A little more than a year ago, in the fall of 2011, Microsoft’s Xbox 360 business was basking in the glow of the “Kinect Effect”.

Interest in the motion controller was driving record sales of the Xbox 360 a full six years after its release — a whopping 8.2 million units sold for the 2011 holiday quarter. Microsoft’s console would go on to top the PlayStation 3 and Nintendo Wii for the first time in head-to-head worldwide annual sales.

Fast-forward to present day, and that effect is hard to see.

Even as Halo 4 set new records, Microsoft’s global console sales fell more than 28 percent, to 5.9 million units, in the 2012 holiday quarter, according to numbers released by the company last week. To put that in context, the result was below the Xbox 360’s holiday sales in 2008, according to historical figures compiled by GeekWire.

The difference is significant: Microsoft said revenue from the Xbox 360 platform fell $1.1 billion, or 29 percent, in the most recent quarter, compared to the same quarter last year.

Also telling: Microsoft hasn’t updated its Kinect sales figures since January 2012, when the company reported that it had sold a cumulative total of 18 million units of the sensor.

The trends being experienced by the Xbox 360 and Kinect are part of an overall decline in the console market, as the current generation of hardware reaches the end of its life cycle and many gamers shift their attention to mobile devices.

Microsoft is still doing well relative to its competition, particularly in the U.S., where the Xbox 360 has been atop the market for two straight years. But the trends over the past year boost the pressure on Microsoft to shake up the market with a strong successor to the Xbox 360, and fast.

Nintendo has already launched its next-gen Wii U, and Microsoft is expected to follow suit with its next console later this year. The signs of this transition were evident in the Redmond company’s financial report last week, as Microsoft’s Entertainment & Devices Division boosted spending on research and development, and reduced sales and marketing spending for its existing console platform.

Does the console industry have a future? Depends on how you define it. Look for Microsoft to continue to broaden the reach of the Xbox into home entertainment as the Xbox 360’s successor debuts.

By that measure, Microsoft isn’t doing too badly: Apple still only sold 2 million Apple TVs in the holiday quarter. However, the skyrocketing sales of iPads suggests that a lot of money that would have been spent on consoles is going to a certain tablet instead.

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  • Guest

    Not worried at all. Microsoft owns the U.S. living room, and this year’s new hardware will only serve to continue that dominance. There isn’t a company in business today that blends computainment and entervideomusement quite like Microsoft does.

    • guest

      Or has lost more money doing it…

      • Roy

        Sony begs to differ with their $150 Billion in debt and more than $5 Billion of that due to the PS3 alone…
        MS lost about $3 Billion with the 360 (a little over $1 Billion due to RROD), but leads by a mile in what should make money for any console maker: software sales, where the 360 has a 100 million copy lead.

    • Axe99

      Indeed there isn’t – I haven’t seen anyone else nickel-and-dime their customers that badly pretty much ever. I’ve got a 360 for the exclusives, but the PS3 does a better and cheaper job of my ‘living room box’ (and don’t forget that the most-used Netflix platform is PS3, despite MS’ lead in Netflix’s home territory – that’d be because you have to pay a subscription just to access it on 360!)

      • Roy

        I agree, the Gold requirement for additional subscription based apps is ridiculous, but at least MS is making money (it is a business after all and that is what they should strive), which can’t be said for Sony. Their financials are worse than all their direct competitors in every tech area combined.
        Don’t come to me with stock quotes as Sony is only rising with the value of the Nikkei right now and not because of merrit.

        • Axe99

          Agreed – because MS’ customers don’t mind being fleeced (it makes no sense to me – I get for free what MS charges for on multiple platforms, but 360 gold subscribers are free to do with their money what they choose, including propping up nickel-and-diming overcharging companies), MS definitely does make more money. That said, I’m not convinced of the financials you’ve listed above – do you have a source?

          Also, it’s important to keep in mind that Sony’s issues are due in no small part (not only – they’ve got focus and management issues as well, but they are addressing these) to factors such as the appreciation of the Yen (one of the reason the stock is rising on the Nikkei is the new Japanese Government is going to work to reduce the value of the yen – that’s actually a positive underlying fundamental – another is the potential opening of the Chinese market), the tsunami that smashed Japan and the floods in Thailand which affected a number of their plants. On the other hand, MS is actually under more pressure than it has been in years, after burning money on the mess that is Windows 8 and the over-priced kit that is Surface.

          • Roy

            Sources? Sure…there are many around the internet, even financial sites like Google,Yahoo and Reuters provide these numbers.
            A good article:

            Sony’s liabilities (just a quick Google search).
            Their debt to equity ratio was already over 80% in september and still rising. For a tech company that is disastrous as Sony’s buying themselves into more and more debt.
            MS’s latest financial report was profit yet again instead of Sony’s massive 3 consecutive year losses.
            Windows 8 already sold 60 million licenses and the Surface already sold more than a million in over a month (and that’s still only the gimped RT tablet).
            There is no comparing, Sony has lost their business sense for a long time now and it is showing in not just their financial numbers.

          • Axe99

            I wouldn’t put too much weight on that Not Enough Shaders article – financial analysis by a gamer sounds about as good as it turns out ;). For example, while there’s no question that Sony is in a rough position at the moment, there are two things to keep in mind:

            1) Assets still exceed liabilities

            2) Even if Sony went belly-up, the Playstation business would continue – hell, Playstation provides more quality and varied exclusives than any other publisher in existence, it’s a brand with a _lot_ of appeal.

            3) The revaluation of the Yen could have a huge impact on profitability for Sony.

            4) Sony is still generating a lot of revenue. If they can effectively restructure and get their costs under control, then high levels of debt will slow growth, but they’re nothing to be worried about.

            This doesn’t mean Sony won’t go belly up, but from a gamers perspective, the worst case scenario is that their Playstation division is bought by someone else. No-one in their right mind wouldn’t acknowledge that it’d be quickly picked up by someone and continue to be a going concern.

  • http://www.facebook.com/jasondouglasfarris Jason Farris

    It pretty obvious that the decline is because we’re 6.5 years into a 7 year cycle, most folks are not going to buy 360s with a new system coming out in months.

  • bonezai

    casual gamers are fickle minded
    wii and kinect is proof

  • http://twitter.com/fijiaaron Aaron Evans

    Kinect came out in 2010 — a full four years less than 6. Historical revisionism is a longstanding Microsoft trend going back to the faked “Windows 1″ mockup and probably before.

    • http://twitter.com/celebfanforwin John Joe Silver

      i think the 6 years they refer to is the console’s release date not the kinects release date

  • guest

    Typical MS. In most cases their new efforts just fail. But even in the rare ones where they succeed, as Kinect initially did, MS fails to build on it that early momentum causing buyers to lose interest and move on.

    • Roy

      You call selling over 20 million units and getting the title of fastest selling gadget a failure? Clearly clueless as for a business that is absolutely great.
      Even many AAA games get some form of Kinect support nowadays, which can’t be said for PS Move.

  • http://www.mainstreetchatham.com/ JimmyFal

    Consumers are smarter than you think, new console coming, out, why buy now. Halo drove Xbox 360 sales, and new versions of COD will do the same. Especially if they make changing from Netflix to Hulu less of a splash screen experience between each, and more like changing channels on the tv.

  • http://www.facebook.com/vqnguyen2 Viet Q. Nguyen

    Wonder if they could miniaturize the Kinect, get it into phones, and use the mobile devices as a 3D scanner.

  • james braselton

    hi there bestbuy having a sell you can buy a kinect for only $89.99 soo get a kinect while on sell

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