Statements from Dennis Durkin, the COO of Microsoft's (
) 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
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
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 (
) Playstation 3 in the online gaming market.