Yyeah. Maybe try a knock knock joke next timeI meant in a literal sense as a physical objectI was just joking. Bad joke.
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It's the reason that right now they're willing to take losses. I keep saying it...and eventually there will be enough evidence. Nadella went all in on gaming because he was sold on Netflix of gaming. Not just in concept but size. They aren't hoping to cap out at 20 million subscriptions on 60 million consoles. They believe eventually there will be more Game Pass subscriptions than PS4s exist today. Residual, consistent, predictable revenue with massive margin once they break that tipping point. They'll spend more than they make for a couple years to get there. It's all in prep to be the established brand and mindhsare before 5G hits critical mass, all new laptops have built in 5G sim cards, and tablets are capable of local AAA gaming in less than 5 years.
Game Pass Ultimate, which is the Game Pass+Xcloud, is pretty much their answer to everything.
All i'm saying is any losses they do create need to be recoupable in a realistic manner. Gamepass is not some huge service that prints money, yet, and can't cover ridiculous amounts of losses. If they aren't bothered about that then just make the console free.
Beliving in something doesn't make it reality.
Sure. They have a roadmap of goals along the way. Even the most aggressive business do. Netflix, even until recently, was losing money yet still had a massive market cap. Generally these big ideas need a lot of rocket fuel for limited movement early on. My point with Game Pass/Xcloud is that it's a longer play with a huge return if it gets over tipping point so big investments aren't working in the same vacuum. A WB buyout, for example, is part of a much larger strategic investment where the purchase doesn't need to justify itself the way the Minecraft purchase did. An example is if a WB purchase is looked at as a way to add 30 million subscribers twice as fast (let's say 2 years opposed to 4) then even if Game Pass is still bleeding money at that amount of subscribers, the investment could be worth it just based on how it would solidify Xbox as a mindhsare market leader in the service before anyone else really gets going.
All those numbers I threw out are hypotheticals (out my ass) but it's examples modeled after real world big business initiatives.
That said, WB is so far removed from their strategy thus far that I'm still betting again it. Not due to price tag. Due to fit. I do believe they arent close to being done expanding their studios. Xbox isn't counting Recore type games in their "4 to 6 AAA games a year" strategy. They don't have the firepower for that without another massive growth period.
It is a long game plan, but unless you want to be 100 billion in debt you have to keep things practical. MS might be the leader now with biig marketshare, buut in 10 years mightt not be. They might have a roadmap, but that doesn't mean the destination is certain.
Yes, they will lose money initially, but why does that mean they have to do a Netflix and get bogged down in debt. Why do people think they will incure 100 billion in losses, when they don't have to, just to try and get a few more subscribers? That makes no sense...especially given what their plan is for gamepass and xcloud, which possibly could dwarf any subs tied to Xbox consoles.
Buying more studios and filling out their portfolio makes sense. Selling hardware at massive losses for no real reason makes no sense.
Taking massive losses on hardware is another idea I'd bet against but I can find a rationalization as to why they could do it. In the overall scheme of things, the losses are a drop in the bucket. They're temporary. The result is a large mindshare spike early and mindshare cost money (which is why advertising is so expensive). There's a momentum that comes from early adopters that creates a snowball. Even though console is just one leg of the stool, gaming enthusiast engagement is critical and console is where their best opportunity to reach hardcore gamers is in 2020 and 2021.
Investing or taking losses early presents the most risk but also provides the most potential reward. Nadella has an all in philosophy. That's why when he promoted the Xbox division in 2017, I said back then I expected some massive, uncharacteristically agressive moves. I don't know what they are yet...but they're going to do something that other corporations they're competing with aren't able or ready to do. I'm just not sure what that is yet.
I don't believe Xbox is walking a tightrope like in the past. This is a venture that will either result in massive long term profits or massive losses. So investing billions for a few years is something I believe is already built into their strategy. I do not expect a tempered or measured approach. By the end of the year, we'll see if my assumptions were right.
Xbox is dooooooomed!!!
again....every year....for 20 years, xbox is doomed....
again....every year....for 20 years, xbox is doomed....
So just spend and pray then. Incure losses after losses in the hopes you reach a tipping point and slowely starrt recouping your ridiculous losses, most of which you didn't need to incur to begin with.
Who said that?Xbox is dooooooomed!!!
again....every year....for 20 years, xbox is doomed....
We're all f*cked. The worst thing that can happen for gamers is for one company to have a comfortable monopoly on the console gaming scene.
Who said spend and pray? Invest with a plan. Massive, paradigm shifting businesses take large up front investments. You don't make those commitments without a roadmap.
Yeah no consumer should want that. I think there's a massive difference between market leader and monopoly though. Everyone thinks about Netflix for streaming TV services however they have plenty of competition. Consumers confuse the sport of console wars with the investors idea of #winning.
As I said, a road map isn't a predetermined destination. If you just incur tonnes of debt and don't reach that destination then what. Hence Spend and prey.
I already agreed that some upfront losses is inevitable. But incurring huge amounts of losses in a very short time frame ih the hopes you hit a tipping point is sppending and praying. And did I mention they don't need to? The XSX just needs competitive pricing and they already plan to take GP mobile. No need to add 100 billion in losses over 2 years.
It isn't. Microsoft's cash on hand is rediculous. They look for business opportunities with that money. Huge up front investment is par for the course for these subscription business models.
Who said anything about 100 billion in losses? That number is crazy.
We've gotten really wrangled in this discussion. Just to clear up where I'm coming from:
- The entire cost of a company like WB is a capital expenditure. If the cost was 4 billion, that 4 billion would not hit the Xbox division's balance sheet in 2020 or 2021 (whenever hypothetical deal was finalized). A depreciation expense would be assigned to it over it's useful life offset by whatever revenue it was bringing in.
- Taking losses on consoles would be completely different. Every console sold at a loss hits the balance sheet during the year it was sold.
| Operating Expenses | Revenue | Expected Profit or Losses |
| 1 bil | 500K | - 500K |
| 1.2 bil | 800K | - 400K |
| 1.4 bil | 1 bil | -400K |
| 1.6 bil | 2 bil | +400K |
| 1.8 bil | 4 bil | 2.2 bil |
Any major variable (a strategic capital expenditure or taking high losses on consoles for a couple years) will change your predictive trend line. When you have a business plan like this, a loss in a given year is not automatically a bad thing. If the expected losses for 2020 were 500K but due subscription revenue out-pacing projections their actual losses were 400K, that's a good year for Spencer and Xbox. Yes a loss year is a good year. Conversely, if 5 years from now Xbox is generating 1 billion in profit when their original projections were 2.2 billion, that's a bad year. At a high level, if Microsoft missed projections, stock would fall even if the actual number was massive profits. Some people might lose jobs. If a start up company was projecting massive losses in a given year however the actual losses were lower than projected, the stock would go up and leadership praised even though the company is still losing money.
I believe Xbox is being treated like a start up company playing with a big boy trend line. That makes major billion dollar purchases viable. They will likely run losses for the next few years that are already baked into their business plan. As long as their growth and trendline looks like it's on track, then it's all good.
I could be wrong. Maybe Nadella sat Xbox at the big boy table and kept them around because he thinks they're cute. Maybe he likes what it does for Microsoft's image. I doubt that.
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