[mattalex]

150M at 5B revenue is not great: that's 3% margin!

The bigger issue is that console manufacturer revenue is highly cyclical. This is hard to see in e.g. Xbox and Sony since they are both part of a larger conglomerate, but really obvious for nintendo.

You generally have a cycle of - "Launch": high marketing costs, low/negative HW margins - "Mid-cycle": lowering manufacturing costs, large game sales, high margin DLCs - "end-of-cycle": falling HW sales, fewer exclusives (-> preparation for next gen), fewer consumers (-> waiting for next gen). Here you usually have maximum profits since you don't subsidize HW and marketing is minimal (platforms are already locked in)

Generally you have to establish a big userbase during the mid-cycle such that you can levarage it during the late-cycle to be able to afford next-gen. Xbox has the big issue that their mid-cycle was catastrophic, which means they now don't have the console base to get into the next generation: If they have 3% margin _right now_ in the end-of-cycle where marketing and development costs are at their lowest, this does not bode well for the overall health of the business.

[Narishma]

> "Mid-cycle": lowering manufacturing costs,

That was true historically but is no longer the case. Even last gen manufacturing costs didn't go down as much as they used to. This current gen they actually increased multiple times.

[dcrazy]

And they have hiked the prices of the current gen very late in the cycle to reflect component costs.

[genxy]

The cheapest xbox should cost 129. Instead it is $399. That is how consoles work. It gets cheaper, the back catalog grows and now you have a mass market item that ideally could source games from anywhere.

Consoles losing physical media and not allowing 3rd party app stores, or gasp, the ability to run user programs is going to kill the consoles. Expensive and marginal future utility.

[theturtletalks]

Exactly, it seems their only way to make money is charging for online play which used to be $5/m and now $10/m for Game Pass Essential. Now that their high console prices aren't getting new players, the only play is to squeeze the existing ones and increasing the cost to play online.

They actually tried this a few months back when Game Pass Ultimate went from $20/m to $30/m. I cancelled my sub and went to essential. Then Asha backtracks and reduces it to $22/m and people are like wow, she will save Xbox. No, it just shows me they probably saw so much churn, especially from long-time subs, that they backtracked.

[hparadiz]

I've always thought it was borderline crazy that Xbox charged a monthly fee and I never had an Xbox for that reason. It always made me wonder how many people they failed to bring into their ecosystem for that reason.

[trymas]

As far as I understand - that fee is not mandatory.

[ErneX]

Cheapest will be 499 dollars from August 1st.

[Drupon]

>150M at 5B revenue is not great: that's 3% margin!

Oy vey maybe this kind of money grubbery is not good for our society.

[lelanthran]

> Oy vey maybe this kind of money grubbery is not good for our society.

No, it's a signal from the market that the product being sold is not wanted by the market.

They've mismanaged all their IP pursuing that yummy subscription revenue. Turns out gamers really don't like to buy subscriptions. As a poster downthread pointed out, the games that are not always-on and subscription-based are doing fine. It's the recent AAA model of subscription that is bleeding money.

[Orygin]

Oh yeah I forgot 5 BILLION dollar in revenue is a signal that the market does not want your product

[lelanthran]

> Oh yeah I forgot 5 BILLION dollar in revenue is a signal that the market does not want your product

Doesn't matter how big the revenue is if the market is not interested at the price you are selling.

I mean, by your logic, if I sell a dollar for 64c, and do $5b revenue, that's an indication that the market does indeed want the product, but not an indication that the market wants the product at the price you need to sell at to stay in business.

[nayroclade]

They are not selling at a loss though. The real issue here is that businesses such as Microsoft do not exist to serve a market or make enough money to survive and pay their employees. They exist to increase the value of their owner's shares. This is predicated on an unsustainable model of continual growth, with the expectation that every market they operate in can produce high margins and endless expansion. But demand is not infinite and persistent high margins are the exception, not the norm.

[bluGill]

Maybe it isn't a loss, but as an investor (never directly in them), I consider 3% profit margin a bad sign - at that return I'd prefer a savings account: FDIC insurance means that after accounting for risks the savings account is better. I know stock returns don't directly track profit margin, but that is one input into the complex consideration of stocks.

[pfdietz]

Overall they are not selling at a loss, but parts of what they're selling are being sold at a loss. The market is telling them to slim the f- down and get rid of those money-losing parts.

This is all normal and justifiable. Where is the logic that corporations need to preserve dysfunctional parts of their operations?

[tommit]

No? By that logic you sell a dollar for 103c and that's not enough to quench your greed.

Obviously both statements are gross oversimplifications. But I could not help myself and let that slide just like that.

[moron4hire]

Just to add to your comment, people do sell dollars for $1.07, they are called mortgages. I've heard it's a pretty big business.

[KyleTheDev]

Why is it that every person who tries to make these dumb arguments in favor of destructive capitalistic greed always attempts to make it look like the multi-billion dollar profitable business is somehow self-sacrificing or a force of good? "If I sell a dollar for 64 cents!", yea, as if that's even close to what's happening.

[Ferret7446]

If capitalistic greed is so destructive than why are you living in the most successful and highest quality of life society in history? You can find a cave somewhere to camp in if you want, or go to North Korea, etc.

[chii]

> No, it's a signal from the market that the product being sold is not wanted by the market.

to me, it is really a signal that the cost of production is high - ala, they're inefficient, rather than the market not wanting the product.

[Tanoc]

The issue is both. They're inefficient in that they hire too many people to work on things people don't want. They collate all of their workforce and capital into projects that will perform poorly, rather than splitting that up between different projects that will individually vary but have a much healthier release and lifetime. The thing that people very high up in the organization lose a view on is that while there are operating costs to running multiple individual small projects, overall they balance themselves out because the risk isn't concentrated and each budget is an entity unto itself that doesn't affect the others. A supermassive failure like Concord however takes everyone's budgets and puts it into one giant project that has to succeed well beyond reasonable or even sustainable returns because now you have the costs of the core developers, the half dozen assistant studios, and the dozens to hundreds of asset producers on contract. And because of that you have to target as many demographics as possible, which for marketers means shaving off as many of the pieces that are necessary for complex mechanisms functioning within their niche but are incongruous with the other complex mechanisms that have been deemed as appealing. In other words, they're gambling their entire income on the equivalent of a spaceship boat plane car that can't land on water, can't re-enter the atmosphere, can't drive on the roads because it's too big, and is awful to fly because it's all of those other things.

[piltdownman]

It ultimately depends on what sort of Skinnerbox you're running tbh.

Players purchased roughly $6.8 billion worth of the Roblox in-game currency Robux in 2025, a massive 55% year-over-year increase.

[ChrisRR]

What's not to understand that when you're having to spend 4.85B in order to get 5B in revenue makes your business quite risky. You want to be operating on larger margins than that

[mtsr]

Pretty normal margin in some kinds of businesses, like supermarkets. Then again, supermarkets aren’t likely to see all their customers leave at the drop of a hat.

[dannyw]

The scale is also very different. Costco earned $70.53 billion in a recent quarter (not 5B here). Their operating margin is 3.93%, which is also healthier.

[ChrisRR]

Yes very different business models. Supermarkets have the benefits of frequent repeat customers

[7thpower]

The awareness of a poor return on investment is a good thing for society. We want to do more with fewer resources.

Making terrible decisions, such as investing in distractions for your company and consumers, and then letting your workforce pay the tab.. is the thing that is not great for society.

[slg]

>We want to do more with fewer resources.

Who is the "we" here? Because the profit margin not being high enough is certainly not a problem for consumers. The only people who should care about that are the company's shareholders and "shareholders" certainly isn't synonymous with "society".

[LtdJorge]

Of course it is a problem for consumers if it bankrupts the company. Healthy company is better than no company. And I mean healthy, not greedy.

[slg]

It's pretty difficult to go bankrupt turning a profit.

[refurb]

Making a thin 3% profit that can go negative when the wind blows

[Krasnol]

Making less doesn't equal to going bankrupt.

[LtdJorge]

Yes, but making just 3% could mean tomorrow you’re in the red.

[hollerith]

Our society has a finite capacity to do projects and to run industrial processes. We want that finite capacity to provide as much quality of life as possible (and as much expansion of our capacity to do projects and run processes as possible), and achieving that is a thorny intellectual problem, which for many centuries in our society has been solved mostly by lawyers and judges knowledgeable about corporate law, stock markets, corporate managers, accountants and investors. This entire ecosystem is predicated on the assumption that investor will try to maximize their return of investment, which is strongly correlated with profit margin.

[dd8601fn]

It absolutely became a problem for consumers.

[slg]

Is a low profit margin a problem for consumers or is it the company's "money grubbery" of not being satisfied with that profit margin that is causing the problem?

[Gareth321]

When XBOX fires a bunch of people and shutters studios leading to fewer games with worse support, that's a problem for consumers.

I think people often forget that in a society we rely on companies making and serving things. They make our food and our medicine and build our homes and make our games. It's a good thing when their finances are healthy. It's a bad thing when they form monopolies and rent-seek.

[dannyw]

I think a lot of people in the gaming community would agree that Microsoft has ruined, or hindered (instead of helping) many studios they bought.

[pfdietz]

The mistake isn't shutting stuff down, it was overpaying for the stuff in the first place. This most recent action is unwinding the earlier mistake.

[signatoremo]

One of those terrible decisions was probably hiring too many developers, how do you suggest they fix that issue, besides changing leadership?

Many of those developers may not have the job elsewhere, or job paying much less. They now have the experience working in a proper software engineering environment.

[hollerith]

Our society uses return on investment (which is correlated with profit margin) to decide what projects and what processes our society's workers will focus on.

So for example, if I can make twice as much money as a software developer as I can as a musician, that is strong evidence that my doing the former kind of work will benefit society about twice as much as my doing the latter kind of work.

[benatkin]

I disagree. "Benefit society" means something that can't be defined or tracked so easily. And consumer behavior is heavily biased by things that aren't optimized to benefit society. I have in mind this book, Hooked by Nir Eyal: https://www.nirandfar.com/hooked/

[hollerith]

We should try our best to improve our society. Sometimes that will mean doing things that are economically inefficient. Your example of Stanford professor Nir Eyal is an excellent illustration: by advising corporate managers and product designers how to fulfill their role in our economic system more efficiently, Nir Eyal made our society worse.

We should expect more from our elite professors. Nir Eyal should've known better than to make a career out of studying how deliberately to addict users. But we should also expect our professors, politicians and policymakers to understand the basics of our economic system and to understand when a proposed change to our society sounds good or feels good, but has severe adverse effects on economic efficiency that outweigh the societal benefits. Those aren't the only proposed changes we should avoid, but they form an important class of them.

[mike_hearn]

Margins that low are dangerous because businesses can often see year to year margin variance higher than that.

[account42]

So? Why is it impossible for businesses to do long-term accounting?

[chasd00]

> Why is it impossible for businesses to do long-term accounting?

3% is pretty close to 0% which is very close to -1%. Think of it as a 3% margin for error.

[ChrisRR]

They have been doing long term accounting, and that's why they're resetting their business

[refurb]

Many reasons:

- Investors bail - You run out of cash

[bluGill]

Not exactly - stocks are already sold, you don't run out of cash from the stock price going down. You only run out of cash if you want to sell more stock to raise more cash (this happens, but it is somewhat rare).

However the owners are still going to be mad because their cash is down and they will demand changes to fix that.

[refurb]

I wouldn’t call issuance of new stock rare, it’s a major funding mechanism.

Not to mention a company with thin margins is going to have a hell of a time raising money through debt.

[petu]

3% is lower than buying US Treasury bonds? Effectively zero risk zero effort return vs running a business.

https://home.treasury.gov/resource-center/data-chart-center/...

[petters]

5B revenue is not the same as 5B in the bank collecting interest.

[petu]

Indeed, I had a brain fart. Thank you.

But doesn't that make situation even worse? They likely would be 100B+ market cap/total asset value if spun off into independent company, but not able to generate even 1B in annual profit? Activision Blizzard managed 1.5B income/20% margin by themselves before being bought by Xbox -- and somehow whole of Xbox now earns less?

[XorNot]

Blizzard managed to so thoroughly destroy itself that I'm not sure the comparison is fair. It's a ghost of what it once was in gaming.

[xyzzy_plugh]

It didn't destroy itself, it was intentionally harvested and the husk was sold to the highest bidder. The original leadership is long gone, the shareholders got their money back long ago, and the staff has turned over significantly. The Blizzard of yore is long gone, and that's ok.

[mnky9800n]

I would be afraid that the size of the revenue versus the margin would make small fluctuations in revenue create large fluctuations in margin.

[Invictus0]

is it somehow lost on you that you're commenting on a vc's website

[Drupon]

HackerNews is where I find informed commentary on tech stuff because places like reddit are hollowed out and useless for it. I don't care one bit about cretins like VCs.

[ksec]

>HackerNews is where I find informed commentary on tech stuff b

Unfortunately that hasn't been the case for most subject in over 10 years. But I have yet to find a better place though.

[_verandaguy]

    > 150M at 5B revenue is not great

Considered as a raw percentage in a vacuum, sure, I guess, but we're talking about...

- A company which has undertaken a concerted, long-term effort to consolidate the industry under its umbrella (something they themselves call out as a problem in this post), reducing consumer choice

- A company which has captured a significant chunk of the console market. They're one of the big three (alongside Sony and Nintendo), and have been since the early 2000s, arguably, for crying out loud.

At a certain size (typically as measured by market capture) the expectation for growth needs to be reality checked. This is still $150M of pure gravy every single year. Sure, this is going to a corporation, but that's more money than most people could possibly dream of earning in ten lifetimes.

Every year. For a company that's already putting money towards opex in the form of developing new games and new content for existing ones, for a ridiculously broad portfolio.

To be clear: it is Microsoft's and Xbox's prerogative to pursue more profit, but I reserve the right to call this out as absurd under the circumstances.

If you want to make the argument that Xbox has suffered from a lack of focus in the past decade (... or even longer), or that there's been mismanagement (I would say since around the time 343 got created), then those are fair arguments, though I don't think those are justifications, on their own, for cutting thousands in headcount.

Allowing this org to balloon to fourteen levels of management on any vertical is a joke. Allowing the absorption of so much of the game dev industry and still being unhappy with $150M in annual profit after being such an active participant in the oligolpolization of console gaming is just a bit unserious.

[chrisfosterelli]

> This is still $150M of pure gravy every single year. Sure, this is going to a corporation, but that's more money than most people could possibly dream of earning in ten lifetimes.

That actually seems... tiny? Xbox is nearly 17,000 employees. That's like $8k in profit per employee. That's worse than big box retailers and like 1/100th of what is common in big tech and (to the letter's point) far worse than their biggest competitor.

Like sure at least you can say they aren't losing money, but Nadella can't be looking at that after just spending 75 billion on Activision Blizzard and be happy with it as the status quo.

EDIT: BTW these numbers you quoted from OP are quarterly, not annual

[_verandaguy]

At some point you end up hitting the law of diminishing returns. I think this is a case of that.

[chrisfosterelli]

I agree that at some point you do, but again I think the fact that Sony Playstation is doing this with larger annual revenue, less studios, AND better margins is an indicator that it isn't the problem here.

[spenczar5]

> This is still $150M of pure gravy every single year.

The issue is rate of return. They are evidently spending $4.85bn on Xbox per year. The US federal interest rate is 3.5% so if you just put that money in US bonds you would get about $175M per year of much purer simpler gravy.

[skeeter2020]

Russ: "Anyway, next thing you know, we IPO, stock triples in a day and AOL gobbles us up. All of a sudden, I'm 22 years young and I'm worth 1.2 billion. Now a couple decades later, I'm worth 1.4. You do the math."

Richard: "Okay. Well, that's a gain of $200 million over 20 years. Um, 16.66 repeating. That's less than 1% return. Inflation is, like, 1.7. I think CDs are 2%. So that's less than a CD."

[_carbyau_]

I know this is a TV show reference and a point about investment strategy but...

If I had 1.2 billion dollars I wouldn't care what investment strategy I had. I've got enough to spend $30k a day for 100 years. At any age, that'll do.

[bluGill]

In generally spending increases to cover income. 30k per day sounds like a lot, but it isn't hard to spend that once you get used to having that much to spend. Your mansion with the heated indoor pool is expensive to maintain. Plus you probably have a vacation mansion someplace. Then you see a nice yacht and think "why not" - more costs. You aren't flying coach to get to all those things - and one day you realize your bills are more than the 30k/day you have to spend and you are broke despite being objectively rich.

It sounds like a nice problem to have, but it appears to be very stressful from what I can tell. (I'd still like to have it, and like most I think that I personally wouldn't get that far over my head)

[_carbyau_]

You are correct that we really don't know how we'd act unless we were in that situation. And like you, I hope I'd be vaguely sensible.

Two things, stand out to me though.

1. how you frame it might help with how you spend it. Which is to say that when shopping for a mansion "I've got 1.2 billion" likely leads to a different outcome than "I have 30k per day. I'll have to save up for it."

2. once chasing money is not a major thing in your life, what do you do for meaning?

[tommit]

> but it appears to be very stressful from what I can tell.

sounds like there is a win-win in there somewhere. I wonder what that would look like.

for real though, what are we talking about here? 30k a day is not enough because ... habits? plus, it's incredibly hard to spend that much. that's exactly why, after a certain point, it's basically impossible to get rid of wealth.

[kridsdale1]

I liked your reference.

And if Russ is blowing $100M a year on lifestyle and still has those numbers then he’s winning at life.

[tommit]

> winning at life

What a take. Of a character that is, albeit incredibly entertaining to watch, not displayed in a good light at all.

Alternatively, he's everything that's wrong with the system. He's certainly not generating any value to society.

But yeah, in a purely individualistic take, he's certainly winning at life. While making everyone else's a bit worse.

[hx8]

Exactly. The inflation rate is about 3%, so the people at Xbox worked very hard all year to have about the same value they put into it.

[londons_explore]

All the people were paid a salary for the work they did. And there was still money leftover .

[azertify]

That is an ideal way of seeing this. As a for-profit company their priority is shareholder value, so the focus isn't "people paid and games were made", it's the money left-over, and even more importantly that the number must grow.

[evan_]

Only if you count the value of the games produced as $0

[senkora]

It's a question of "value created" vs "value captured". They captured about as much value as the risk-free rate of return.

Value that is created but not captured (e.g. the value of consumers enjoying games and consoles above and beyond the price that those consumers paid) is typically not considered when making business decisions.

[hx8]

Wouldn't a fair way to count the value be all of the money selling them produced minus all of the money you spent producing them?

[slg]

No, because the customers bought the games. That means the customers valued the games at some value higher than the purchase price. There's a ton of surplus value for society produced as part of this process that doesn't end up on a company's balance sheet.

[Kirby64]

So, even worse than 0, if we’re saying the value of games is not measurable but substantial?

[mvdtnz]

That's pretty accurate when you consider the unfiltered slop produced by studios like Bethesda, Blizzard, Activision, King and most other Microsoft XBox studios.

[delecti]

But the revenue is coming out of the same org. That $5bn revenue only exists because of the $4.85bn expense. That money doesn't exist to put into bonds unless it's coming out of the games org. They can only make their margin percent look better by making their absolute margin $150mm worse.

[gopher_space]

Another point of view is that your people are so good that their division turns a profit under mismanagement. It costs MS negative hundred mil to keep the whole thing spun up on a bad day.

[peyton]

You’re saying that they should take the money people pay to buy Xboxes and put it in T-bills instead of delivering Xboxes? What happens when people ask where the Xbox they ordered is?

[WheatMillington]

Remind me never to come to HN for business advice, this is dire reasoning.

[madeofpalk]

It seems like you're agreeing with the article then? Seems new Xbox boss is cutting a lot of this fat and trying to undo these strategic missteps.

[blks]

I thought it was 150M per quarter?

[xienze]

> This is still $150M of pure gravy every single year

You're neglecting to consider that any time they acquire a studio or have a flop or two -- poof goes that $150M and probably more. It's not a risk-free venture. Entertainment is all about hits, and misses hurt.

Would you put up $5K to win $150 on a hypothetical roulette wheel that hits 90% of the time? The math's not perfect obviously but Xbox is a somewhat similar situation. Microsoft is putting up nearly $5B a year to make $150M. They'd be better off stuffing the $5B into bonds or something. There is a point where the returns aren't high enough to justify the expenses when risk is taken into consideration.

[nicolas_17]

If they shut down their gaming operation and instead decide to stuff money into bonds, where would that $5B even come from?

As said elsewhere in the thread:

> You’re saying that they should take the money people pay to buy Xboxes and put it in T-bills instead of delivering Xboxes?

[mike_hearn]

ROI lags. If they laid off 90% of the Xbox division and left only enough to keep the lights on (they don't run their own factories I guess), then they'd still get nearly the same amount of income the next year with far lower costs. Of course revenue would start to sharply decline as the number of games produced was much lower, as the tech became obsolete. But it's not like revenue would evaporate instantly.

So they could do that and invest the income they still get into bonds, and then that would be where the returns come from.

They don't want to do that obviously, hence why Xbox needs reform.

[xienze]

> If they shut down their gaming operation and instead decide to stuff money into bonds, where would that $5B even come from?

Wherever it comes from now! They're spending about $4.85B to bring in $5B.

[twoodfin]

The money they’re not spending on the Xbox every year!

[georgeecollins]

Sure, 3% is terrible. But the point is you spent a fortune buying all these studios-- aka key strategic intellectual properties-- and then you manage them badly. Then you just sell or shut them down at their absolute bottom and you end up just destroying value.

Older forms of media understand this. WB loses money and its still really valuable because people see the potential of Batman, Harry Potter etc.

IP studios are really valuable because they can drive attention to your platforms. Try starting a premium streaming service or a console without IP. But you can't manage it like tech. It's not going to grow all the time and returns are uncertain.

MSFT could be in the XBox as a platform business. They could have a few in house studios to prime the platform pump. Once it started being a content business they got lost.

[corimaith]

The mismanagement here was actually Microsoft giving studios free reign and they flopped with projects like Starfield. This needs to be understood really within the larger industry trend of quality decline of AAA, which I suspect has to do with changes in overall dev culture and discourse than corporate decisions. There hasn't been a time when developers have been more disconnected from their audience than now.

[healsdata]

> There hasn't been a time when developers have been more disconnected from their audience than now.

There are studios that routinely put out games that people love. For example, my wife and I will happily pre-order the next co-op game from Hazelight Studios. FromSoftware, Ghost Ship Games, and others fall into the same boat for many people.

The difference, in my opinion, is that games from these studios don't focus on creating an "always on" service, microtransactions, day-1 DLC, MRR, etc. Those things that blight games made by corporate studios are evidence of corporate executives putting their thumb on the scale.

There's only so much you can do, as a developer, to polish a turd.

[bmurphy1976]

With the obvious exception of Elden Ring, most of the games from these studios are quite modest small to medium sized projects.

I wish devs would stop trying to make every game an uber-game. They need all the monetization because they've already blown the budget before work even started.

Nintendo figured this out. When will the other big players?

[brianwawok]

Nintendo is selling first party games for $80. No thanks.

[TheTon]

At one point you could have said the same thing about Blizzard, that everything they did was gold. It’s hard to pinpoint where they went wrong, but it’s not clear to me that it was business model or game format related. Like, WoW was a fabulous success from day 1 and it was a live service game.

[gmadsen]

It was when the amount of lattes overtook the amount of Mountain Dew

[account42]

For games like Starfield, monetization isn't even the main issue but rather political ideology. You can only do so much ESG-approved preaching before customers go elsewhere.

[tpxl]

For games like Starfield, the problem is the game is bad, it has nothing to do with politics or ESG.

[teachrdan]

> There hasn't been a time when developers have been more disconnected from their audience than now.

I'm curious what you mean by this. It seems like gamers have never been more vocal and there have never been more avenues (social media, short form video platforms, etc.) for them to voice their opinions than we have now.

How exactly do you know that developers have never been more disconnected from their audience? And how would that be relevant to declining AAA game quality when it's the responsibility of management and leadership to ensure the quality of the final product?

[techpression]

I think developers = studio in this case, management included. It’s the same issue as Hollywood really, making content for a loud minority will not generate revenue. Compare how Marvel Rival performs to any Marvel Hollywood content after Endgame.

[RedComet]

The squeaking [spare] wheel got the grease.

[account42]

One way is developers making game for far left silicon valley ideologes when their audience is full of horny young males. I.e. the game is primarily designed to push an agenda rather than be fun.

[teachrdan]

> far left silicon valley ideologes [sic]

This is a trope that's more than a few years out of date. Silicon Valley is run by Mark Zuckerberg, Peter Thiel, Marc Andreessen, Elon Musk, and many other executives who are completely devoted to the current administration; even Tim Cook bent the knee and donated $1 million to Trump's inauguration.

And what does "far left" mean in this context? Is it the abolition of private property and the creation of a communist utopia? Or are we talking about basic equal rights and a slightly more progressive tax system?

Without a bit more clarity, comments like yours come off as being uninformed at best, ignorant at worst.

[georgeecollins]

Free rein is bad management by definition. You don’t need a manager to have free rein.

I’d be curious what you think the changes in dev culture are. I have worked for or with a lot of these studios and to me they have different cultures. But I could be missing the forest for the trees. MSFT has one culture that imo lacks a creative vision.

[venzaspa]

Depends, Tesco (the UKs largest supermarket chain - one of the largest in the world) on average net about 2.5-3% profit on a given year and they have to do a lot more than pump out a game or two every few years.

[georgeecollins]

The thing to understand here is the risk premium. Tesco is less risky on many levels. It also does not live inside a tech company that has really high gross margins.

[coffeebeqn]

I just don’t know how great the IPs at Xbox game studios are. They have a few staples but most studios they bought have struggled to put out any major successes in the last 5+ years. There’s only a few Pokémon’s and Harry potters out there. They even ran Halo to the ground ffs

[dd8601fn]

I assume a bunch of them print pretty reliably, like Call of Duty, when you're not using them as a loss leader on an expensive subscription that nobody wants.

[ChrisRR]

That would be King

[chocochunks]

They own Minecraft, Call of Duty, Elder Scrolls, Fallout, Doom, Diablo...

[mattfrommars]

> The bigger issue is that console manufacturer revenue is highly cyclical. This is hard to see in e.g. Xbox and Sony since they are both part of a larger conglomerate, but really obvious for nintendo.

There is absolutely no reason to be in sync with Sony on their console release date. They could have effectively released consoles bit more frequently. But they choose not to do so. Their acquisition has been questionable - Activision/Blizzard.

At the end of the day, the employee pay the price for bad management decision which they keep on making.

[jonhohle]

As a Blizzard and Overwatch fan, the acquisition has not been ideal. Activision nearly ended competitive professional Overwatch and significantly scaled back their big esports events to look more profitable. Lately, they seem to be chasing Marvel Rivals for no good reason, but at least in the younger competitive leagues, Rivals is picking up steam and Overwatch no longer looks like a contender, despite being significantly more balanced competitive play.

It’s possible stadium sized esports wasn’t directly profitable or was break-even, but seems like it could have had the potential to catapult the idea into the mainstream when there are 7 figure prize pots, and the games are accurate to anyone with equipment.

[beart]

Overwatch released in 2016, but the merger took place in 2008. I feel like overwatch was always more of an Activision game than a Blizzard game. Or at least, pre-World of Warcraft Blizzard would never have entered that genre of gaming.

[jonhohle]

I was referring to the Microsoft acquisition. That’s Blizzard canceled a bunch of their esports work.

There’s definitely some Blizzard DNA in the characters and lore. I like to think it’s as close to what StarCraft Ghost could have even been.

[beart]

I had completely forgot MS bought them.

[tonyhart7]

nah, overwatch current situation is stemming from horrendous blizzard decision of OW2 release

sure Rivals is strong competition but remember time where Marvel Rivals didn't exist, OW is already dying by then

[worthless-trash]

> nah, overwatch current situation is stemming > from horrendous blizzard decision of OW2 release

If you played enough overwatch, you'd know that it was messed up from when Jeff started doing his silent fireplace streaming.

This was a silent protest by Jeff.

[scott_w]

You do need to be somewhat in sync. Too early and you get Dreamcast effect where the customer isn’t ready for a new console. Too late and your customers bought the competition (I’ll call this the PS3 effect).

Nintendo get a pass because Switch is a very different console, closer to Game Boy.

[glitchc]

Reads to me like multiplayer and server-side games incur a hefty infrastructure cost that eats into their profits, subscriptions notwithstanding. Maybe XBox should focus more on single-player exclusives. They certainly have enough studios to do it.

[ksec]

It has been really really long since I read anything on HN with someone that has some basic understanding of business. May be all is not lost.

Yes. 3% margin is lower than inflation of US treasury rate. As some business would even call it borderline charity. It is also not a commodity market, which means it is not healthy. And any headwind is going to be damaging.

[ralferoo]

Development costs are far from their lowest at end-of-cycle.

That's exactly when the prototype development kits come out of small scale testing (maybe tens of units, all incredibly expensive bespoke units, probably hand soldered and assembled), production ramped up a little and the evaluation kits are produced and distributed to first party studios and large third party studios, with thousands of consoles produced with the expectation that their lifespan is likely only going to be 3-6 months. These are then extensively tested by developers, both to see what needs to be done to get their launch titles actually working on the machine, but often very serious hardware bugs are found in this period that may require fixes to the chips themselves or software workarounds that affect performance. For some of the recent console launches there have been 2 or 3 rounds of evaluation kits in a year, and the previous evaluation kits are effectively bricked.

After the evaluation kits seem to have converged on a final product, the development kits are produced to ideally match the final version of the evaluation kits, but again these are tested before production is ramped up because some things do change (most trivially the case, even if the board is fine). At this point tens of thousands of dev kits are produced, each different enough to retail kits (more memory, maybe extra ports, etc), usually at least 6 months to a year before console launch so studios can make a final push on the launch day or first quarter titles, and in the background the same evaluation process for retail kits (usually just stripped down from the development kits, but usually different cases etc) starts, and eventually a final design for the retail product is produced that's good enough for manufacture.

This time is definitely not just when the console manufacturers kick back and rake in their profits, this is when they're already spending big on the final push to get to the point where they even have a new console to start a new cycle with.

Separate to the console manufacturing side, the years before release are when big money is spent getting studios on board to produce launch titles, because without those, the console will be dead on arrival.

TLDR: revenues at the end of the console cycle aren't funding the next generation, because it's probably already been in development since the launch of the current console, rather those end-of-cycle revenues are hopefully paying off the gamble they took funding development for the current generation.

[skeeter2020]

>> 150M at 5B revenue is not great: that's 3% margin!

and yet everybody - including Microsoft - is in a big rush to sell us AI services, which could look an awful lot like a historical utility business. 3% will be a dream return in that scenario!

[monocasa]

AWS is essentially a utility and gets way better than 3%.

[mike_hearn]

AWS isn't a utility because utilities sell commodities for which you can switch to a competitor easily, as you're buying the same thing. There are companies selling similar products to AWS but none that sell AWS itself.

[monocasa]

Early utilities tend to not be built on standards. See how early electric utilities within a country or even a city couldn't agree on voltage, frequency, phase, or even AC vs DC.

[philistine]

The fact that electricity was quickly commoditized does not guarantee that AWS will commoditize.

[brianwawok]

S3 is. But obviously not all of it.

[hollerith]

Still, there is a difference of degree. The engineering cost of making one city's electrical grid compatible with the consumers of a different city's grid were much lower (even if one grid was AC and the other DC) than the engineering cost of moving from AWS to a competitor because electricity is not that complicated.

Also, I doubt anyone was referring to electricity as a commodity in the early days before the industry developed standards.

[risyachka]

Aws is closer to monopoly than to utility

[groundzeros2015]

A monopoly with at least 3 major competitors and which exists because it created a new thing, not because it controls a fixed shared resources.

[monocasa]

Most utilities are monopolies.

[bluGill]

most utilities are natural monopolies. The cost to run wires/pipes to my house are a significant portion of the cost to serving me, so you wouldn't run wires to my house in hopes that I buy from you later.