Xbox to make money at last in fiscal 2008

Microsoft's Xbox business will reach profitability in the company's 2008 fiscal year, the company said.

Microsoft will see profitability in its Xbox business by its 2008 fiscal year, the company said at its annual Financial Analyst Meeting Thursday.

Robbie Bach, president of Microsoft's Entertainment & Devices Division, said that although the Xbox business will lose money for the second year in a row in fiscal 2007, which began July 1, the loss will not be as big as it was in fiscal 2006, which was a "transitional" year for the company's game console as Microsoft readied its second-generation Xbox 360 product. Fiscal year 2008 for Microsoft begins July 1, 2007.

Wall Street analysts, who made up the bulk of attendees at the conference in Redmond, Washington, have been asking Microsoft executives when they will start to see a return on investment in some of the company's new business segments, such as entertainment and online services. Though Xbox has been a commercial success, it has not delivered a return on the US$3 billion Microsoft has put into it so far.

Another entertainment device on the horizon for Microsoft is Zune, a new product line that will include both music player hardware and software. Bach said Thursday that Microsoft will deliver a Zune music player by the fall season in the U.S., or the months of September, October and November. A company insider told IDG News Service that Microsoft is targeting November for the release of its first Zune player.

But investors and analysts should not expect to see a return on Microsoft's Zune investment for some time, although Microsoft plans to spend less money -- in the hundreds of millions of dollars -- on the product line than it did on Xbox, he said.

"This is something that will take time," Bach said. "This is not a six-month initiative. This is a three-, four-, five-year investment."

Microsoft has described Zune as a family of hardware and software products that allows users to create communities for finding and experiencing music, as well as other forms of entertainment. Bach did not go into any new detail about Zune on Thursday, but he emphasized that the ability to discover music and other forms of entertainment in a community atmosphere will be an integral part of the initiative.

"Discovery is key," he said. "We'll be providing new ways for people to find their favorite music and also their favorite video."

Before Microsoft admitted it was working on Zune, rumors flew that the company was working on a rival product to Apple Computer's tremendously popular iPod.

Though Microsoft has not said explicitly that the Zune device will be similar to the iPod, Bach said on Thursday that as part of Microsoft's entire entertainment and device portfolio -- which also includes Xbox, Media Center, IPTV (Internet Protocol television) and MSN -- Zune will help position Microsoft nicely against the Apple and Sony, the two main competitors to the company's Entertainment & Devices Division.

"It allows us to complete the picture and have the whole entertainment experience we want to have," Bach said.

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Elizabeth Montalbano

IDG News Service
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