Gamecube sales Soar - Page 4 - AVS Forum
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post #91 of 170 Old 12-29-2003, 03:30 PM
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Ok guys.Please refrain from making assumptions about others.There is no need for insults.
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post #92 of 170 Old 12-29-2003, 03:37 PM
 
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I hadn't seen that article and that is why I asked for some better numbers.
I am not a financial analyst nor do I know what numbers are acceptable during the early times of a console so It really isn't for me to decide.

If Microsoft can become number one in the next generation of consoles then the losses may be worth it.

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Why do YOU care how Xbox or Gamecube is doing?
ShawnO,

Sorry if this is a bit heated but ONE of the posters in this thread has a short history here of insulting, misleading, and being a Fanboy of Nintendo while accusing others of being fanboys at the same time. People like myself can be fans of all the systems but at the same time participate in a civil discussion without purposely trying to insult as he has done in several threads now in his short career on this forum.
Also has been warned by the owner of the board as well.
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post #93 of 170 Old 12-29-2003, 03:55 PM
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Quote:
Originally posted by Dean Martin
If Microsoft can become number one in the next generation of consoles then the losses may be worth it.
Microsoft certainly has deep enough pockets to do it. Of course . . . Sony and Nintendo both have very deep pockets as well. Should be interesting!!!

Microsoft has a history of taking huge losses to buy their way into a market. They did it with PocketPC/WindowsCE against Palm OS. It has taken them 5 years and they are still not making money, but now they are on their way to controlling the PDA market . . . not to mention moving the technology to cell phones (a very big potential market).

More recent article about MS losses
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post #94 of 170 Old 12-29-2003, 04:14 PM
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I read an interview with someone at Microsoft recently in a PC mag - maybe Computer Power User (good mag) but I don't remember exactly where so I have no source info for all you hounds out there that demand source information so if that is a requirement just consider the below a fabrication.

Anyway, the jist was that the xbox was the first step for Microsoft to gain entry into the living room and household technology. Although the plan's current iteration includes a gaming console, that is not the long term goal of the company - although it is a goal in the short-term. The relevant points made were that they considered this plan a "marathon and not a sprint" and that Microsoft is "fairly good at marathons".

I thought it was an interesting point and as it's important not to lose site of the larger picture just to focus on short-term game console success and near-term profits (that includes taking heavy losses for years to secure a dominant position that will eventually pay off). Microsoft needs to move beyond the PC and this is merely the first phase of their plan. As to how successful they will be, we have yet to see but their track record is fairly impressive, they have more than enough resources to fight this battle (cash as well as access to the debt markets should they deplete the $40+ billion in short-term securities), and no matter whether one likes or dislikes them you have to respect their ability to consistently enter and succeed in a variety of markets.

Sony certainly shares a similar long-term vision beyond gaming but I very much doubt Nintendo has similar aspirations. It will be interesting how this plays out over the next five to ten years.

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post #95 of 170 Old 12-29-2003, 04:40 PM
 
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Nintendo is actively getting pressure from investors and analysts to get out of the console market. If they do not listen to their investors and major funds pull out of the company, they will be in serious trouble.

http://www.washingtonpost.com/wp-dyn...2003Dec24.html

Despite the losses for the XBox, investors are not actively pushing for Microsoft to get out of the market.

That is the major difference... There is a strategic reason for Sony and Microsoft to be in the console market. There is not one for Nintendo (and most investors would see a better return if Nintendo got out of the console market). Can you imagine how much money Nintendo would make if they released Zelda on Playstation 2?
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post #96 of 170 Old 12-29-2003, 07:29 PM
 
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That's exactly what worries me. Microsoft and Sony aren't primarily focused on gaming as they want to both create a do-it-all set top box. Once more and more features start to get integrated into game consoles, I fear gaming will take a back seat to some of these new features. Nintendo is only interested in making games and machines that play games, nothing else. I like this because that's all I want is a good game console and some games to play on it. Sure, there are other things like online gaming that I'm interested in, but I'm not interested in my console being like a Tivo or a DVD burner. Granted, this is pure speculation on my part, but while I like the strides that both companies have made in the gaming industry, I can't help but wonder if it may hurt the industry in the long run as the set top box becomes more and more a reality.
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post #97 of 170 Old 12-29-2003, 08:00 PM
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On one side I happen to agree with you - if nothing holds this in check gaming will become just a check box on an all purpose console next to the tv. I think the only thing that will prevent the attrition of gaming in the wake of an all in one entertainment box is the demand of consumers. There is a huge population of 35 and under people who grew up (or continue to grow) playing video games. These people are used to major technological change and advancement. If MS and Sony don't provide quality gaming over the next 2 generations of units it won't be long before someone does. Maybe it will shift to the computer or HTPC or even a PC system that integrates the entire home, but unsatisfied demand always ends up getting filled one way or another and gaming is too entrenched to disappear.

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post #98 of 170 Old 12-29-2003, 09:36 PM
 
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The consoles will continue to cater primarily to gamers... The money involved is too significant, mainly for the software vendors who will demand (and develop for) the platform that gets them to the gamer market most effectively.

But Sony and Microsoft have a natural advantage in that they can take a 'loss' on the console (and provide a better device) since the console can also server other business needs.

Right now the only thing keeping Nintendo in the console market is the belief that they can get a big chunk of the market share with the next generation. Nintendo thinks that they are 3rd because of WHEN they entered the market. Analysts think they are 3rd because they no longer understand the needs of the market.
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post #99 of 170 Old 12-30-2003, 02:14 AM
 
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First off, I'm not sure why everyone keeps saying that Nintendo is in 3rd(unless you're referring to US sales). The last numbers I saw Nintendo was in a definitive second place in worldwide console sales and their console has been the top selling console in the US and Europe for the last few months which has helped increase it's second place lead. Now, obviosuly this doesn't make much difference in the overall outlook this generation since Sony is beating them by about 50 million.

I understand that videogames are too big now and we won't see them die out. I guess what I don't want is to pay like $300-$400 for my next game console because it can play/burn DVDs, interface to my PC, and be a Tivo. I like that Nintendo keeps the cost of the hardware down and designs a system to play games only. Obviously, I may be in the minority here since many people do use their PS2 and XBOX's to do more than play games, but I'm just stating my opinion of the situation.

I guess time will tell on how this market evolves. Obviously if game consoles become too costly, the market will reflect this in lower sales and someone will have to step up and make a lower priced console that will help boost numbers. I'm personally of the mind that the market can sustain 3 consoles simultaneously and am hoping that Nintendo can increase their numbers next generation so they can stay in this market for many more years.

BigL, the comments Gameboya made about the XBOX 2 not having a hard drive and such are in the rumors section of the newest EGM. Certain sources reported that Microsoft is looking into making their next console cheaper to make so they don't lose so much money as they are with the current XBOX and one such option may be to have it not include a hard drive. Now, I agree that Microsoft would be stupid to strip down their next console, but at the same time, the current XBOX is causing Microsoft to lose millions right now because they're selling it at a loss of close to $100 per console. So, while I don't see Microsoft doing this, it's certainly a possibility. Sony has proven with the PS2 that online peripherals such as the network adapters and hard drives can be sold separately and sell well enough to create a decent user base. I guess we'll soon learn more at E3.
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post #100 of 170 Old 12-30-2003, 06:01 AM
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Quote:
Originally posted by FrankJ.Cone
There WAS no point in buying a GC. DUH! Thats WHY the price is now $99

Beyond that I am not about to enter into an argument with you.
Oh I suppose that's why the Gamecube is #2 world wide in sales? I guess all those people bought it for no reason then?
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post #101 of 170 Old 12-30-2003, 06:27 AM
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Quote:
Originally posted by dschroll
First off, I'm not sure why everyone keeps saying that Nintendo is in 3rd(unless you're referring to US sales). The last numbers I saw Nintendo was in a definitive second place in worldwide console sales and their console has been the top selling console in the US and Europe for the last few months which has helped increase it's second place lead. Now, obviosuly this doesn't make much difference in the overall outlook this generation since Sony is beating them by about 50 million.

I understand that videogames are too big now and we won't see them die out. I guess what I don't want is to pay like $300-$400 for my next game console because it can play/burn DVDs, interface to my PC, and be a Tivo. I like that Nintendo keeps the cost of the hardware down and designs a system to play games only. Obviously, I may be in the minority here since many people do use their PS2 and XBOX's to do more than play games, but I'm just stating my opinion of the situation.

I guess time will tell on how this market evolves. Obviously if game consoles become too costly, the market will reflect this in lower sales and someone will have to step up and make a lower priced console that will help boost numbers. I'm personally of the mind that the market can sustain 3 consoles simultaneously and am hoping that Nintendo can increase their numbers next generation so they can stay in this market for many more years.

BigL, the comments Gameboya made about the XBOX 2 not having a hard drive and such are in the rumors section of the newest EGM. Certain sources reported that Microsoft is looking into making their next console cheaper to make so they don't lose so much money as they are with the current XBOX and one such option may be to have it not include a hard drive. Now, I agree that Microsoft would be stupid to strip down their next console, but at the same time, the current XBOX is causing Microsoft to lose millions right now because they're selling it at a loss of close to $100 per console. So, while I don't see Microsoft doing this, it's certainly a possibility. Sony has proven with the PS2 that online peripherals such as the network adapters and hard drives can be sold separately and sell well enough to create a decent user base. I guess we'll soon learn more at E3.
ditto

not to mention the gba PROVES that VIDEO GAMES and VIDEO GAME PLAYERS are concerned about playing VIDEO GAMES on their console or pocket gaming machine and little to nothing more. the all in one console idea is nothing but a MASSIVE flop waiting to happen because we have already seen the market is NOT willing to pay $300 for an xbox, even though PS2 was selling at $300 a crack :p $300 is really the highest price point people are going to pay for a console, and maybe just maybe the second time around people will be more willing to buy an xbox next at $300 a pop, only time will tell. it depends but considering the xbox has had a pretty big swing in declining sales, it's starting to look like interest in the xbox is waining already, not a good sign at all.
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post #102 of 170 Old 12-30-2003, 06:47 AM
 
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Actually, I would say people's interest in XBOX is going strong. While PS2 and GC sold almost twice as many consoles as XBOX this holiday season, sales for it are still going ok. The XBOX Live service is getting good word of mouth and is bringing in more and more customers. I would look for Halo 2 to help boost sales of XBOX's as well. Also, there's a good chance that this spring PS2 will drop in price and XBOX will be right behind it. If that happens, that should also boost sales.

Overall, I think XBOX will still be in third place in worldwide sales, but Microsoft has done a good job catering to the US market and that could prove to be very valuable to them come next gen. Time will tell.

I do think that if Nintendo can work more closely with some key 3rd parties for some more exclusives and bring many of their key titles online, the next Nintendo will have a strong presence in terms of console sales.
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post #103 of 170 Old 12-30-2003, 07:07 AM
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I hope there is only 1 console in the future. This way we can stop having these same conversations, over and over again. I also wish they would make a U.S. only based system, since I really don't care what japanese people like or don't like. I really hope I never see another PURPLE/GREEN/BLUE haired, big eyed RPG. I may be in the minority on this, but maybe not. I don't know.

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post #104 of 170 Old 12-30-2003, 07:20 AM
 
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I hope there is only 1 console in the future. This way we can stop having these same conversations, over and over again.
Not me. I hope there is 3 or 4 consoles at least. Let the conversations go on. At least we will have competetion & choice. Be careful what you wish for.
As far as XBOX2 not having a hard drive, if they do this the XBOX that I know will cease to be because for me, that is one of the strong points of the XBOX, not having to deal with memory cards.
I have 3 for the Gamecube now, and two for the PS2 along with a PS1 memory card. I would like to see all the consoles have a better memory management system. If not a hard drive then how about some other sort of memory device like those little USB memory cards that fit on a keychain.
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post #105 of 170 Old 12-30-2003, 07:48 AM
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Quote:
Originally posted by Dean Martin
Not me. I hope there is 3 or 4 consoles at least. Let the conversations go on. At least we will have competetion & choice. Be careful what you wish for.
As far as XBOX2 not having a hard drive, if they do this the XBOX that I know will cease to be because for me, that is one of the strong points of the XBOX, not having to deal with memory cards.
I have 3 for the Gamecube now, and two for the PS2 along with a PS1 memory card. I would like to see all the consoles have a better memory management system. If not a hard drive then how about some other sort of memory device like those little USB memory cards that fit on a keychain.
more than likely they will go with something like an internal Compact Flash or SD memory card. something solid state with maybe 1 gig or so. then you could still add 1 external slot to copy games if you want to bring your save to a freinds house or something like that. I think that's a pretty good idea considering the hard drives in xbox have created a LOT of heat and cause a lot of xbox's to break down.

I also don't want there to be one console, it would ruin competition and the thought of any company actualyl trying to innovate, they would just be spewing out the next batch of 3d machines with more GPU and CPU power etc.. Competition is good.`
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post #106 of 170 Old 12-30-2003, 09:54 AM
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Competition is good.`
Agreed!

I can't imagine the Xbox2 not having a hard drive. With all the DLC, patches & game saves, not to metion the CD ripping.. These are all popular features that make the Xbox shine.

I would *think* that 1 gig of flash memory would not be near enough & would cost more than a HD.

I don't see Microsoft screwing up the next Xbox....
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post #107 of 170 Old 12-30-2003, 10:42 AM
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Originally posted by Wakey
Agreed!

I can't imagine the Xbox2 not having a hard drive. With all the DLC, patches & game saves, not to metion the CD ripping.. These are all popular features that make the Xbox shine.

I would *think* that 1 gig of flash memory would not be near enough & would cost more than a HD.

I don't see Microsoft screwing up the next Xbox....
i could understand it possibly not being enough, but it's quite obvious the hard drives are breaking down a little too often and causing a LOT of heating issues with the xbox, which it already runs how to begin with. it's just MS'es particular design going with the x86 etc.. everyone knows heat is a KILLER on electronic equipment. maybe someone will come out with a very slim line notebook type hard drive that's 10 gig for an ultra cheap price, they are smaller, create less heat and hopefully can be as reliable as a regular hard drive (notebook hd's seem to break more often than normal hard drives).
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post #108 of 170 Old 12-30-2003, 10:56 AM
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dschroll, thanks for the heads-up on the EGM story. But it being in the "rumors" section just reinforces my argument that it's all talk, hearsay and speculation. The proof is in the pudding. Let's just wait and see.
I can "see" MS dropping the ethernet connection on their next console, since, I think, the vast majority of people don't use it to go online or for LAN parties. But the omission of an integrated HDD would be a huge mistake. It's one of the (good) things that set Xbox apart from the other consoles. If they drop the HDD, there's one less reason to get an Xbox2 over say, a PS3.

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post #109 of 170 Old 12-30-2003, 11:01 AM
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could understand it possibly not being enough, but it's quite obvious the hard drives are breaking down a little too often and causing a LOT of heating issues with the xbox, which it already runs how to begin with.
I have seen my share of broken xboxes, but never from the HDD going bad. usually a burnt out power supply or a bad DVD-ROM.

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post #110 of 170 Old 12-30-2003, 11:13 AM
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I'd like to see three things for memory on the next generation

1)Get rid of "blocks" and MegaBITS.

2 Consoles should work the way most digital cameras work. They come with a small amount of memory so that you can use them OOTB, but then you have to buy memory cards if you start getting serious. Put enough memory in the console for one or two games. Of course, this necessitates...

3) Get somebody at EA to fix their f*%!ng save system so their games take up a reasonable amount of space.
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post #111 of 170 Old 12-30-2003, 11:40 AM
 
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can "see" MS dropping the ethernet connection on their next console, since, I think, the vast majority of people don't use it to go online or for LAN parties.
Why would they drop it when they are working so hard to build up XBOX live? Would they require the user to purchase an external modem?
This too would be a mistake in my opinion. It's true that the majority of people have not taken their XBOX online but a broadband connection is really the only way to go. Even PS2 game makers realize this like with SOCOM, it is broadband only, no dial up.
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post #112 of 170 Old 12-30-2003, 11:50 AM
 
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Dean, I'm sure M$ will keep XBOX Live service as a broadband only service. I think BigL meant that they would sell the broadband adapter separately. XBOX has sold almost 10 million consoles worldwide and I think only 700,000 or so have signed up for XBOX Live. Obviously the cost of the XBOX is something M$ would like to lower and as it stands the majority of the people don't get online with their XBOX, so they need to decide if it's worth including in their next console. PS2 has sold well over a million online adapters and has proved that if people want to take their console online they'll buy the equipment to do it. So, I don't think it would be a bad idea if the next XBOX didn't have it included to in order to keep the costs down. Now, obviously those of us who have XBOX Live love the fact that everyhing is included in one box rather than having to buy anything extra, but again, from M$'s perspective there are some 9+ million broadband adapters not in use and that can add up to a lot of money that could've been saved had they just sold it separately.
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post #113 of 170 Old 12-30-2003, 12:13 PM
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they could just use usb 2.0, you could have a usb to ethernet adapter, and the controllers and peripherals could also be usb 2.0 based.

One thing i think they should add would be bluetooth, include it inside the console and when you buy a wireless controller you don't have to keep track of the receiver plug. I'm sure they could come up with hundreds of other uses for bluetooth, like if MS came out with a handheld gameboy type system they could communicate sort of like the gamecube --> GBA system but much cooler.
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post #114 of 170 Old 12-30-2003, 12:49 PM
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Originally posted by Statix
they could just use usb 2.0, you could have a usb to ethernet adapter, and the controllers and peripherals could also be usb 2.0 based.

One thing i think they should add would be bluetooth, include it inside the console and when you buy a wireless controller you don't have to keep track of the receiver plug. I'm sure they could come up with hundreds of other uses for bluetooth, like if MS came out with a handheld gameboy type system they could communicate sort of like the gamecube --> GBA system but much cooler.
good ideas but I highley doubt the average user is ready for something like that. and it would cost MS plenty of money, something they are looking to fix, they just can not afford to be selling the xbox at the same loss or higher than they have been this generation, that would spell DISASTER for sure. if this happens again, I am quite confident they would drop the xbox all together. but then again, MS is pretty damn arrgoant. what might be their demise is that people will flock to where the KILLER games are, eventually, if you continue to release crappy games that all look or play the same, people will get VERY tired of it, and fast. it seems xbox appelas mainly to people in the usa and a solid amount in europe, but has little appeal to japanese or people in the us/europe who enjoy titles developed by japanese.
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post #115 of 170 Old 12-30-2003, 01:14 PM
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Quote:
Originally posted by spelosi
I have seen my share of broken xboxes, but never from the HDD going bad. usually a burnt out power supply or a bad DVD-ROM.
Same on this side. I have seen only 1 HDD problem (mechanical failure) but have seen tons of DVD Rom issues and a few power supplies. Those DVD Roms are a PITA, particularly the original Thomson drives. Also, a lot of modders have installed 7200RPM drives that can run hotter than the stock HDD and let them churn ripping games or transfering files over FTP for hours at a time (although when they first started using the hotter drives people were worried that excess heat may be a problem). No issues have materialized related to HDD heat from either the original drive or a hotter running upgraded drive.

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post #116 of 170 Old 12-30-2003, 01:52 PM
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Quote:
Originally posted by Gameboya
Oh I suppose that's why the Gamecube is #2 world wide in sales? I guess all those people bought it for no reason then?
Oh there is a very specific reason: $99

Again $199 Third place, $179.99 Third place, $149.99 Third place, $129.99 Third place, $99 Second place.


The GC sold more consoles in 2 months at $99 than it did before going to $99 by early accounts.

This seems pretty cut and dry. Right now at least HALF the people who own the system did not find All of the Resident Evils, Super Mario Sunshine, StarFox Adventures, Zelda: WW, Rogue Squadron, Animal Crossing, Pikmin or Viewtiful Joe reason to buy the system. They only found it worth $99.

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post #117 of 170 Old 12-30-2003, 01:57 PM
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Originally posted by dschroll
Dean, I'm sure M$ will keep XBOX Live service as a broadband only service. I think BigL meant that they would sell the broadband adapter separately. XBOX has sold almost 10 million consoles worldwide and I think only 700,000 or so have signed up for XBOX Live. Obviously the cost of the XBOX is something M$ would like to lower and as it stands the majority of the people don't get online with their XBOX, so they need to decide if it's worth including in their next console. PS2 has sold well over a million online adapters and has proved that if people want to take their console online they'll buy the equipment to do it. So, I don't think it would be a bad idea if the next XBOX didn't have it included to in order to keep the costs down. Now, obviously those of us who have XBOX Live love the fact that everyhing is included in one box rather than having to buy anything extra, but again, from M$'s perspective there are some 9+ million broadband adapters not in use and that can add up to a lot of money that could've been saved had they just sold it separately.
I thought you worked for a company that supplies parts for consoles? I can order 1K Nics for $3 each right now. Given that MS is buying them by the hundreds of thousands and is not buying complete PCI NICs... the savings would be miniscule. Thats not even considering the benefit they claim to developers by having a NIC in every console sold.

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post #118 of 170 Old 12-30-2003, 02:03 PM
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Originally posted by spelosi
I have seen my share of broken xboxes, but never from the HDD going bad. usually a burnt out power supply or a bad DVD-ROM.
I have an Xbox with a DVD that skips :( and a PS2 with a CD thats skips. Moving parts break. My GC has a power button thats sticks after 3 weeks.. not THATS crazy. (But too lazy to get it fixed...)

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post #119 of 170 Old 12-30-2003, 02:05 PM
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Originally posted by Salmoneous
I'd like to see three things for memory on the next generation

1)Get rid of "blocks" and MegaBITS.

2 Consoles should work the way most digital cameras work. They come with a small amount of memory so that you can use them OOTB, but then you have to buy memory cards if you start getting serious. Put enough memory in the console for one or two games. Of course, this necessitates...

3) Get somebody at EA to fix their f*%!ng save system so their games take up a reasonable amount of space.
We have those, they are called PCs :) Console addons have never worked well, I think everyone will avoid them in future models.

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post #120 of 170 Old 12-30-2003, 02:31 PM
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Originally posted by Gameboya
they just can not afford to be selling the xbox at the same loss or higher than they have been this generation, that would spell DISASTER for sure.
Ok, I've heard this a lot and I did some digging on my own rather than trust all the forum 'facts' we run into. This is a fairly high level analysis and I didn't go wild with it but I wanted to understand just what is happening inside MSFT with regards to Xbox and what exactly the financial impact is on the company. It's long and goes into a fair amount of depth on the assumptions but that's so I don't have to defend every damn point to someone who's uncle cleans the bathrooms at MS and heard that the whole company is being killed by Xbox. Hopefully this sheds some light on this often maligned subject.

Financial Information

As of 9/30/03 Microsoft holds:
$5.768 billion in cash
$45.854 billion in short term securities
(this is up from $5.552 and $37.872 respectively at 12/31/02)

Now for Xbox revenues and expenses, it's fairly hard to break these out from their Home and Entertainment segment which is an blend of "Xbox video game system, PC games, consumer software and hardware, and TV platform". They give a lot of % information relative to costs in previous years but there is no concrete breakdown in the most recent 10Q nor good linkages to numbers that I could build off of (I'm not the only one with this problem apparently - I'd love to know how all the internet gamers get data that I can't and MSFT obviously doesn't want you to have). I have no idea how to get Xbox alone so I am also in the dark as to where the numbers that everyone quotes come from.

Estimate of Xbox Losses

I did snip the following from: http://www.mercurynews.com/mld/mercu...ss/6339411.htm
this article was 7/13/2003

"Microsoft does not break out losses in the Xbox unit. An analyst, who asked not to be identified, estimated that the accumulated losses for the Xbox will top $1.7 billion by the end of this year. In the next two years, that number could rise to $3 billion, with losses increasing as Microsoft is forced to sell hardware at lower prices to remain competitive."

So what he's saying is that between Xbox inception and 7/13/03 losses of $1.7 billion have accrued (I don't know what this anonamous analyst does with expensed as incurred R&D previous to the console launch but let's just run with his figures). So in the next 2 years (i.e. 7/05) he expects another $1.3 billion loss attributed solely to Xbox which is $0.65 billion yearly (3 - 1.7 = 1.3), 1.3/2 = .65. Now if you want to go off the whole segment, MS reports loss at $273 million in the most recent quarter so we'll do both. BTW - I am fairly pissed that I keep seeing quoted loss numbers attributed to the Xbox when only segments are diclosed and obviously there is a fairly significant difference between pure xbox and the segment as a whole (something to mull over and we'll come back to it later).

Summary of Loss Projections
Analyst Yearly Loss Predicted: $650 million
Extrapolating Current Segment Quarterly Numbers for Loss: $1,092 million

Difference between Xbox alone and Segment: $442 million (soe of this could be the analyst's calcs or whatever else but obviously there is some major non-xbox spending in this segment)

Assumptions

So lets assume MSFT is going to continue to hemorage money on gaming. Let's also not assume that they have any other plans and are just going to keep pushing the game console. We'll also assume inflation at zero since our numbers are constant and increased inflation will increase nominal prices and nominal yeilds on investment correspondingly. For the most part tax will be a wash since I'll be placing interest income directly against deductible losses.

Basic Figures and Calculations

Now for simplicity's sake let's ignore the cash and focus only on short term investments (that pile of money that worries people). Let's also assume that MS has no other income or access to capital (i.e. they aren't going to subsidize Xbox losses with their other operating units or use their cash flow - purely interest alone).

Analyst Loss:
If Microsoft can earn 1.418% on their short-term investments they can subsidize this $650 million yearly loss to infitity and it will never touch the principal in the ST account.

Segment Loss:
MS needs to earn 2.381% on their short-term investments to do the same with the $1,092 yearly segment loss and never errode principal.

Summary

Now that we've seen what just the interest on that pile of short-term investments can do, let's take it a step further and realize that in the past 4 rolling quarters MSFT has reported net income of $9.993 billion. In the same period cash flow from operations was $15.797 billion while free cash flow (just operations minus investing activities for simplicity - investing activities are business related and not financial instruments for anyone unfamiliar with the term) was $8.584 billion.

In short, Microsoft can go on forever like this and still be hugely profitable. Xbox and the entire Home and Entertainment segment don't impact them to the degree that many seem to think. Hell, you could double the losses and not rock their boat (of course you'd erode principal slowly over the years but they would go on for quite a while before they died and this is just the ST account alone - just do the math).

However, as I said before there is likely a reason why the segment is called "Home and Entertainment" and not Gaming, Xbox, or even Home Entertainment. Xbox and gaming will evenutally be just a small part of where MSFT wants to go in the 'home' AND 'entertainment' area. Take a look at the difference between the projected Xbox only losses and the losses for the segment. There's some big losses that Xbox alone doesn't produce. As a reminder the segment once again holds: Xbox video game system, PC games, consumer software and hardware, and TV platform. Research and Development is expensed as incured and I'm betting they are spending some huge money innovating and developing non-gaming devices that we'll be seeing in the coming years.



To be honest I haven't bothered to look at MSFT in recent years so I hope this was interesting for someone else besides myself.

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