Robbie Bach, president of Microsoft’s Entertainment and Devices Division, says the Xbox will turn profit for the first time in 2008: “It’s a business that will be profitable next year – we’ll make money next year and that will be the first time, which is pretty exciting,” he told eWeek.

Following financial losses reported for its console division for the quarter ending March 31, 2007, Bach said the turnaround would come from three main sources in the near future, including games, Xbox Live and peripheral sales: “There are three ways to make money on an Xbox. Generally it’s not on the hardware itself; we’ll probably be gross margin neutral on that over the life cycle of the product and try to break even on that.

“The second thing you try to do is you make money on the games themselves, and there are two models there. One is first-party games that Microsoft produces. The other is games that Electronic Arts or an Activision produces, and we get paid a royalty on those games.

“The third place you make money is on Live, and where we actually have a very nice service that’s scaling very well, and that is a business model that’s subscription, ad-based, and download-based. It kind of has the full gamut of business models associated with it, and I think you’re going to continue to see that grow.

Source: Next Generation