Microsoft sells the Xbox at a loss. Yes, you heard that right. In an Epic vs Apple trial on Thursday, May 6, a Microsoft executive said that the company doesn’t earn any profit on the sales of Xbox consoles alone. During an Epic vs Apple trial, Microsoft’s head of Xbox Business Lori Wright was asked how much margin does Microsoft make on Xbox consoles, to which she said, “We don’t; we sell the consoles at a loss." After this, an Epic Games lawyer asked, “does Microsoft ever earn a profit from the sale of the Xbox console?" Wright replied, “No." Now, this doesn’t mean that the company’s Xbox division doesn’t make any money. Microsoft, soon after Wright’s testimony, sent out a statement to The Verge, where the company pointed out that its Xbox business does make money, it just sells the Xbox consoles at a loss.
In its statement, to The Verge, Microsoft said that the gaming business is a profitable and high-growht business for the company. The company’s spokesperson said that the console gaming business is traditionally a subsidy hardware model, where game companies sell consoles at a loss to attract new customers. Profits are then generated in game sales and online service subscriptions, the Microsoft spokesperson said. The report in The Verge says that console makers like Microsoft and Sony subsidize hardware at the beginning of a console’s lifecycle, but those early component costs decrease over time. This lower cost then also translates into lower retail prices for consoles over time.
The report also cited a teardown analysis of the Xbox One S back in 2016, that showed the estimated cost of materials to be $324, only $75 less than the $399 launch price for the 2TB variant of the console. Microsoft also sold the disc-less Xbox One S, that was launched last year, for a loss.