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Rumor claims Xbox is losing money on next-gen consoles

Earlier this week, Microsoft delivered a couple of serious bombshells for gaming fans. The company finally revealed the existence of the all-digital Xbox Series S console. Then, Microsoft announced the release date and price point of the Xbox Series X and Series S. With the two new Xbox systems set to debut on November 10 of this year, there are a ton of questions regarding how the systems will perform for Microsoft. If the latest rumors are true, then Microsoft may in fact be taking quite a hit, thanks to its competitive pricing.

These rumors surfaced during a conversation on Twitter regarding the price points for the Xbox Series X and the PlayStation 5. As gamers now know, the Xbox Series X will retail for $499, while the Series S will sell for the significantly lower price of $299. A recent tech presentation from Microsoft revealed how quickly and efficiently the Series S can run games, even for a budget-priced system. It was starting to look like the value of the Xbox Series S simply could not be beat.

However, despite the smaller price point, that kind of innovation does not come cheap. In fact, it's looking like Microsoft may be taking a huge risk by announcing such a competitive price point. This is precisely the topic that video game industry analyst Benji Sales and Venture Beat journalist Jeff Grubb were discussing on social media when things got interesting.

"Random question but ... Microsoft is taking a loss on Series S at $299 right?" asked Sales. "I think they are."

Jeff Grubb responded, "Yes. It's taking a loss on both the S and X, and it seems like it's taking a bigger loss on S."

This seemed to line up with what Sales had been projecting. He replied, "That price considering whats in the box had to be a loss leader in my mind."

While it's certainly concerning for Microsoft to be selling each console at a significant loss, rumor has it that Microsoft will not be alone in this. Earlier this year, it was reported that Sony was sinking roughly $450 per unit into manufacturing each PlayStation 5. It remains to be seen what the price difference is between making the PS5 and the PS5 Digital Edition, but the fact remains that they are definitely not cheap to manufacture. As such, it has been rumored that Sony would need to charge around $500 per PS5 unit in order to make a profit off of the console. Otherwise, the company would risk taking a major loss. 

Now that Microsoft has announced that the Series X will retail for $499, it is possible Sony will be content to simply price the PS5 at the same amount. This would help the company to avoid having to take that loss. However, Sony's strategy in previous console generations has been to try to undercut the price of the competing consoles. Sony has been doing that since 1995, when it was announced that the first PlayStation would cost a full $100 less than the Sega Saturn. Sony will most likely join Microsoft in the same boat, since according to Jeff Grubb, Sony is "absolutely going to take a loss with at least the digital edition [PS5]."

In other words, both companies may have to take some serious losses to move their consoles this holiday season. However, it is worth noting that Microsoft has plenty of other ways to make up for that profit margin. The company is positioning the Series X to be an all-encompassing entertainment platform, and already has a few services that will more than help in that regard. 

As pointed out by a recent report from Ampere Analysis, Microsoft offers Xbox Game Pass, which gives gamers access to a massive library of games on a digital platform. All of the games shown during the Xbox Series X Showcase back in July will be made available through Game Pass, which is something that PlayStation cannot compete with at this time. Though Ampere Analysis predicted lower sales for the Xbox family of consoles when compared to the PlayStation, it was the many services provided by Xbox that seemingly gave the company a bit more momentum in this research.

This feeling was echoed by analyst Benji Sales, who tweeted that he thinks Xbox is "expecting that money [lost] to come back through Game Pass / digital."

It's hard to tell if Microsoft really will be taking a loss, especially since there aren't any exact figures regarding the cost of each system, at least not any that are publicly available. However, it appears as though the people in the know are pretty sure that Xbox is taking a big risk with its newest console prices.