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Matthew Hoy currently works as a metro page designer at the San Diego Union-Tribune.

The opinions presented here do not represent those of the Union-Tribune and are solely those of the author.

If you have any opinions or comments, please e-mail the author at: hoystory -at- cox -dot- net.

Dec. 7, 2001
Christian Coalition Challenged
Hoystory interviews al Qaeda
Fisking Fritz
Politicizing Prescription Drugs

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Monday, June 06, 2005
Methinks the math is flawed: Various Web sites are claiming that the new Xbox 360 will cost $375 to manufacture and will sell for $299. The news sites then turn this into a $76 loss per console to Microsoft -- not unusual, because the money is made on the video games.

But I'm thinking the loss is going to be more than that -- are retailers going to stock the new console and not make a dime off it? Do retailers typically sell a new game system at cost?

10:54 PM

Comments:
Xbox should come with a warning label from the Surgeon General.

Its a loss leader. I think the numbers for the original Xbox were similiar.

Going with the numbers, even if they lose $100/console and they sell 10 million consoles per year, Microsoft will be out of business in... 30 years.
 
Retailers have never made any real money from consoles after you deduct all of the associated costs of the sale. All of the net revneues are in the software sales, just as it is for the manufacturer who makes money on their own software and from royalties on third party publisher's media production.

Many big chains wouldn't bother handling the hardware at all if it weren't required of them. Many of them will only sell new systems as part of bundles with software and accessories to guarantee they'll get something to show for the effort.
 
For Xboxes and PS2s, the margin is about $6/per.

For Microsoft, they're willing to take a loss if it establishes their power - they discounted products for years below market value to increase penetration (Like Office).

One of the next battles will be multimedia/entertainment, and Xbox is a big part of that plan.
 
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