Why would I go to the club that has a cover charge when there are three right next door—each almost exactly identical—that'll let me in for free? Xbox 360 might offer great streaming, but it's also got a hell of a moat.A noble sentiment but not likely to happen. Looking at Microsoft's annual shareholder report tells the story.
Yes, your Xbox Live Gold membership includes online gaming. And Microsoft is totally within its rights to charge for that; it's an added value experience unique to its ecosystem...
But the calculus has changed. Microsoft is so focused on making the Xbox the beating heart of your home theater, it's even convinced Comcast to stream its on-demand offerings through it. You can watch ESPN live, 24 hours a day, without ever signing out of your Xbox Live account. And when SmartGlass arrives later this year, you're going to route every piece of content you own through your Xbox.
All of which is wonderful. It's a beautiful future, and one that's never going to happen if Microsoft keeps a velvet rope up around all those wonderful services. It's frustrating enough to pay once for things that used to be free. Xbox Live Gold makes you pay twice.
So let's try this, Microsoft: Forget subsidizing a cheaper Xbox with a more expensive Xbox Live plan. Go ahead and charge a monthly fee for online gaming. Do it in Xbox Live points or yuan or mustard green bushels for all I care. But leave the services your customers are already paying good money for—and that every other set-top box serves up for them free—out of it.
In 2010, out of $62.4 billion in revenue, Microsoft took in $6.2 billion from their Entertainment and Devices Division, which includes the Xbox and Xbox gold. That same year, it was estimated that Xbox Gold subscriptions pulled in over $1 billion for Microsoft, or 1.6% of their overall revenue.
Sounds small in comparison to the total, but that Xbox Gold revenue matters a lot: operating and R&D costs to keep it running are relatively low compared to Microsoft's other divisions, I would guess. Also, revenue in the Entertainment and Devices Division grew by 40% between 2010 and 2011, much faster than any of Microsoft's other four divisions.
Don't expect Microsoft to kill the goose now that it's started laying golden eggs. Roku can try to compete with its cheaper offerings, but the Xbox still has a relatively slicker interface and better multimedia integration, so I don't think Microsoft is under much pressure.
Microsoft is also starting to offer Gold subscriptions at retail outlets rather than just online. All signs suggest that Xbox Gold is almost certain to stay a paid service.