Xbox Live online exceeds estimates with €1bn in sales

Fri, Jul 9, 2010, 01:00

MICROSOFT’S XBOX Live online video-game service probably broke the $1 billion revenue mark for the first time in the year that just ended, helped by sales of movies, avatar accessories and extra game levels.

Microsoft says about half the service’s 25 million users paid an annual fee to play games online like Call of Duty: Modern Warfare 2in the year to the end of June. That would be about $600 million.

Sales of products like movie and TV show downloads topped subscription revenue for the first time, Dennis Durkin, Xbox’s chief operating officer, said. The remarks suggest the business generated more than $1.2 billion in sales last year, exceeding analysts’ estimates.

Success in online gaming is crucial for Microsoft because the other products in this unit include the barely profitable Xbox game console and mobile-phone software that is losing ground to Apple and Google.

“Xbox Live has helped sell a lot of consoles and created a lot of loyalty,” said Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Washington. “Everyone has been talking about Microsoft’s inability to innovate, but this is a pretty good example where they have innovated. They timed it just right with this one.”

Mr Durkin declined to give more detailed results for the service, and Microsoft does not break them out when it reports earnings.

Sarah Friar, an analyst at Goldman Sachs, estimates Xbox Live had sales of $1.1 billion in the past fiscal year, up from $800 million a year earlier. Subscriptions for the premium service are $50 a year.

Microsoft may have difficulty extending the popularity of Xbox Live to other consumer businesses like television software and portable music and video players, Mr Rosoff said. Sony’s rival PlayStation Network is starting a subscription offering, and Xbox Live also competes against Apple’s iTunes for music and TV show downloads.

Ms Friar estimates Xbox Live has gross margins, the percentage of sales remaining after deducting production costs, of about 65 per cent. Microsoft will post operating income of $1.04 billion for the division in the year that ended in June, she projects – that’s more than six times the income in fiscal 2009. – (Bloomberg)