.Īs per those independent estimates, both the PlayStation 4 and Xbox One were sold at a slight loss when you consider shipping and marketing costs. Like a lot of the hard data in the video game industry, there’s a certain amount of analyst speculation involved here. (Nintendo, on the other hand, makes a slight profit on every Switch it sells.) It’s long been understood that Microsoft and Sony sell their video game consoles on a “razor and blades” model, where the company subsidizes its hardware and sells it at a loss in order to make the money back on software and services.
For people who follow the business side of the games industry, this may initially sound like old news.
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