So this is arguably big news. In the past, Microsoft was pretty cagey about the percentage of Xbox Live subscribers that were paying, "Gold"-level members. (The free version is called Xbox Live Silver.) The consensus was that the vast majority were, in fact, not paying. After all, if a sizable chunk of the Xbox Live membership was paying an annual fee (typically about $50), surely the software giant would crow about it.

Let the crowing begin.

According to a Bloomberg article today, Xbox Live revenues exceeded $1.2 billion for the fiscal year that just ended on June 30. And a whopping 50 percent of Xbox Live subscribers are in fact paying for the Gold membership.

Microsoft says about half the service's 25 million users paid an annual fee to play games online like "Call of Duty: Modern Warfare 2" in the year ended June 30. That would be about $600 million. Sales of products like movie and TV show downloads topped subscription revenue for the first time, Dennis Durkin, Xbox’s chief operating officer, said in an email.

The remarks suggest the business generated more than $1.2 billion in sales last year, exceeding analysts' estimates.

"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."

Microsoft will post operating income of $1.04 billion for the division in the year that ended June 30, projected Sarah Friar, an analyst at Goldman Sachs Group, who recommends buying the shares. That's more than six times the income in fiscal 2009. The company is due to report 2010 results July 22.

Microsoft is working to extend Xbox Live's success to mobile phones. Its overhauled phone software, available later this year, will let customers play Xbox Live games and see users' avatars, profiles and achievements.