Sales on Xbox Live likely exceed $1 billion in last year


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Statements from Dennis Durkin, the COO of Microsoft's ( MSFT ) Xbox division, imply that the Xbox Live online gaming service generated over $1 billion of revenue in the year ending on June 30. About half of that came from subscription fees - around half of the 25 million users of Live pay a fee of about $50 per year to compete online.

The other half, said Durkin, came from selling movies, TV shows and new content for games, a segment which for the first time exceeded the revenue from subscriptions.

That revelation is a landmark for Microsoft and online gaming in general, as the Redmond, Washington-based company barely breaks even on sales of its console. Instead, it makes the money back on licensing fees, online gaming and streaming or downloaded content.

Gaming is the only sector of the consumer entertainment market where Microsoft has been able to make a big impact - its Zune portable media player failed to gain market share, while the Windows Mobile OS holds less than 10 percent of the smartphone market.

Sarah Friar, a Goldman Sachs analyst, estimated that Xbox Live has gross margins of about 65 percent, far better than the margins on physical consoles. Brand loyalty and social networking on the service, combined with its earlier launch, have helped the company dominate Sony's ( SNE ) Playstation 3 in the online gaming market. ADNFCR-1724-ID-19879233-ADNFCR

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Business
Referenced Stocks: MSFT , SNE

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