As an active Xbox Live user it is nice to know the business model is working well as it means I am at no risk of losing those capabilities on my Xbox 360.  In fact it probably means I can expect more innovative features and partnerships to further enhance the Xbox Live experience.

Microsoft Xbox COO, Dennis Durkin, said in an interview with Bloomberg that about half of Xbox Live subscribers paid the annual fee to have access to Xbox Live Gold benefits including movie rentals, Avatar items and game extras like maps, levels, features and other add-ons. This would be the first time Microsoft’s Xbox division has earned over a billion dollars.

“Xbox Live has helped sell a lot of consoles and created a lot of loyalty,” said Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Washington. “Everyone has been talking about Microsoft’s inability to innovate, but this is a pretty good example where they have innovated. They timed it just right with this one.”

Durkin declined to give more detailed results for the service, and Redmond, Washington-based Microsoft doesn’t break them out when it reports earnings. Sarah Friar, an analyst at Goldman Sachs Group Inc. in San Francisco, estimates Xbox Live had sales of $1.1 billion in the past fiscal year, up from $800 million a year earlier. Subscriptions for the premium service are $50 a year.

Impressive numbers despite all the doom and gloom about Microsoft falling behind their arch rival Apple in market cap recently.