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Revenue for downloads beat subscriptions for first time

Back when Microsoft first rolled out its Xbox Live network and charged gamers to play multiplayer games, many thought it was a mistake that would come back to haunt Microsoft. As it turns out, the decision to charge for Xbox Live was a great one by Microsoft making Xbox Live one of the only profitable parts of its gaming division.

Bloomberg reports that Microsoft has about 25 million users on Xbox Live as of the year ending June 30. About half those users coughed up the $50 yearly fee to play online games. With that amount of users paying for online gaming, analysts predict that Xbox Live broke the $1 billion revenue mark for the first time. 

Microsoft's Xbox COO Dennis Durkin told 
Bloomberg that revenue for downloads of TV shows and movies topped subscription revenue for the first time. Considering the $50 yearly fee multiplied by half that 25 million user number works out to $600 million, Durkins remarks suggest Xbox Live generated about $1.2 billion.

Analyst Matt Rosoff from Directions told 
Bloomberg, "Xbox Live has helped sell a lot of consoles and created a lot of loyalty. 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."

Despite the success of Xbox Live, many feel that Sony's PlayStation Plus offering has an uphill fight to match Microsoft's success. One example that illustrates this point is that there are 6 million gamers who play Halo on Xbox Live each month. Sony reportedly has under half that number of people playing all of its games available online each month.

Microsoft and Activision are the only two companies that are clearly successful in selling online gaming according to Activision CEO Bobby Kotick. Kotick said, "When it comes to online gaming, they’re the only significant alternative to us." Activision owns the Blizzard MMORPG World of Warcraft. Kotick also states that Activision wants a cut of the subscriptions from Xbox Live since its titles like Call of Duty are generating lots of money for Microsoft in subscriptions. He said, "We’re driving a lot of the subscription interest and certainly hours of game play."

Microsoft has continued to tweak and add to its Xbox Live service over the years to make it more appealing.  In June Microsoft offered up a Family Pack that is set to launch this November that will let users buy four memberships for the price of two at $100 per year. Microsoft did offer up bad news for gamers early this year that still played on their original Xbox consoles when it announced the discontinuation of the service for original Xbox.

With the success of Microsoft in selling online subscriptions for gaming, Sony has decided to try the same tactic. Sony announced PlayStation Plus at E3 this year. The cost per year will be $50, the same price that Microsoft charges.



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By limitedaccess on 7/7/2010 5:20:23 PM , Rating: 2
I believe there is more tied into this generations consoles in relation to Microsoft and Sony's longterm business objectives then the gaming business aspect.

For instance, Sony no doubt wanted to push Blueray by leveraging the PS3, and this did help blueray establish itself. They also wanted to push the PS3 as a more general home entertainment system (not just a game console), and with the additions and changes to PSN, you can see that this is also somewhat gaining traction for them.

Microsoft entering the console market I still firmly believe was as much a defense move towards the Playstation as actually wanting to become a major console maker. Sony was pushing at the time that the PS3 would be more general purpose then the PS2, and I am sure Microsoft was worried about perhaps 100m+ general PS3s (perhaps running linux?) encroaching on what is their PC market. So in this sense they were successful. They likely averted PS3 dominance in the market, and are no longer losing money doing it.

Sony and Microsoft I believe had more considerations then Nintendo, who are solely focused on the gaming market.


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