XBox to be spun-off into its own company [speculation]

[ChMar]

When the first Xbox appeared they had to sell at a loss to enter the market. Somehow this was offseted with xbox 360. The cost of OS does not matter as MS charges for testing the games for conformity and gets revenues from sold games so you can say that this offsets the os development costs. Console business do not make profits by selling consoles anymore. They make profit by selling games in the long run. For xbox one MS already announced in the press that each console will be sold for a profit and then you add the revenues from the rest of the services so this division should do just fine financially.

 

[smoledman]

Xbox would completely fall apart and the Xbox One would be worthless. Its so much more than just a game console now. Not too mention its built on Windows 8. Its an integral part of the ecosystem. It would be like cutting of they left leg.

Investors love to swing their **** around to strut their stuff, but ideas like this come from nut jobs only concerned about todays end dollar.

Ok so when is XBox going to pull it's own weight? By the year 3000?

 

[AR2186]

When the first Xbox appeared they had to sell at a loss to enter the market. Somehow this was offseted with xbox 360. The cost of OS does not matter as MS charges for testing the games for conformity and gets revenues from sold games so you can say that this offsets the os development costs. Console business do not make profits by selling consoles anymore. They make profit by selling games in the long run. For xbox one MS already announced in the press that each console will be sold for a profit and then you add the revenues from the rest of the services so this division should do just fine financially.

You can think whatever you want, but this sort of thing is my day job and I can tell you it is not a viable stand alone business.
1. It makes no money off consoles, and usually loses money on them (which is to be expected)
2. Xbox is one product, very difficult to get any kind of half way decent valuation on a business with one product
3. There are too many synergies with the Windows Division (it there should be, which makes it more valuable as a part of Microsoft)
4. The business is relatively cyclical and dependent and dependent on the success of a new product every 6-8 years. Again, terrible for valuation

Also, Microsoft said they were "hoping to break even" on the hardware, not profitable. They have announced a drastic reduction in the cost of certifying game updates (=less revenue) and it is completely misguided to equate revenue with profit, as you are not taking into account the underlying costs of that revenue or operating expenses, etc.

Xbox can be breakeven profitable on the hardware because they don't have to develop the OS themselves, but are piggybacking on Windows development with slight modifications. If they were a standalone business they would be responsible for all o it themselves, which would be very, very difficult to implement profitably

 

[a5cent]

Also, Microsoft said they were "hoping to break even" on the hardware, not profitable. They have announced a drastic reduction in the cost of certifying game updates (=less revenue) and it is completely misguided to equate revenue with profit, as you are not taking into account the underlying costs of that revenue or operating expenses, etc.

Xbox can be breakeven profitable on the hardware because they don't have to develop the OS themselves, but are piggybacking on Windows development with slight modifications. If they were a standalone business they would be responsible for all o it themselves, which would be very, very difficult to implement profitably

Agree.

Whether or not MS breaks even (ignoring media licensing etc.) depends on unit sales volume:
Below internal sales estimates = loss (which Sony will be trying very hard to turn into reality)
Meet internal sales estimates = break even
Above internal sales estimates = make a slight profit

Sony is in a similar position. Their investors are also calling for Sony to drop their entire electronics arm. It's the same story all around, except their losses are even larger. Microsoft is in a better position as they can at least make the argument that "the whole is more than the sum of its parts". Sony can't even make that argument.

 

[a5cent]

Xbox would completely fall apart and the Xbox One would be worthless. Its so much more than just a game console now. Not too mention its built on Windows 8. Its an integral part of the ecosystem. It would be like cutting of they left leg.

It also isn't a viable stand alone business, <snipped>. It works as a component of a larger strategy, but not by itself

We're all on the same side here. We all support Microsoft's long term vision, or we at least share the views of technology enthusiasts. Unfortunately, that isn't a majority view, and society has setup a system that ascribes value to something very different! MS' institutional investors care not one iota that Xbox isn't a viable stand alone business. What they do care about is that the Xbox division is a drag on Microsoft's stock value, profitability and dividend payouts. That they would be killing Xbox is completely irrelevant to them. That's just modern capitalism.

Investors love to swing their **** around to strut their stuff, but ideas like this come from nut jobs only concerned about todays end dollar.

I'm not sure it is correct to call such a large slice of the population "nut jobs". Real nut jobs rarely wield as much power as these people do. Selfish, parasitic, self aggrandizing, yes, absolutely, but not crazy.

Considering that Microsoft's Xbox division has lost billions over the last decade, and I'm sure these people have no more patience to let MS spend more money on their Xbox "sideshow". I'm sure that the Xbox console not being subsidized is a consequence of their influence. If that higher price causes the Xbox One to be uncompetitive against the subsidized PS4, then it will be just another reason to scrap the division.

These people have no love for technology (at least not in their professional role), or the patience for a long term vision to play out. As you said, their job is to siphon off as much money as they can within a "useful" timeframe (under five years), which is why it simply doesn't matter what would happen to an independent Xbox division.

For xbox one MS already announced in the press that each console will be sold for a profit and then you add the revenues from the rest of the services so this division should do just fine financially.

I suspect they will be too, but at this point they really have no choice. IMHO it's be profitable or die. The Xbox One doesn't cost $100 more than the PS4 because it's that much more expensive to build.

 

[AR2186]

We're all on the same side here. We all support Microsoft's long term vision, or we at least share the views of technology enthusiasts. Unfortunately, that isn't a majority view, and society has setup a system that ascribes value to something very different! MS' institutional investors care not one iota that Xbox isn't a viable stand alone business. What they do care about is that the Xbox division is a drag on Microsoft's stock value, profitability and dividend payouts. That they would be killing Xbox is completely irrelevant to them. That's just modern capitalism.


I'm not sure it is correct to call such a large slice of the population "nut jobs". Real nut jobs rarely wield as much power as these people do. Selfish, parasitic, self aggrandizing, yes, absolutely, but not crazy.

Considering that Microsoft's Xbox division has lost billions over the last decade, and I'm sure these people have no more patience to let MS spend more money on their Xbox "sideshow". I'm sure that the Xbox console not being subsidized is a consequence of their influence. If that higher price causes the Xbox One to be uncompetitive against the subsidized PS4, then it will be just another reason to scrap the division.

These people have no love for technology (at least not in their professional role), or the patience for a long term vision to play out. As you said, their job is to siphon off as much money as they can within a "useful" timeframe (under five years), which is why it simply doesn't matter what would happen to an independent Xbox division.


I suspect they will be too, but at this point they really have no choice. IMHO it's be profitable or die. The Xbox One doesn't cost $100 more than the PS4 because it's that much more expensive to build.

I may love tech, but I am also one of those institutional investors (though not in Microsoft and not solely concerned with short term profit). I am telling you, it can not stand alone from a valuation standpoint, and investors shouldn't push for it to be spun off because it will not make the sum of Microsoft's parts greater than the whole.

That said, it definitely adds significant value as a part of Microsoft's business as it leverages their technology and expands their end markets and overall integration.

 

[Keith Wallace]

"Real nut jobs rarely wield as much power as these people do."

There are SO MANY examples of that in global political office that would prove you wrong.

 

[Reflexx]

Ok so when is XBox going to pull it's own weight? By the year 3000?

The 360 was pulling its own weight. It made up for the deficits incurred during the original XBOX days.

The XBOX ONE hardware is going to be sold at break even (or even a little more) from the start. So it will already begin pulling its own weight early in the life cycle.

 

[spaulagain]

The 360 was pulling its own weight. It made up for the deficits incurred during the original XBOX days.

The XBOX ONE hardware is going to be sold at break even (or even a little more) from the start. So it will already begin pulling its own weight early in the life cycle.

Ya, last I heard Xbox was back in the black. 5 years ago I could see why investors would want to sell it off. But now it plays a key role in Microsoft's strategy and has the potential to be a huge part of every household.
Investors would be foolish to attempt to sell now. And why would they invest in 300,000+ servers for Xbox and then turn around and sell it.

 

[Reflexx]

XBOX is too tied into the overall MS strategy. They want Windows to control your TV.

 

[a5cent]

"Real nut jobs rarely wield as much power as these people do."

There are SO MANY examples of that in global political office that would prove you wrong.

I don't think that proves me wrong.

TBH, it probably depends on our definition of crazy. I consider Putin a megalomeniacal pseudo-dictator, but I don't consider him crazy. You might, in which case our assessments will obviously differ. This is the type of person that can climb the career ladder in the investment business.

Some politicians, particularly in the U.S, truly are crazy, but they also have no real power. Take away their money base and their careers end. Their agenda is dictated to them and their voting record aligns perfectly with the interests of their money donors (describes most). Such politicians have no real power.

 

[a5cent]

I may love tech, but I am also one of those institutional investors (though not in Microsoft and not solely concerned with short term profit). I am telling you, it can not stand alone from a valuation standpoint, and investors shouldn't push for it to be spun off because it will not make the sum of Microsoft's parts greater than the whole.

I had already told you that I agree that the Xbox division can't stand alone. It just doesn't matter. Those institutional investors that have a seat on MS' board want it spun off, at least most of them. Either that or profitability, now.

 

[spaulagain]

I had already told you that I agree that the Xbox division can't stand alone. It just doesn't matter. Those institutional investors that have a seat on MS' board want it spun off, at least most of them. Either that or profitability, now.

How can they spin it off if no company is willing to buy it? If investors want it gone, they need to sell it to a company so they can make money off the sale. If it can't function outside Microsoft, then no company is going to buy it from Microsoft.

Investors want all kinds of things, doesn't mean its going to happen.

 

[a5cent]

How can they spin it off if no company is willing to buy it? If investors want it gone, they need to sell it to a company so they can make money off the sale. If it can't function outside Microsoft, then no company is going to buy it from Microsoft.

Investors want all kinds of things, doesn't mean its going to happen.

There are many ways to do that. If you find no buyer, then MS can function as its own venture capitalist. Setup a new company, fund it with 500 million and sell them the Xbox division for $1, after which you let them fend for themselves. If they don't even want to do that, MS can can just shut operations down and gift the IP and trademarks to any group of former employees that might want to try their own luck. Many possibilities exist.

I don't know who all the big MS stock holders are, but if enough of them want to get rid of the division, then that is what will happen. They have the final say.

 

[spaulagain]

There are many ways to do that. If you find no buyer, then MS can function as its own venture capitalist. Setup a new company, fund it with 500 million and sell them the Xbox division for $1, after which you let them fend for themselves. If they don't even want to do that, MS can can just shut operations down and gift the IP and trademarks to any group of former employees that might want to try their own luck. Many possibilities exist.

I don't know who all the big MS stock holders are, but if enough of them want to get rid of the division, then that is what will happen. They have the final say.

Sell it for a dollar? They are essentially dissolving the division at that point. Hell, they might as well not even create that pet company.

If investors really wanted to throw the division away, they wouldn't have put all this effort into the new Xbox One, Xbox Music, etc. And Xbox is still the only brand that has a truly positive brand image.

Xbox has already matured...

http://www.businessinsider.com/chart-microsoft-entertainment-and-gaming-2011-1

Microsoft is famous for running products at a significant loss until it sticks. And when it does stick, they make the real money.

They've spent over 10 years and its finally profitable, so now they will dump it? I doubt it. The Xbox brand is about to explode over the next 5 years. IMO, the Xbox will be THE entertainment hub in homes. It has the position and power to be so much more than just a gaming console.

Meanwhile, PlayStation has nothing like that. Why would Microsoft just give up an edge in the industry? An opportunity to be at the center of every home.

 

[AR2186]

I had already told you that I agree that the Xbox division can't stand alone. It just doesn't matter. Those institutional investors that have a seat on MS' board want it spun off, at least most of them. Either that or profitability, now.

They are giving ValueAct 1 seat, but they own ~1% and really can't push the Board to do anything, other than buy back more stock and pay a bigger dividend. Ballmer and Gates own far more and will be able to exert much more influence.

 

[spaulagain]

They are giving ValueAct 1 seat, but they own ~1% and really can't push the Board to do anything, other than buy back more stock and pay a bigger dividend. Ballmer and Gates own far more and will be able to exert much more influence.

Exactly, just because some weasel investor spouts out some BS, doesn't give it any merit.

 

[AR2186]

Exactly, just because some weasel investor spouts out some BS, doesn't give it any merit.

To be fair, Microsoft should pay a higher dividend and probably should issue some debt to buy back stock with borrowing costs at pretty much once in a lifetime levels. They have an astounding amount of cash, but its all offshore and can't be repatriated without paying 35% taxes, so they haven't done much with it yet (except for Nokia).

Also, I take a bit of offense to the hating on institutional investors. Institutional investors serve an important part in our economy and efficient capital allocation, as well as a huge part in everyone's retirement planning. While I understand much of the sentiment, not all of us are bad

 

[spaulagain]

To be fair, Microsoft should pay a higher dividend and probably should issue some debt to buy back stock with borrowing costs at pretty much once in a lifetime levels. They have an astounding amount of cash, but its all offshore and can't be repatriated without paying 35% taxes, so they haven't done much with it yet (except for Nokia).

Also, I take a bit of offense to the hating on institutional investors. Institutional investors serve an important part in our economy and efficient capital allocation, as well as a huge part in everyone's retirement planning. While I understand much of the sentiment, not all of us are bad

That wasn't an insult to all investors, just the one that's been vocal about this Xbox stuff.
The company I work for just got bought by investors 8 months ago. I'm fully aware of what investors can do, good and bad.

 

[smoledman]

If Alan Mullaly is the next CEO, the first thing he will do is spin off XBox.