Text 17455, 114 rader
Skriven 2007-04-21 10:06:06 av mike (1:379/45)
Ärende: Japanese Failure Dooms Xbox 360
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From: mike <mike@barkto.com>


http://www.forbes.com/home/personalfinance/2007/04/18/xbox-microsoft-nintendo-p
f-ii-in_re_0418soapbox_inl.html

===
The success (or lack thereof) of Xbox 360 has been a hotly debated topic across
both the blogosphere and mainstream media, with an amalgam of sober and utterly
confused views depending upon one's vantage point: analyst, investor or gamer.

After taking a step back and looking at some objective numbers (taken from
Microsoft's own financial statements and comparative console sales figures
extracted from VGChartz.com and Wikipedia.org), I have concluded that gaming
has been a disastrous endeavor for Microsoft, particularly from an investment
perspective.

The seeds of this failure are evident from its sales performance in Japan,
particularly when comparing its 18-week sales figures (which is about how long
the Wii, made by Nintendo and PS3, made by Sony have been out) relative to
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This early failure in the Japanese market has a compounding negative effect on
worldwide console sales, as game developers are less willing to invest in
high-risk projects for console platforms that are shaky out-of-the-gates, which
makes it less attractive for gamers to buy these consoles, and so on.

Let's first consider Microsoft's Home & Entertainment Division ("H&E"), which
includes Xbox 360, Xbox, Xbox Live, Consumer Software and Hardware Products,
and IPTV. Making money, i.e., the creation of long-term shareholder value, has
got to be the ultimate driver of Microsoft's gaming (and H&E) strategy, right?
Well, after five years and over $21 billion invested, all they've got to show
for it is $5.4 billion of cumulative operating losses, and Xbox 360 doesn't
appear to be the silver bullet to turn things around.

I think it is also interesting to note that Microsoft's actual disclosure shows
only revenues and operating losses--I backed into and show expenses below for
explanatory purposes. Why might it be that Microsoft has strayed from the
classic "revenues minus expenses equals profits (losses)" disclosure? Perhaps
because it doesn't want investors to focus on the fact that more than $21
billion has been invested in a business that has performed so poorly, with
unclear prospects for improvement.

Sometimes these cold, stark facts seem to get lost in the shuffle. Xbox 360 (a
meaningful part of H&E) might be a fine product, but if so, why is it so
financially disastrous to its maker? I understand the concept of selling a
console at a loss in order to lay the foundation for recoupment of original
investment, plus operating losses, plus attractive financial return through
gaming, but what is it going to take to turn things around? Nothing short of a
tectonic transformation in perception of Xbox 360 relative to its competitors.

Sure, the Xbox 360 can be righteous and cool with hard-core gamers, but this is
not a sufficiently large user base to recoup the magnitude of investment
Microsoft has made in its gaming platform. So if this is Microsoft’s strategy,
it’s got a problem. And if the strategy is really more mass-market, then it’s
got some serious repositioning to do relative to the Wii, which is both cheaper
and more accessible to Ma and Pa and Timmy and Tammy gamer. In short, I am at a
loss. Correct that: Microsoft is at a loss. $5.4 billion and counting.

As far as Japan’s role here, consider that over 19 million PS1s and 20 million
PS2s were sold in Japan alone, close to the total worldwide sales figures for
the original Xbox console. Success in the Japanese market is a key part of
getting the game developers to buy into a platform, for which they invest
substantial sums and create titles. Plus, people want to buy consoles with
better game libraries. Success in Japan is frequently a precursor to success
globally, which makes it particularly attractive for game developers who are
looking to amortize their development costs over as large an installed base as
possible.

If, for instance, the Wii is hot, you get shops like EA turning themselves into
pretzels to build their title libraries for the Wii console. And if your
particular console isn't hot? Well, let's just say that developers aren't going
to be laying out big bucks to invest in the platform.

It is instructive to look at where the last major console releases were 18
weeks after launch in Japan. Basically, if you did well in Japan during this
time frame, you had a chance to have a blow-out product. If you didn't, well,
you didn't. The Xbox did better than the Xbox 360, and even the PS3 has done
better than the Xbox 360. But success in Japan is not a guarantee of a runaway
success, as the GameCube proved. Without question, Japan is an important and
critical market for building a globally successful gaming platform, and an
early read of the tea leaves does not bode well for the Xbox 360.

And this is clearly not lost on Ballmer's Boys in Redmond. Microsoft's vision
of the gaming console as the window into the living room is a big, big bet, and
one that clearly hasn't paid off thus far. The emphasis on HDTV as being a key
factor driving broad-based console sales kind of misses the point. Is the Wii
successful because of its zippy graphics and technological superiority? No. It
is successful because it is fun. And because it appeals to a broad audience.
And because it is comparatively cheap. The Microsoft strategy sounds more like
a niche strategy for hard-core gamers, in which case it's investment in a
console strategy should be smaller and more targeted.

Microsoft needs to take a long, hard look at its gaming strategy--and, in fact,
its entire H&E strategy. At what point, regardless of its virtually endless
financial resources, does it say "enough is enough"? Would we have been better
served by returning the extra cash to shareholders rather than investing it in
a franchise that seems to have questionable prospects for turning around? These
are the kinds of questions Microsoft management should be asking. And
hopefully, for shareholders' sakes, they are.
===


Looks like Wall Street agrees.
http://finance.yahoo.com/q/bc?s=MSFT&t=5y&l=off&z=l&q=l&c=aapl,^IXIC


 /m

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