Xbox Live revenues top a billion bucks

If one estimate is correct, Microsoft’s Xbox Live has become a billion dollar business.

Bloomberg made the estimate after failing to get a precise figure from Microsoft. It did, however, get two points confirmed by the company:

• Around half of Xbox Live users are on the paid Gold subscription.
• In the 12 months to the end of June, sales of downloads such as movies and extra game levels produced more revenue than subscriptions for the first time.

Take half of the 25 million users, multiply by $50 and then double to account for non-subscription revenues, and the result is that Xbox Live must have taken at least $1.2 billion in a year.

Bloomberg also quotes an analyst who believes Microsoft’s profit margin is such that it will keep around 65% of that figure after costs (but before taxes). That healthy margin is largely related to it being a virtual product with no manufacturing costs.

The same analyst believes the entire Microsoft entertainment division will make pre-tax profits of $1.05 billion for the year, meaning 85% of the profits can be accounted for by Xbox Live alone. Depending on your view, that’s either a sign that the online gaming is performing fantastically or that Microsoft is doing very poorly from hardware such as the Zune media player.

Without precise breakdowns, it’s difficult to know exactly what’s responsible for the huge amount of cash from downloads rather than subscriptions. It could be the sheer number of games with additional content, the effect of true blockbuster games with DLC such as Modern Warfare 2, or the benefits of platform exclusive content such as the original releases of the Grand Theft Auto IV episodes.

While Microsoft is dwarfing Sony and Nintendo when it comes to online revenues, it’s unlikely to have become the biggest player in the game. That’s almost certainly still Activision Blizzard which took $1.5 billion (largely from World of Warcraft) last year and looks likely to beat that figure this year.