[InclinedPlane]

Naive interpretations of the current console generation will lead to incorrect conclusions.

Microsoft unequivocally won the 360/ps3/wii console generation. Not because they shipped more consoles, no console maker actually makes the majority of their profit from raw console shipments, it's a very misleading figure. What matters more are sales of games and DLC and subscriptions to services. In those measures the 360 has been trouncing every other console maker. People who own 360s spend more time playing the console, they spend more money buying physical games, and they spend more money buying DLC and subscribing to xbox live gold. Microsoft does more business on higher margin items than other console makers.

The Wii made ok money for Nintendo but the sales dropped off really fast, and people didn't end up playing it much, or buying many games for it. The PS3 took a long time to reach a state of maturity where there was a sufficient stock of good games on the console to actually justify owning one. And eventually the PS3 managed to get to a state where it was actually doing well. But from a business perspective no matter how much better it was doing the 360 continued to outpace it (in game sales especially). These are some of the major reasons why there even is a new console generation this year, Nintendo and Sony need to put themselves on a new footing in order to have a chance of growing their market share.

[pandaman]

Why sales matter and not profits? If I go and buy Ferrari F360s for $200K then turn around and sell them for $10K I can probably get a lot of sales yet from the business perspective I am going to be in a pretty bad state.

Has MS turned in any profit from their whole Xbox affair? There had been various estimates around but I've never seen ones claiming significant profits, the best ones I'd seen claimed it broke even. They had shown some minor profit on their entertainment divisions in some quarters but the RROD alone costs them $1B not counting minor stuff like purchasing and running Rare or paying for "exclusivity".

[InclinedPlane]

If profit figures were available we wouldn't be having this discussion, because the answer would be obvious. But they're not. Nintendo's figures are the most available (since gaming is the majority of their business and they are a public company), but the least relevant because we know they've been struggling. Sony has had reduced profitability and losses over the last few years. The interesting thing is how difficult it is to get numbers out of Microsoft. They fold the Xbox and console gaming part of the company in with web-based gaming and the windows phone (and formerly zune) part of the company, which muddies the waters considerably. Overall though there are many indications that console gaming has been profitable for Microsoft. For example, in 2012 alone xbox live made $1.2 billion in revenue. This is a very high-margin business for MS and that represents about 10% of the entire worldwide video game revenue.

MS has dumped a lot of money into console gaming, but they've built a business that is now generating a lot of revenue in a lot of high margin areas.

[pandaman]

I think your numbers are way off, the entire worldwide video game revenue is not anywhere around $12B[1]

Also margins are not as high as you seem to imagine, look at any 3d party publisher reports (they are all public corps).

[1] http://in.reuters.com/article/2013/06/10/gameshow-e-idINDEE9...

[Keyframe]

If it's such a successful business for Microsoft, how come potential next CEO of Microsoft is thinking of ditching that business to someone else? Is he insane or that business is a burden to Microsoft?