The gaming console has a worldwide installed base of 66m. There are also more
than 40m “Xbox live” subscribers who play games with peers over the
internet; many pay $50 a year for the premium version.
All of this resulted in Microsoft’s entertainment and devices division
generating $1.3bn in operating profits last year, or about 5 per cent of
Microsoft’s total, with mid-teen margins. And all this despite the fact that
Microsoft’s phone business – likely a lossmaker – is included in the same
segment.
Home entertainment hub
Future growth is expected to come outside of gaming, though. The Xbox console
is seen as a way for Microsoft to “own the living room”, becoming the home
entertainment hub.
Yesterday brought an announcement that Xbox’s premium subscribers in the US
would be able to access Comcast’s Xfinity pay-per-view service, HBO Go and
Major League Baseball content using Xbox as an interface, the latest in a
series of such partnerships including British Sky Broadcasting, the BBC and
Lovefilm in the UK.
Fight for the living room
The Xbox user base is meaningful, and Microsoft’s investments in search and
the Kinect voice and motion controller position it to offer a slick
interface. The question is how to make the business profitable in the long
term.
Xbox takes others’ content, distributed over others’ networks, and makes it
easier to find and use. Competitors in this role include TiVo, Roku, Sony
and Apple. Many of these options are already low cost. It will be a nasty
fight for the living room and it is not entirely clear what the spoils will
be.
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