The lawsuit between Epic Games and Apple is an opportunity to uncover some industry secrets. Today we learn that Microsoft has never made money with its Xbox consoles. While the machines have always been sold at a loss, the Redmond firm has other adjacent revenues.
The lawsuit between Epic Games and Apple is currently being held in California. All eyes of the industry are on this courtroom for two main reasons. The first is that the verdict could drastically change the economic system of online sales platforms. The second is that some crispy secrets are revealed. For example, we learned that Steve Jobs spoke of Facebook in derogatory terms and that Apple was not bringing iMessage to Android on purpose. Today, Xbox is the talk of the party.
Lori Wright, vice president of gaming at Microsoft, has been called to the bar by the lawyer for Epic Games. The goal was to show that the consoles market is very different from that of mobiles, and therefore that the 30% margin on these platforms is justified on Xboxes, and not on iOS.
Microsoft is selling its Xboxes at a loss
The witness was questioned about Microsoft’s earnings. If the Redmond firm publishes its balance sheet every quarter, it is still a little vague on the details. Lori Wright clarified the situation stating that his company was not making a dime on Xbox sales.
“_ How much margin does Microsoft touch on each console sold?
_ There are not any. We sell consoles at a loss “
A clear answer, which in reality does not surprise. Sell machines at a loss has always been a common practice in the video game industry, the profit being made from the games at first (the console generating income later, when the components become less expensive).
Also read – Xbox Series X review: a console cut out for the future, but coming too soon
Wright did not say how much money Microsoft was losing with each console sold. The Xbox brand does not win anything with its machines, the revenues being generated with its subscriptions. As we recall, more than 20 million subscribers pay a minimum of 10 euros per month to have access to a game catalog via the GamePass.
Microsoft will not lower the console developer tax
xCloud, included in the Ultimate subscription, is already available on Android as an app. However, on iOS, it will have to go through the web. Wright explained what we already knew, which is that Microsoft did not want to bypass the 30% tax imposed by Apple, but that this is a logistical reason which prompts her to use a browser-based solution. Cupertino required every game on the platform to have a listing on the Appstore, which was impossible. Apple refused to give Microsoft the same pass as Netflix or Audible.
Lori Wright also returned to the margin imposed by Microsoft on developers. Not long ago, the company announced that it was lowering this margin from 30% (like on other consoles) to 12% on the Windows Store. A choice made to attract studios, and compete with different platforms on PC, namely the Epic Games Store and Steam. However, this will not be possible on the Xbox, which will leave the tax at 30% for income concerns. In effect, it shows for Epic’s lawyer that while the console world needs that 30% margin, it doesn’t on PC and mobile.
The battle between Apple and Epic Games therefore reveals a lot of things. As a reminder, Epic blames Apple its margins too high and its focus on games and applications on iOS. It all started in August 2020, when Epic decided to sell Fortnite goodies on its iOS game by bypassing this tax. The Battle-Royale was subsequently banned from the Appstore.
Wright confirms the Xbox hardware business loses money on purpose.
“How much margin does Microsoft earn on the sale on the Xbox consoles?”
“We don’t,” she says. “We sell the consoles at a loss.” Asked if MSFT has ever earned a profit from Xbox sales, Wright says no.
– Nick Statt (@nickstatt) May 5, 2021