Xbox Live Revenue Surpasses $1 Billion Mark

Strategic Insights -

Microsoft Corp.'s Xbox Live online video-game service probably broke the $1 billion (U.S.) revenue mark for the first time in the year that just ended, according to an email from Dennis Durkin, Xbox's chief operating officer. The service's success was fueled by sales of movies, avatar accessories, and extra game levels, with about half of its 25 million users paying an annual fee to play games online like Call of Duty: Modern Warfare 2.

Key Takeaways:

  • Xbox Live generated more than $1.2 billion in sales last year, exceeding analysts' estimates.
  • Sales of products like movie and TV show downloads topped subscription revenue for the first time, with the service's success driven by the sale of non-gaming content.
  • The service has about 25 million users, with about half paying an annual fee of $50 to play games online.
  • Xbox Live has gross margins of about 65%, according to Sarah Friar, an analyst at Goldman Sachs Group Inc.
  • The service has been a major factor in Microsoft's ability to draw in additional revenue after gamers leave stores with games in hand, with the "old playbook" of "launch and leave" now a relic of the past.
  • To boost future revenue, Xbox Live has struck content deals with Walt Disney Co.'s ESPN and Activision Blizzard Inc. and introduced a family subscription that gives four memberships for the price of two.
  • Microsoft will post operating income of $1.04 billion for the entertainment division in the year that ended June 30, according to Friar's estimate.
  • Xbox Live is helping Microsoft extend its lead in online gaming, with the service generating substantial money compared to other online gaming businesses.
  • Microsoft may have difficulty extending the popularity of Xbox Live to other consumer businesses like TV software and portable music and video players.

Statistics:

  • 25 million users for Xbox Live as of the year that ended June 30
  • $1.2 billion in sales for Xbox Live in the past fiscal year, according to an email from Dennis Durkin
  • 65% gross margins for Xbox Live, according to Sarah Friar
  • $50 annual fee for premium services
  • $1.04 billion in operating income for the entertainment division in the year that ended June 30, according to Friar's estimate

Sources:

  • Bloomberg News
  • Matt Rosoff, analyst at Directions on Microsoft
  • Sarah Friar, analyst at Goldman Sachs Group Inc.
  • Microsoft Corp.
  • Dennis Durkin, Xbox's chief operating officer
  • Walt Disney Co.
  • Activision Blizzard Inc.