Apple files to strike Microsoft testimony over console profit claims

AppleInsider

Apple has disputed the credibility of an Epic Games witness from Microsoft in its App Store trial, in that claims Xbox game consoles were sold at cost to subsidize game sales can't be substantiated due to Microsoft refusing to provide documentation to back it up.

The testimony of Lori Wright, Microsoft VP of Xbox business development, on Wednesday included a number of claims, including why cloud gaming service Shadow was pulled from the App Store. However, Apple has found issue with part of Wright's testimony that cannot be proven with documents, a problem that it thinks can cause problems with the rest of her testimony.

In a filing on Thursday, Apple asked the court to make an "adverse credibility finding regarding the testimony of Lori Wright," casting doubt on the executive's testimony. The filing, spotted by The Verge centers around an issue in testimony where Wright claims Microsoft didn't profit from its Xbox console hardware sales, as it stood to earn more from game sales.

Apple's lawyers argue the testimony is made "without providing the P&L statement form her files that could have substantiated (or disproven) her testimony." Since Microsoft hasn't offered accounting related to its hardware business as evidence to prove the claim, Apple wants the testimony to be stricken from the record.

This is apparently a repeated issue for Apple, as it had previously motioned for Wright's testimony to be excluded for similar document production problems.

Apple is leaning on a ruling from April 13, where the court warned expert witnesses that if they failed to make a "sufficient production of relevant documents to both parties," the court will "weigh such a failure against the credibility of the testifying witness." Such a failure could "warrant the striking of testimony," something that could benefit Apple's case.

foregoneconclusion

Smart move on Apple's part. From what I've seen reported by the video game industry in the past, both Sony and MS had adopted hardware strategies post PS3/360 where they tried to come relatively close to break even on hardware at launch. Taking a modest loss at that point was acceptable, but they expected to start generating a profit with hardware after a couple of years of manufacturing. That's the thing that makes Wright's testimony so questionable: console hardware doesn't change, so it gets cheaper every year to produce. Imagine if the hardware spec for the iPhone never changed in 6 years with Apple continuing to charge the same price for it year after year. 

EsquireCats

The hardware itself absolutely costs less than the RRP. Microsoft is undoubtedly bundling all manner of costs against the retail price to justify a sold-at-loss claim. However this is disingenuous hollywood-style accounting, because any business with a net-profit can apply the same cost-sharing logic in the reverse direction to justify that all products are actually profitable. 

shareef777

foregoneconclusion said:

Smart move on Apple's part. From what I've seen reported by the video game industry in the past, both Sony and MS had adopted hardware strategies post PS3/360 where they tried to come relatively close to break even on hardware at launch. Taking a modest loss at that point was acceptable, but they expected to start generating a profit with hardware after a couple of years of manufacturing. That's the thing that makes Wright's testimony so questionable: console hardware doesn't change, so it gets cheaper every year to produce. Imagine if the hardware spec for the iPhone never changed in 6 years with Apple continuing to charge the same price for it year after year. 

Hardware prices definitely come down for consoles. Usually a year or two after the original comes out there’s a slim/S model that’s offered that’s smaller and lower cost. Though I agree that I don’t think they sell at a loss based on future game sales. Especially now when there’s so much backwards compatibility included that the customer base can tap into that there’s no guarantee of future earnings

omar morales

foregoneconclusion said:

 Imagine if the hardware spec for the iPhone never changed in 6 years with Apple continuing to charge the same price for it year after year. 

 I agreed with your comment but regarding the above line I think yes. Apple will keep charging the same price even if the hardware didn’t changed. The the trashcan Mac Pro when unchanged for about that amount of time and Apple never lowered the price. 

foregoneconclusion

omar morales said: The the trashcan Mac Pro when unchanged for about that amount of time and Apple never lowered the price. 

Yeah, you can find some individual items here and there in Apple's lineup that work like that, but the lawsuit is focusing on iOS/iPhone. Prior models will either get discontinued or discounted by Apple annually.  

EsquireCats

foregoneconclusion said:

omar morales said: The the trashcan Mac Pro when unchanged for about that amount of time and Apple never lowered the price. 

Yeah, you can find some individual items here and there in Apple's lineup that work like that, but the lawsuit is focusing on iOS/iPhone. Prior models will either get discontinued or discounted by Apple annually.  

Being fair the mac pro makes a terrible comparison product. It was a low-volume product which contained the latest and most costly parts. These parts didn’t meaningfully change in cost (when they did the device got bumps.)

The xbox however does get scale advantages. it is not utilising the latest technology/fabrication process and also is (probably deliberately) utilising parts which are rapidly declining in production cost, finally the housing is plastic, and it’s priced for consumers.

gc_uk

foregoneconclusion said:

Smart move on Apple's part. From what I've seen reported by the video game industry in the past, both Sony and MS had adopted hardware strategies post PS3/360 where they tried to come relatively close to break even on hardware at launch. Taking a modest loss at that point was acceptable, but they expected to start generating a profit with hardware after a couple of years of manufacturing. That's the thing that makes Wright's testimony so questionable: console hardware doesn't change, so it gets cheaper every year to produce. Imagine if the hardware spec for the iPhone never changed in 6 years with Apple continuing to charge the same price for it year after year. 

You’re ignoring the R&D costs before the console even makes it to manufacture. 

davidw

>Apple has disputed the credibility of an Epic Games witness from Microsoft in its App Store trial, in that claims Xbox game consoles were sold at cost to subsidize game sales can't be substantiated due to Microsoft refusing to provide documentation to back it up. <

That is not the way to look at it. The low cost of an X-Box is not to subsidize software sales. Software sales do not "subsidize" the cost of an X-Box. The low cost of an X-Box is due to the competition it takes to gain or keep marketshare. Microsoft and other game console makers, makes neatly all their profit on software sales . The more marketshare their game console has, the more profit from more software sales. Not to mention the monthly cost of an online subscription.  No way is Microsoft telling software developers that they are going be paying extra, to make up for the loss from selling X-Boxes at cost. 

Microsoft and Sony makes a ton of money from the sale of software on online subscriptions for their game consoles. If software sales were subsidizing the cost of the game console, game consoles should be almost free by now. 

https://www.geekwire.com/2021/xbox-series-x-launch-game-pass-helps-push-microsofts-quarterly-gaming-revenue-past-5-billion/

https://hypebeast.com/2021/2/sony-playstation-5-consoles-sold-at-loss-q4-report-sales-info

It is not costing Microsoft anything to sell X-Box at a loss or near loss. Just like it's not costing Walmart anything to sell CD's and DVD's at a loss or near loss to get customers to shop in their stores. It would only be a loss if Microsoft were losing money with their gaming division. Like it was with their first X-Box. 

If anything, software sales "subsidizes" the cost of maintaining the OS on game consoles. If Microsoft are selling their X-box at near cost, then they aren't losing much. But the cost to maintain, update and upgrade the X-Box OS is on going for the life of the console. Security is a concern with any device connected to the internet. R&D improving game player experience are also ongoing and don't stop as soon as a game console hits the market. It's the same cost that Apple faces with iOS and their App Store. Regardless that Apple  hardware sells at a profit. 

crosslad

Surely if Microsoft admit they don’t make money on hardware but make it on selling games, this will back up Apple’s case. If they make money from games they must be charging App Store fees like Apple?

crowley

AppleInsider said:

claims Xbox game consoles were sold at cost to subsidize game sales 

Doesn't even make sense unless there's a completely different meaning for the word subsidise that I'm unaware of.

Loss-leader is the more appropriate term.

Peza

It's a well known fact that consoles are sold at a loss or cost. They make money from the software. The Microsoft executive is speaking the truth, but if they won't provide the documentation to back it up then it's up to the court if they accept a testimony or not. But Apple must accept it will also need to provide documentation for all its witnesses. 

hammeroftruth

Peza said:

It's a well known fact that consoles are sold at a loss or cost. They make money from the software. The Microsoft executive is speaking the truth, but if they won't provide the documentation to back it up then it's up to the court if they accept a testimony or not. But Apple must accept it will also need to provide documentation for all its witnesses. 

I think what posters here are saying is that is a myth, or how it was a long time ago, but not actually correct now. Sure if you consider all of the R&D it takes to make the hardware, you can claim that the consoles themselves would take years of sales of millions of units to recover the development costs and then turn a profit. 

Today, the story is different. The public generally doubts that Microsoft actually sells the Xbox at a loss. They can claim a loss, but I believe they do it to offset profits in other areas like Office and other services. I also believe that Apple doesn’t sell the AppleTV at a loss even though they claimed in the past they don’t make much money on it. 

The motion is a good tactic as it forces Microsoft to “put up or shut up” when it comes to telling the world that they love gamers so much that they are willing to lose millions to keep you and hope that 30% of game sales will keep the lights on. 

Poor Microsoft, and now mommy and daddy are divorcing. 

Peza

hammeroftruth said:

Peza said:

It's a well known fact that consoles are sold at a loss or cost. They make money from the software. The Microsoft executive is speaking the truth, but if they won't provide the documentation to back it up then it's up to the court if they accept a testimony or not. But Apple must accept it will also need to provide documentation for all its witnesses. 

I think what posters here are saying is that is a myth, or how it was a long time ago, but not actually correct now. Sure if you consider all of the R&D it takes to make the hardware, you can claim that the consoles themselves would take years of sales of millions of units to recover the development costs and then turn a profit. 

Today, the story is different. The public generally doubts that Microsoft actually sells the Xbox at a loss. They can claim a loss, but I believe they do it to offset profits in other areas like Office and other services. I also believe that Apple doesn’t sell the AppleTV at a loss even though they claimed in the past they don’t make much money on it. 

The motion is a good tactic as it forces Microsoft to “put up or shut up” when it comes to telling the world that they love gamers so much that they are willing to lose millions to keep you and hope that 30% of game sales will keep the lights on. 

Poor Microsoft, and now mommy and daddy are divorcing. 

Your wrong, they do not make any profit on console hardware sales, pull your head out of Apples pricing, you do realise consoles are refreshed during their cycle and have price drops all throughout their life cycles right? The complete opposite of what Apple does. It's a fact, profits are not made on console sales. As stated under oath and also over the last week both by Microsoft:

http://www.purexbox.com/news/2021/05/microsoft_confirms_it_never_earns_a_profit_on_xbox_console_sales

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

crowley

Peza said:

It's a fact, profits are not made on console sales. 

Nintendo's policy is to not make a loss on hardware.

https://www.nintendolife.com/news/2016/10/nintendo_switch_wont_be_sold_at_a_loss_two_million_units_to_ship_in_time_for_march

crowley

Peza said:

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

Revenue is not profit.  They also bought Bethesda for $7.5bn last year.

To my knowledge Microsoft has never disclosed profits for the Xbox division.  Many people would say that not disclosing them is an indication that they're not good.

Even if they are profitable now, it's likely that they're still net negative for Xbox overall due to the huge hole they got themselves into in the early years, significantly due to the hardware issue with the 360.

Beats

Peza said:

hammeroftruth said:

Peza said:

It's a well known fact that consoles are sold at a loss or cost. They make money from the software. The Microsoft executive is speaking the truth, but if they won't provide the documentation to back it up then it's up to the court if they accept a testimony or not. But Apple must accept it will also need to provide documentation for all its witnesses. 

I think what posters here are saying is that is a myth, or how it was a long time ago, but not actually correct now. Sure if you consider all of the R&D it takes to make the hardware, you can claim that the consoles themselves would take years of sales of millions of units to recover the development costs and then turn a profit. 

Today, the story is different. The public generally doubts that Microsoft actually sells the Xbox at a loss. They can claim a loss, but I believe they do it to offset profits in other areas like Office and other services. I also believe that Apple doesn’t sell the AppleTV at a loss even though they claimed in the past they don’t make much money on it. 

The motion is a good tactic as it forces Microsoft to “put up or shut up” when it comes to telling the world that they love gamers so much that they are willing to lose millions to keep you and hope that 30% of game sales will keep the lights on. 

Poor Microsoft, and now mommy and daddy are divorcing. 

Your wrong, they do not make any profit on console hardware sales, pull your head out of Apples pricing, you do realise consoles are refreshed during their cycle and have price drops all throughout their life cycles right? The complete opposite of what Apple does. It's a fact, profits are not made on console sales. As stated under oath and also over the last week both by Microsoft:

http://www.purexbox.com/news/2021/05/microsoft_confirms_it_never_earns_a_profit_on_xbox_console_sales

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

Even if everything you said was true, none of it is Apple’s fault. Which is why this is such a dumb argument. It’s like Nabisco suing Wal-Mart because Quikmart is losing money.

Peza

Beats said:

Peza said:

hammeroftruth said:

Peza said:

It's a well known fact that consoles are sold at a loss or cost. They make money from the software. The Microsoft executive is speaking the truth, but if they won't provide the documentation to back it up then it's up to the court if they accept a testimony or not. But Apple must accept it will also need to provide documentation for all its witnesses. 

I think what posters here are saying is that is a myth, or how it was a long time ago, but not actually correct now. Sure if you consider all of the R&D it takes to make the hardware, you can claim that the consoles themselves would take years of sales of millions of units to recover the development costs and then turn a profit. 

Today, the story is different. The public generally doubts that Microsoft actually sells the Xbox at a loss. They can claim a loss, but I believe they do it to offset profits in other areas like Office and other services. I also believe that Apple doesn’t sell the AppleTV at a loss even though they claimed in the past they don’t make much money on it. 

The motion is a good tactic as it forces Microsoft to “put up or shut up” when it comes to telling the world that they love gamers so much that they are willing to lose millions to keep you and hope that 30% of game sales will keep the lights on. 

Poor Microsoft, and now mommy and daddy are divorcing. 

Your wrong, they do not make any profit on console hardware sales, pull your head out of Apples pricing, you do realise consoles are refreshed during their cycle and have price drops all throughout their life cycles right? The complete opposite of what Apple does. It's a fact, profits are not made on console sales. As stated under oath and also over the last week both by Microsoft:

http://www.purexbox.com/news/2021/05/microsoft_confirms_it_never_earns_a_profit_on_xbox_console_sales

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

Even if everything you said was true, none of it is Apple’s fault. Which is why this is such a dumb argument. It’s like Nabisco suing Wal-Mart because Quikmart is losing money.

I don't disagree, but it's what Epic believes it requires for it case. And I don't believe you can refuse to be called as a witness in these cases can you? I doubt Microsoft wanted to be involved with the case if it had a choice.

Peza

crowley said:

Peza said:

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

Revenue is not profit.  They also bought Bethesda for $7.5bn last year.

To my knowledge Microsoft has never disclosed profits for the Xbox division.  Many people would say that not disclosing them is an indication that they're not good.

Even if they are profitable now, it's likely that they're still net negative for Xbox overall due to the huge hole they got themselves into in the early years, significantly due to the hardware issue with the 360.

The Xbox 360 mess cost MS around a billion dollars as I understand to fix. And they've more then made that money back over the years since. Also I think it's safe to assume they are making a profit if revenues are up as much as they are. But you can't say for sure either way, if they are or aren't making profit, if they don't publish the figures. 

Your assumptions are wrong I think about them. 

Peza

crowley said:

Peza said:

It's a fact, profits are not made on console sales. 

Nintendo's policy is to not make a loss on hardware.

https://www.nintendolife.com/news/2016/10/nintendo_switch_wont_be_sold_at_a_loss_two_million_units_to_ship_in_time_for_march

Sony and Microsoft consoles then. Nintendo just recycle old games on new platforms too, they've been making a lot of money from the strategy and the Switch, which is expensive for what it is. But so is an iPhone so.. still sell in the millions.

crowley

Peza said:

crowley said:

Peza said:

And as for losing millions, your hatred is strong here, last year Microsoft announced record earnings, the last quarter alone Xbox reported revenue of 3.6 billion dollars, up 50% year over year. So no they are not losing any money. 

Revenue is not profit.  They also bought Bethesda for $7.5bn last year.

To my knowledge Microsoft has never disclosed profits for the Xbox division.  Many people would say that not disclosing them is an indication that they're not good.

Even if they are profitable now, it's likely that they're still net negative for Xbox overall due to the huge hole they got themselves into in the early years, significantly due to the hardware issue with the 360.

The Xbox 360 mess cost MS around a billion dollars as I understand to fix. 

That was a low ball estimate of what it cost them in one year.  The issue persisted over a few years.

Peza said:

And they've more then made that money back over the years since. 

That's exactly what we're discussing and no evidence has been presented for such a claim.

Peza said:

Also I think it's safe to assume they are making a profit if revenues are up as much as they are.

An incredibly problematic assumption.  Revenue and profit are not proportionate.  If costs are also also rising at a similar rate or greater then they could very well be making a loss.

Peza said:

But you can't say for sure either way, if they are or aren't making profit, if they don't publish the figures. 

I agree, and I didn't.  You did.