Microsoft Says Xbox 360 ‘Defying Gravity’ at 67M Sold (This Is Why No New Xbox at E3)

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Microsoft executive Yusuf Mehdi moved from the company’s Online Services Business, where he was involved in MSN’s mid-2000s profit turnaround, to its Interactive Entertainment Division (overseeing the Xbox 360) last November. At the time, Betanews’ Joe Wilcox called the move “a doosey” and a “helluva loss for OSB,” and described Mehdi himself as “fresh and frank, exuding an honesty not heard enough from Microsoft’s higher echelons.”

Mehdi just posted an interesting piece on the Official Microsoft Blog titled “Xbox Beyond the Box,” in which he offers some perspective on the Xbox 360 as the games console rolls through its seventh year. He says the Xbox has “arrived at an important inflection point in its growth and development.” He notes, correctly, that the Xbox has transitioned from being something we use mostly to play games, to more of a generalist media hub that also drives how we listen to music and watch movies or TV shows. He then offers what he admits is a “biased” example:

A few weeks back, my family and I decided to escape a rainy Sunday afternoon by watching a movie. The need for indoor entertainment in Seattle in May is (sadly) no surprise, but what really struck me was the way my son went about finding a movie. After my children finished a heated rock-paper-scissors battle to determine who got to choose what we would watch, my son sprinted to the Xbox 360. He didn’t first turn on the TV or go to our relatively hefty collection of DVDs. For him, the Xbox is now the gateway to what he wants to watch.

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A biased example, yes, but one that resonates with me. I don’t have a son yet (well, not born anyway — that’ll change in about two months), but Mehdi’s comments already resemble my two-adult household. We don’t bother with TV (we don’t even have a cable subscription) and I unloaded my DVD collection a few years ago. I tried to convince myself going Blu-ray was the logical next step, because of its undeniable beauty, but I’ve found that I just don’t have time to care about the subtle distinctions between 1080p video off a 50GB disc and its down-sampled, streaming equivalent. The only difference between Mehdi and me is that I still tend to use a laptop in lieu of my Xbox 360 or PlayStation 3 to access streaming content from Netflix, Amazon and Hulu. And I have an Apple TV handling music streaming, because neither the Xbox 360 nor PS3 plays well with iTunes, which is where my music library resides.

But I may be an outlier. Mehdi says Xbox LIVE subscribers “now spend an average of 84 hours per month on the console.” Assuming he means actually using it, not just being logged into LIVE, it’s an impressive figure that adds up to about 2.8 hours a day. Mehdi says that by comparison, people in the U.S. watch “a little more than 150 hours of TV” a month, a figure that comes from household TV usage tracker Nielsen. Something Mehdi doesn’t mention, but that’s interesting to note, is that “traditional” television viewing on a TV set, which had been on the rise for years, is now actually declining – Nielsen doesn’t (yet) count viewing on computers, tablets or phones, which may offset the decline. In fact, the same “one model’s losses are another’s gains” may be happening in the still somewhat murky retail-to-digital sales shift. Nielsen, among others, has already started to crunch cross-platform TV usage numbers, and it’ll be interesting to see where we are in five years or 10 as generational shifts and cord-cutting further reshape how we consume content.

Turning to Xbox 360 sales, Mehdi says the Xbox 360 has been able to “defy gravity” — “gravity” being the traditional downturn in a console’s sales at a certain point in its life cycle (but also, I suspect, the downturn in video game hardware sales, led by the dramatic decline in Wii units sold). Mehdi says sales of the Xbox 360 were greater in year five than in year four, that year six outpaced year five and that year seven has so far outpaced year six (based on NPD sales figures). He plots all of that out on a chart (below), normalized for prior console sales, that drives home the point rather well.

Microsoft / Yusuf Mehdi

Forget about the PS3 for a minute and notice that the Xbox 360 is actually outperforming the PlayStation 2 at this point in its life cycle (the PS2 remains the best selling video game console of all time). Mehdi summarizes by noting the company has sold 67 million Xbox 360s globally since launching in November 2005, as well as 19 million Kinects (launched November 2010), and that its current Xbox LIVE tally is 40 million (though that’s both paying and non-paying members).

Now what Mehdi doesn’t mention, as pointed out by Gamasutra, is that Xbox 360 sales have actually fallen in recent months: In its third fiscal quarter, ending March 31, 2012, Microsoft shipped half as many Xbox 360s as it did in the same quarter a year ago. So no, just because the Xbox 360 has been outperforming the curve doesn’t mean it won’t experience a sea change, say the market’s reaching a saturation point or the downturn was just delayed — or, you know, the company surprise-announces its next Xbox at this year’s E3.

Which is why it won’t. Maybe I’m wrong, but I don’t think so: When you’re doing this well, redirecting everyone’s attention to a new platform, however much it builds on the old one, doesn’t make sense. No one’s clamoring for new consoles or fussing about what they can’t do. I never hear people griping about the Xbox 360 or PS3′s graphics the way they used to about the Xbox, GameCube or PlayStation 2. Look at how long the Wii, just a slightly more powerful GameCube, hung around. Even Nintendo’s Wii U — probably the star of this year’s show — is less about surpassing the Xbox 360 and PS3 than tossing a new idea on the fire (the tablet controller) and playing catch-up from a performance/high-definition-output standpoint. And even if Sony opts to cut its losses, throw out its whole 10-year life cycle philosophy and announces the PS4 next week, the earliest it’d launch would be late 2013 — plenty of time for Microsoft to ante up at E3 next year.

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