Microsoft to sell 3 million 360s in 3 months?

As the Xbox 360 launch draws agonizingly close--games are already appearing in retail--the game industry is aquiver with anticipation. However, given that Microsoft has not yet announced a final launch lineup for the console, some industry-watchers are wondering if the next-generation console will stumble in its mad dash to be first out of the gate. Recently, UBS analyst Mike Wallace lowered his 2005 360 sales projections from 2.5 to 1.5 million units.

Unsurprisingly, Microsoft is optimistic about the Xbox 360's prospects. In fact, in public, executives for the Washington-based Software colossus are downright gung-ho, talking up the platform at virtually every high-profile game-industry event since the console was unveiled on May 12.

The latest example of salesmanship came today, courtesy of Bryan Lee, the chief financial officer of Microsoft's newly established Entertainment and Devices subdivision. In a presentation to the Harris Nesbitt Media & Entertainment Conference, the executive gave a very rosy forecast for the console. "I'm very proud to announce that we think through the first 90 days of launch...we expect to have sold 2.75 to 3 million consoles worldwide," said Lee.

While selling a lot of Xbox 360 hardware will help the platform get adopted, it will also cost Microsoft a bundle of money. Though the company won't discuss manufacturing costs, analysts estimate it is losing around $75 on each console sold. And while Lee didn't address the subject of the 360 being a loss-leader, he did talk about where Microsoft will make money off of the consoles.

"When you think about what consumers are going to be spending on consoles, and then you think about the games that they're going to buy along with them, you think about the peripherals, the accessories they're going to want, you think about the Live subscriptions they're going to want," said Lee.

Lee pegged total revenue generated by all Xbox 360 hardware and software at "well over" $1.5 billion in the console's first three months on the market. "I can't think of many other, if any other, products that have had an initial launch that have sold $1 1/2 billion to consumers in their first 90 days," he boasted.

The executive also paid the requisite lip service to the "HD Era," the coming mass adoption of high-definition televisions. "It is really the future of displays," he chimed. "There are millions out there and projections are that by 2008 there will be over 100 million high def displays out in the world."

Lee also spoke about how Microsoft is already experimenting with a potentially massive future driver of Xbox 360 revenue--in-game advertising. "We've actually got a couple of games out in the market now on the Xbox platform where we're trialing some ads and we've been working with Massive on those couple of games. ... We feel very excited about advertising as a potential growth opportunity for the business."

Interestingly, Lee also raised the possibility of ad revenues defraying the cost of a 360 in other countries. "[In] markets outside of North America, the fundamentals of our business may not hold," he said. "Consumers may not be accustomed to paying $50 for software and buying a $200, $300 or $400 device, an ad model may be a way to augment to kind of make the economics work for everyone."

Speaking of advertising, Lee also said a major Xbox 360 ad would run during tomorrow night's episode of Lost on ABC.