Microsoft's Xbox Sales Tough to Game

Difficulty in judging the new console's performance has put game publishers in limbo.
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Updated from 10:54 a.m. EST

So, just how is

Microsoft

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doing with its Xbox 360 game console?

At first glance, the sales numbers the company released on Thursday with its

earnings report appeared to be much better than expected.

Game publishers had complained last month that Microsoft was shipping far fewer Xbox 360s than expected, leading to much lower software sales. Market research group NPD seemed to confirm that assessment earlier this month when it estimated that the company had sold just 600,000 units in the U.S. from the Xbox 360's launch in November through the end of year.

According to the company, though, it sold 900,000 units in North America in that time frame -- or 50% better than NPD's estimates. While company officials acknowledge problems in meeting demand -- and reduced their projection for sales within the first 90 days after launch -- they predicted better times ahead, reiterating their forecast that Microsoft would sell 4.5 million to 5.5 million units worldwide by the end of its fiscal year in June.

What you've probably already inferred from the figures above, however, is that Microsoft's figures include sales into Canada, while NPD's are strictly U.S. data. But a Microsoft representative declined to say how many Xbox 360s were sold in Canada.

But that's the easy part. A less obvious distinction is that NPD's sales numbers represent devices actually sold to consumers. In contrast, Microsoft's represent numbers of devices that the company has shipped. In other words, those boxes may or may not have yet ended up in consumers' hands.

So when Microsoft says that it "sold" 900,000 Xbox 360s in North America -- and 1.5 million worldwide -- in 2005, some number less than that actually made it through to gamers' homes.

Given that retailers are still working through back orders on the device, that distinction may not seem very meaningful. For now, at least in the U.S., Microsoft is pretty much guaranteed to sell just about every Xbox 360 it can get out to retailers.

But the difference between what Microsoft has shipped and how many Xbox 360s consumers have actually bought could well prove important in its competition with

Sony

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. Microsoft was determined to unveil the Xbox 360 before Sony launched its upcoming PlayStation 3, to get an early lead on its chief rival in the video game sector.

However, the longer Microsoft takes to meet demand for the Xbox 360, the closer the PlayStation 3 launch becomes, and the more likely that at least some potential Xbox 360 customers will decide to hold out for Sony's rival box, says Wedbush Morgan Securities analyst Michael Pachter.

"The point of launching first was to get everyone who wants a next-generation console to buy an Xbox 360," says Pachter, whose firm has not done recent investment-banking business for either Microsoft or Sony.

The difference between shipments and actual retail sales also matters to game publishers. According to data from NPD cited by Microsoft, when consumers buy the Xbox 360, they are also purchasing on average more than four games to go with it -- a record for a new console. But that's only if they actually can get their hands on one. Those who can't get one -- and those who are holding out for the PlayStation 3 or

Nintendo's

upcoming Revolution console -- are essentially deferring game purchases, helping sink publishers' sales.

Right now, no one knows how quickly Microsoft will be able to meet demand, or when Sony or Nintendo will actually launch their new devices, and this makes it hard for consumers to plan their purchases and for gamemakers to figure out their title lineups.

"I think the publishers are in limbo for the next six months," says Pacther.

And then there's the little matter of what all this is costing Microsoft. The company has famously lost billions of dollars trying to break into the video-game industry, and this past quarter was no exception. In the just-completed period, the company's home and entertainment division, which makes the Xbox, lost $293 million on $1.57 billion in sales.

And that's got to hurt, no matter how good Microsoft's shipment numbers may have looked.