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Xbox Live Breaks $1 Billion in Revenue

Xbox Live is bringing in big time gold for Microsoft.

On July 7th Bloomberg reported that for the first time, Xbox Live broke a billion dollars of revenue,bringing in over an estimated $1.2 billion for the fiscal year ending June 30th.

According to Microsoft, 12.5 million Xbox Live subscribers are paid Gold members. There are 25 million total users of Xbox Live. Bloomberg estimates Xbox Live subscriptions bring in close to $600 million in sales.

Sales that also contributed to the billion-dollar revenue include downloads of movies and TV shows, Avatar content, and downloadable content add-ons for games (like map packs and additional levels).

For the first time, these downloadable sales exceeded subscription revenue, said Dennis Durkin, Xbox’s Chief Operating Officer. This suggests the service generated at least $1.2 billion.

Sarah Friar, a San Francisco based Goldman Sachs analyst, estimated Xbox Live has gross margins around 65%. Gross margins are the amount of earnings after production costs.

Xbox Live and online gaming components extend the life of titles and bring in additional revenue after the original game purchase, said Durkin. He stated:

The old playbook of ‘launch and leave’ is a relic of the past. Today with Xbox live, it’s now about ‘launch, sustain, retain’ by continually adding new content that enhances the original experience.

According to analyst Michael Pachter, Microsoft put close to $1 billion into Xbox Live when it began in 2002, and didn’t break even until the 360 released in 2005. Pachter also points out a big draw of Xbox Live:

If your friends are all playing on Xbox, you get an Xbox. If they’re all on Xbox Live, you get Xbox Live.

[photo by Microsoft]

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