Xbox Live Drives Game Division Sales, As Xbox Sales Decline

Increasing digital sales led the division of Microsoft that includes its Xbox family to increased quarterly revenues. For the three months ending September 30, Microsoft's Entertainment and Devices Division -- which also includes its Internet TV product Mediaroom and its Windows Phone products -- saw revenues of $1.96 billion, up 9 percent from the $1.8 billion it generated in the year prior. Microsoft attributes this growth primarily to its Xbox revenue, which saw a sales increase of $114 million (or 7 percent) versus last year. The growth was led by higher Xbox Live revenue, the company said. Xbox revenues were hurt slightly by decreased sales at retail, both for games and Xbox consoles. Game sales saw unfavorable comparisons to last year's popular Halo Reach, while shipments of Xbox 360 consoles were down, from 2.8 million during the same period last year to 2.3 million. Xbox Live content sales came at a cost: the company's cost of revenues -- which includes manufacturing and support expenses, among other factors -- was up 19 percent for the division, or $173 million, due to an increased amount of royalty fees owed to its third-party partners over the service. This -- along with an increased headcount -- contributed to a decline in the division's operating income, down 9 percent from $386 million to $352 million. For Microsoft as a whole, both revenue and profits saw an uptick for the quarter: the company saw $5.74 billion in profit on $17.37 billion in revenues, representing increases of 6 and 7 percent, respectively.