Topic: Microsoft's Xbox Kinect - Nov 4th 2010

[BlackNMild2k1]

Analysts see Project Natal adding billions to Microsoft's revenue
more like cost MS billions in revenue.

Video-game enthusiasts are looking forward to the release of Microsoft's motion-sensitive video-game control system, code-named "Project Natal," later this year. Maybe investors should be doing the same.

That's the underlying message in an analysis of Project Natal issued this morning by Sarah Friar and Derek Bingham of Goldman Sachs. The analysts make a series of assumptions -- including an $85 retail price for the camera-based system -- and estimate that Natal will boost Microsoft's revenue by $1.7 billion in its 2011 fiscal year (which begins in July 2010) and $2.3 billion in its 2012 fiscal year.

It's a bullish position, to say the least, and it will no doubt be greeted with some skepticism. For a bit of context, Microsoft's entire Online Services Business posted only $3 billion in revenue in the 2009 fiscal year, out of $58.4 billion in companywide revenue.

The Goldman Sachs analysts obviously believe consumer demand for the motion-sensitive Project Natal device will be big. In a note to clients, they say they expect Natal to reach a 56 percent "attach rate" less than two years after its launch, meaning that more than half of new and existing Xbox 360 owners will buy Natal for their consoles. By comparison, they say, Nintendo's Wii Fit achieved a 41 percent attach rate over a similar time period.

"Xbox has been predominantly targeted towards a more hardcore gaming demographic, which is different from the family oriented approach of Wii and Wii Fit," they write, adding that "Natal now adds a hook for the more casual gamer."

Cumulative sales of the Xbox 360 were 39 million worldwide at the end of 2009. Project that out to 2011 and 2012, take into account the analysts' estimates of attach rates for Natal, multiply the result by their $85 price assumption, and you can see how they start getting into the realm of billions of dollars in revenue. On Microsoft's bottom line, the analysts predict that Natal will translate directly into increases in earnings-per-share of 4 cents (2 percent) in fiscal year 2011 and 7 cents (3 percent) in fiscal year 2012.

"Internally, Microsoft views Natal’s introduction as significantly extending the lifecycle of Xbox 360 to 10 years (until 2015), which is double the average for consoles," they write. "If this is the case this could have significantly positive ramifications for the longer-term margins of [Microsoft's Entertainment & Devices] group."

Microsoft itself hasn't talked in detail about the financial potential of Natal, which is expected to be released under a different name. However, the question is likely to be asked by analysts on the company's post-earnings conference call Thursday afternoon, now that Microsoft has confirmed a fall release.

Natal will use its camera-based system to let a user control the action on screen by moving around, without the need to hold a controller. It's part of the company's shift toward "natural user interfaces." Nintendo's Wii popularized the idea of motion controls with its Wiimote and companion nunchuck. Sony last week delayed, until fall, the release of its new PlayStation 3 motion controller.

Someone needs to crack a window because the analyst have been hot boxing the internet again.
Did this guy really say that he expects Natal to be more explosive than WiiFit (on an attach rate basis) in a 2 year time frame!? 56% attach rate!? He needs to pass what ever that is he is smoking on.

[NinGurl69 *huggles]

This will be quite the `Hindentanic.`

I love it.

[NinGurl69 *huggles]

Analysts see Project Natal adding billions to Microsoft's revenue
more like cost MS billions in revenue.

Video-game enthusiasts are looking forward to the release of Microsoft's motion-sensitive video-game control system, code-named "Project Natal," later this year. Maybe investors should be doing the same.

That's the underlying message in an analysis of Project Natal issued this morning by Sarah Friar and Derek Bingham of Goldman Sachs. The analysts make a series of assumptions -- including an $85 retail price for the camera-based system -- and estimate that Natal will boost Microsoft's revenue by $1.7 billion in its 2011 fiscal year (which begins in July 2010) and $2.3 billion in its 2012 fiscal year.

It's a bullish position, to say the least, and it will no doubt be greeted with some skepticism. For a bit of context, Microsoft's entire Online Services Business posted only $3 billion in revenue in the 2009 fiscal year, out of $58.4 billion in companywide revenue.

The Goldman Sachs analysts obviously believe consumer demand for the motion-sensitive Project Natal device will be big. In a note to clients, they say they expect Natal to reach a 56 percent "attach rate" less than two years after its launch, meaning that more than half of new and existing Xbox 360 owners will buy Natal for their consoles. By comparison, they say, Nintendo's Wii Fit achieved a 41 percent attach rate over a similar time period.

"Xbox has been predominantly targeted towards a more hardcore gaming demographic, which is different from the family oriented approach of Wii and Wii Fit," they write, adding that "Natal now adds a hook for the more casual gamer."

Cumulative sales of the Xbox 360 were 39 million worldwide at the end of 2009. Project that out to 2011 and 2012, take into account the analysts' estimates of attach rates for Natal, multiply the result by their $85 price assumption, and you can see how they start getting into the realm of billions of dollars in revenue. On Microsoft's bottom line, the analysts predict that Natal will translate directly into increases in earnings-per-share of 4 cents (2 percent) in fiscal year 2011 and 7 cents (3 percent) in fiscal year 2012.

"Internally, Microsoft views Natal’s introduction as significantly extending the lifecycle of Xbox 360 to 10 years (until 2015), which is double the average for consoles," they write. "If this is the case this could have significantly positive ramifications for the longer-term margins of [Microsoft's Entertainment & Devices] group."

Microsoft itself hasn't talked in detail about the financial potential of Natal, which is expected to be released under a different name. However, the question is likely to be asked by analysts on the company's post-earnings conference call Thursday afternoon, now that Microsoft has confirmed a fall release.

Natal will use its camera-based system to let a user control the action on screen by moving around, without the need to hold a controller. It's part of the company's shift toward "natural user interfaces." Nintendo's Wii popularized the idea of motion controls with its Wiimote and companion nunchuck. Sony last week delayed, until fall, the release of its new PlayStation 3 motion controller.

Someone needs to crack a window because the analyst have been hot boxing the internet again.
Did this guy really say that he expects Natal to be more explosive than WiiFit (on an attach rate basis) in a 2 year time frame!? 56% attach rate!? He needs to pass what ever that is he is smoking on.

Yeah, who's butt CRACK has he been sniffin'

[NinGurl69 *huggles]

"Video-game enthusiasts are looking forward to the release of Microsoft's motion-sensitive video-game control system"

AHAHAHAHAAHAHAHAHA video game enthusiasts?  really?

How do they make this stuff up!?

[BlackNMild2k1]

Manatees?

[NinGurl69 *huggles]

Manatees that fly and drive taxis and go to work everyday?  Is this for real?

[BlackNMild2k1]

Manatees that swim in a giant tank filled with word coded balls.

[EasyCure]

Hey, i'm just glad that the Manatees that got laid off from Family Guy were able to find work elsewhere. Times are tough.

[Invincible Donkey Kong]

I wonder where these enthusiastic "analysts" were back when Wii was announced. 

[EasyCure]

they were getting paid to NOT be enthusiastic?

[NWR_insanolord]

Moneyhats: They're not just for developers anymore

[EasyCure]

where they ever? I'd get something tattooed on my forehead if i got a paycheck for it every week.

[Caterkiller]

I wonder where these enthusiastic "analysts" were back when Wii was announced. 

For real! I remember the Wii being a distant 3rd in every analysts predictions. Now this motion thingy can't fail!

[NWR_insanolord]

Well, you can't really fault analysts for not being able to see things coming.

[NinGurl69 *huggles]

Just fault their employers for still keeping them.

[Kairon]

I can understand that, this being a Nintendo forum, there's some latent hostility towards the competition. However, as a diehard Nintendo fanboi and Wii-only gamer, I have faith that Natal will deliver. The Wiimote wasn't perfect either, and it still accomplished what it set out to do. Microsoft demonstrated the Natal tech in E3 2009, and the demonstration didn't have any major hiccups. Since then, even with the chip removal, I'm not willing to bet that MS will show up with an unworkable product at the Natal launch. It'll have its quirks and caveats, but it'll be enough.

[NWR_insanolord]

This isn't a Nintendo fanboy thing. I think the Disco Stick has potential. Microsoft just hasn't at all demonstrated that this technology has any legitimate gaming application beyond Wii Play-type tech demos. Nintendo didn't sell Wiis because of the controller technology; they sold them with Wii Sports, and Microsoft has yet to show anything close to that.

[KDR_11k]

where they ever? I'd get something tattooed on my forehead if i got a paycheck for it every week.

Quick, someone change his screen name to "Turok"!

[Chozo Ghost]

I wonder where these enthusiastic "analysts" were back when Wii was announced. 

http://www.boston.com/business/ticker/2006/08/sony_will_win_v.html

By 2011, the Yankee Group report predicts that Sony will have sold 30 million PlayStation 3s, controlling 44 percent of the market, compared with an estimated 27 million Xbox 360 units, which would account for 40 percent of the market.

Nintendo is expected to stay in third place with 11 million Wiis sold, claiming 16 percent of the console buying market.

Reggie, how would you explain this discrepancy? You work for Nintendo, so you should be able to tell us if Nintendo is buying back millions of Wiis in order to artificially inflate its market share.

[BlackNMild2k1]

It's amazing how much money Nintendo makes per Wii. They can buy them back by the boat load and still make a ton of profit off of selling them to themselves. Why haven't they started a Nintendo school of business and shard the secrets of profiting off yourself with the rest of the world?

[SixthAngel]

It's amazing how much money Nintendo makes per Wii. They can buy them back by the boat load and still make a ton of profit off of selling them to themselves. Why haven't they started a Nintendo school of business and shard the secrets of profiting off yourself with the rest of the world?

Thats the genius of it all.  Since Nintendo buys them back it forces Sony and MS to make more Wiis so it doesn't seem like they are constantly selling out.  Its the perfect crime.

[Invincible Donkey Kong]

I can understand that, this being a Nintendo forum, there's some latent hostility towards the competition. However, as a diehard Nintendo fanboi and Wii-only gamer, I have faith that Natal will deliver. The Wiimote wasn't perfect either, and it still accomplished what it set out to do. Microsoft demonstrated the Natal tech in E3 2009, and the demonstration didn't have any major hiccups. Since then, even with the chip removal, I'm not willing to bet that MS will show up with an unworkable product at the Natal launch. It'll have its quirks and caveats, but it'll be enough.

I don't believe that Natal will ship out completely buggy (though it's not really out of the question considering Microsoft hardly has a respectable hardware track record), but I do question the device's popularity.  The blue ocean gamer already has a Wii and will not bother purchasing a second console, so Microsoft will have to rely on their hardcore fan base.  Whether or not they will throw away their pride (which they have gradually built up through Wii mockery and the like) to spaz out in front of their televisions is yet to be seen.  I expect little more than EyeToy levels of interest. 

Reggie, how would you explain this discrepancy? You work for Nintendo, so you should be able to tell us if Nintendo is buying back millions of Wiis in order to artificially inflate its market share.

It helps making actual PROFIT so we can buy back our consoles, unlike our competitors.

Oh, and steal my visual signature again and I'll punt you. 

[KDR_11k]

Thought exercise: Throwing a new gamer in front of Natal. He powers the system up. It shows the menu. There is no controller, only the Natal camera. What do you think he'll do? Even if he knows that the camera can track movement, what's the movement to move through a menu? Point at what you want? Doesn't work. There's an infinite number of possible gestures at any given time and they seem to be used as "waggle" (button press replacements) so it's not just a matter of discovering a linear correlation.

If a random person finds a Wiimote he'll know that it has to be pointed at a TV, he'll see the cursor show up. He realizes you can point at things with it. Once you point at something there's no question what to do: There's a big, round button on the top of the remote that's just begging to be pressed. He presses it and predictably it activates what he pointed at.

[SixthAngel]

I never thought of that.  You think Minority Report but real life isn't so simple, especially without the actual 3d hologram technology.  People need to know the right gesture to grab the screen, the right pointing gesture, the right selecting gesture, the right unselect/move back gesture, what happens when you do two gestures at once, etc.

I imagine you will here a lot of disappointed people (by a lot I mean the few people who buy it) when it first comes out because people will be really upset the technology isn't what they expected/doesn't work how they want it to.  I especially expect the message boards to explode when they don't get what they imagine.

[Chozo Ghost]

In a game you might have some huge fireball or something hurtling at your character, so in NATAL you motion to move out of the way, but because of the lag you don't move quickly enough and then you DIE!!!@@@!!