What just happened? The Epic vs. Apple trial is giving us an unprecedented insight into the video game industry. In addition to some new revelations, it's also confirmed what we already knew: most consoles are sold at a loss. Xbox vice president of business development Lori Wright said that the division has never made a profit from sales of its hardware.
Epic's lawyer Wes Earnhardt questioned Wright about the Xbox ecosystem and whether it made a profit through hardware sales. "How much margin does Microsoft earn on the sale on the Xbox consoles?" he asked. "We don't. We sell the consoles at a loss," she replied.
Earnhardt followed up with: "Just to be clear, does Microsoft ever earn a profit on the sale of an Xbox console?" To which Wright confirmed, "No."
The exec said that the goal of Xbox was to offer an "end-to-end consumer experience," and that the hardware is "critical to us delivering that gaming experience." That experience, of course, includes lucrative subscription services such as Xbox Live Gold and Xbox Game Pass.
Wright was one of the third-party witnesses called to explain the differences between the game console and smartphone markets. Protocol notes that Epic hoped she could support its argument that the 70-30 revenue split on consoles was acceptable as it's the companies' primary revenue source, while Apple doesn't have justification to charge the same 30%.
Same Microsoft document has a breakdown of hardware revenue / profit estimates for Sony and Nintendo.--- Daniel Ahmad (@ZhugeEX) May 5, 2021
Hardware generating a loss for Sony, but profit for Nintendo.https://t.co/hOqyjeKQcv pic.twitter.com/mPBKABWHRD
Industry analyst Daniel Ahmad tweeted that the PS4 was likely the first Sony console sold at a profit, though the PS5 and Xbox Series X/S will probably become profitable at some point. Nintendo is an exception, having long focused on selling its hardware for a profit.
Earlier this week, court documents revealed the millions Epic paid for its free game giveaways, along with the billions Fortnite generates.