During a court examination in the Epic Games v. Apple court case, Xbox Vice President Lori Wright explained that Microsoft does not earn a profit on Xbox console sales.
Wright, acting as a third-party witness on the case in order to give testimony and insight into the gaming industry as a whole, declared the news during an examination by Epic's lawyer, Wes Earnhardt. According to IGN, when Wright was asked just how much profit margin Microsoft made on the sales of its Xbox consoles, she answered, "We don't. We sell the consoles at a loss." When Earnhardt followed up on the statement to ask if Microsoft has ever earned profit on the sale of a console, Wright confirmed the statement once again.
Epic's conjecture towards Wright was in order to demonstrate that for game industry giants and producers of consoles, a 30% revenue share on games is necessary. However, for titans like Apple, who sell their products at a financial gain, it is not.
Her testimony during this case demonstrated a particular type of business model, and it cleared up specifically how Xbox garners income: through the sale of additional services and subscriptions. Wright went on to explain that the consoles are sold at a loss because the high-end performance of the Xbox consoles, both past and present, is set up to ensure an "end-to-end gaming experience," and that the consoles are "critical to us delivering that experience." This experience includes service like Xbox Live and Xbox Game Pass.
This is by no means a surprise. Video game consoles are typically sold at loss, given the high-end performance and complicated inner mechanics of the machines. Both Sony and Microsoft have reported losses on their console sales in the past, while Nintendo has not.
While video game consoles may frequently be sold at a financial loss, it does not mean that these companies aren't profitable at the end of the day. Given the parent companies of the consoles, Sony and Microsoft, console construction and maintenance is just one of many departments. Additionally, with Xbox's services and Sony's PlayStation Now and PlayStation Plus, in addition to funds from video game sales, console producers have found strategic methods to increase their revenue in spite of a loss at the initial investment.
Source: IGN