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Xbox to finally make money – in 2008

Microsoft playing the long game

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

Robbie Bach, president of Microsoft's Entertainment and Devices Division, said that although the Xbox business will lose money for the second year in a row in fiscal 2007, which began 1 July, 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 1 July 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 $3bn (about £1.6bn) 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 yesterday that Microsoft will deliver a Zune music player by autumn in the US. A company insider told PC Advisor 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 yesterday, but he emphasised 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 favourite music and video."

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

Though Microsoft has not said explicitly that the Zune device will be similar to the iPod, Bach said yesterday that as part of Microsoft's entire entertainment and device portfolio – which also includes Xbox, Media Center, IPTV and MSN – Zune will help position Microsoft nicely against Apple and Sony, the two main competitors to the company's entertainment and 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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