Microsoft Touts Xbox Momentum and Future

Microsoft this week revealed that it has sold 76 million Xbox 360s since the console first went on sale a bit over seven years ago, and that almost 60 percent of customer activity on the device is related to entertainment, not video games. But Microsoft’s oddly timed celebratory lap doesn’t mention the abysmal state of its own Xbox entertainment apps and the fact that its own console sales have fallen off a cliff as customers embrace casual gaming.

“Yes, we started with video games, but we have been on a journey to make Xbox the center of every household’s entertainment,” Microsoft Corporate Vice President Yusuf Mehdi said in a prepared statement ahead of an appearance at a session at the D: Dive into Media conference this week.

“We want to partner with the industry to bring entertainment into a new era,” Microsoft President Nancy Tellem added. “It’s an era when interactive entertainment becomes the greatest form of all entertainment, and we couldn’t be more excited to play a part in it.”

To this end, Microsoft is touting certain Xbox-related successes, such as the 76 million consoles sold, 24 million Kinect motion-sensor add-ons sold, 46 million active Xbox LIVE memberships, and the 57 percent of Xbox 360 usage that is related to entertainment apps, not video gaming. But these apparently big numbers obscure some painful facts that make the firm’s game and entertainment aims far less compelling than is implied.

For example, the Xbox 360 is the only digital device that requires an additional subscription service—the $60-per-year Xbox LIVE Gold—in order to access other subscription services such as Netflix, Hulu Plus, and more. Only on Xbox 360 do subscribers pay twice, on an ongoing basis.

And Microsoft’s recently launched entertainment services, Xbox Music and Xbox Video, are an absolute travesty—a tangle of barely working features that fail in the most unexpected ways. Xbox Video, for example, is available on Windows 8/Windows RT and Xbox 360, but not on Windows Phone 8, even though its predecessor worked on older Windows Phone versions (and still does). And the mess of Xbox Music features works so inconsistently across Microsoft’s platforms that I’m writing a book about it in order to sort it all out.

Focusing on the momentum bit, I suspect that "46 million" number is a better estimate of actual Xbox 360 usage than the units sold figure, since an Xbox LIVE subscription, free or paid, is pretty much required to use the console. Compare this figure with PC, tablet, or smartphone sales to understand how small that market really is. For example, Q4 2012 is widely considered the biggest disaster in PC sales in a decade, and PC makers sold 90 million units in the quarter. That’s more units than all Xbox 360s sold in over seven full years, and the average selling price of a PC is higher.

And those 46 million Xbox LIVE users pale in comparison with the number of people—235 million, as of last September—who play games on Facebook each month. Even Sony’s PlayStation Network claims 90 million users, double the number on Xbox LIVE. (And that figure is almost a year old.)

Xbox’s next big market, living room entertainment, is also Microsoft’s to lose. If any of its competition gets their act together—Apple’s Apple TV comes immediately to mind, though a coming generation of smart TVs from Samsung and others might make more sense—customers will simply access their favorite entertainment services (absolutely none of which are made by Microsoft) on other less expensive or more convenient devices.

With video game console sales nose-diving in 2012, Microsoft is planning to release a new Xbox video game console in late 2013, along with a new, much less expensive version of the Xbox 360. These devices, coupled with Microsoft’s cloud and entertainment services, will form the heart of the firm’s gaming and entertainment pushes going forward. But so far, there’s been a decidedly limited market for each.

Microsoft touts Xbox because it’s the firm’s only successful, internally developed consumer brand, at least in perception. But it’s a platform that gets shakier the more you investigate. Is Xbox really a success? Or is it all just a smokescreen?

Related: "Nintendo Wii U Sells Out in First Week with More Than 400,000 Units"

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