Sony risks falling out of console battle


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Carrybagma
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So says The Inquirer

He doesn't actually explain why he thinks this, but maybe he will in part 2 (tomorrow). He does set out some numbers, although I'm not sure he describes anything anyone couldn't have worked out anyway. The comparison of development costs was interesting. I'd like to have seen Wii costs in there.

One (new) thing that did occur to me from reading the article, was how much money has Sony actually made from it's PlayStations? I've read a little of the business with Nintendo putting off publishers with licencing restrictions and Sony being a lot more generous. Were Sony so generous that they missed out on a potentially huge pile of case? Or was one huge pile of cash enough for them?
#1 at 21:58:22 - 21/02/2007
Retroid
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I've kept hearing that the PS machines and their game sales have kept the company afloat.
#2 at 22:10:10 - 21/02/2007
Truk
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The Inquirer is notorious for extrapolating wildly from flimsy titbits of evidence.

I'm now going to make some statements with very little evidence, so you can take everything I say with a pinch of salt. That's cool.

edit: In the cold light of day, I'm not sure I'm entirely comfortable saying that. That's probably dubiously close to confidential.

Secondly, I really have to question the 2-3 times cost idea. I'd like them to explain to me how the dev costs for PS3 are so much greater than those costs for the 360. In addition, most of the larger companies, i.e. those who can afford the larger sums, are generally those who make cross platform games.

Finally, another well-placed source (ooh, I feel like a journalist) has told me that with the PS2 the required tie-ratio before the machines cost was covered was never more than a handful, i.e. 4-5.

People like to bash Sony, or rather SCE, I know, but they haven't got to the position they are by being bumbling business idiots. Their PR may suck at the moment, but it's hasty to extrapolate. No?


edit: Another big post. Sorry about that. Must be one of them days.
#3 at 00:07:52 - 22/02/2007
quedex
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Truk said:
Where before they lost money on each machine, until costs came down enough that they could make a small profit before dropping the price again...

This chap didn't think so.

I'm with you - I don't believe the costs of components for either PS2 or PS3 were as high as "analysts" claim. It may take a while for them to claw back the substantial development costs, but I suspect they've covered the cost of the hardware already.
#4 at 10:03:43 - 22/02/2007
Truk
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quedex said:This chap didn't think so.

I'm with you - I don't believe the costs of components for either PS2 or PS3 were as high as "analysts" claim. It may take a while for them to claw back the substantial development costs, but I suspect they've covered the cost of the hardware already.

Well, like I said before I edited, I really prefer my source to him or the Inquirer. They weren't losing a lot of money and they weren't losing it all the time - indeed, they've not lost money on the PS2 for a long time - but that is exactly how it was shown to me. They started at a loss, costs drop enough so they make a profit on the hardware, they drop the price again, and so on.

Gord's article seems fairly conclusive, but I'm not sure it's strong enough to sway me. :-)
#5 at 10:13:38 - 22/02/2007
JimJam
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It's certainly the blu-ray element of the PS3 that's pushed the price up considerably IMO. You only have to look at the disparity in price between standalone HD-DVD players and blu-ray to see that there's a big cost issue with some elements. I don't believe it's all down to Sony being greedy, so although the article needs to be taken with a pinch of salt, I don't think he's wildly inaccurate saying that the machine is costing Sony a lot of money on a component basis.
#6 at 11:08:53 - 22/02/2007
quedex
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JimJam said:
It's certainly the blu-ray element of the PS3 that's pushed the price up considerably IMO. You only have to look at the disparity in price between standalone HD-DVD players and blu-ray to see that there's a big cost issue with some elements.

The price of standalone players doesn't tell us anything. For example, we don't know how much Toshiba are subsidising the costs of their HD-DVD players. Or how much Sony have increased the cost of the BR player to offset the development costs away from the PS3. Or how much the other components in the players (that the PS3 doesn't have) cost.

If you're going to do any comparisons, you'd be safer looking at the XBox HD-DVD add-on. Cheapest this retails on the net is £120-ish. A large chunk of this will be retailer markup and distribution costs. You also have to factor in the extra costs that won't affect Sony such as licensing (MS paying Toshiba) and all the other bits around the drive such as the fancy plastic case and connectors.

By the time you get down to the cost of the actual blue laser drive itself, it's probably only around £50 max. And considering that Sony are manufacturing the drives themselves instead of buying off the shelf components from someone else, there is no reason to expect that the BR drive is going to be any more expensive.
#7 at 11:37:00 - 22/02/2007
JimJam
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quedex said:The price of standalone players doesn't tell us anything. For example, we don't know how much Toshiba are subsidising the costs of their HD-DVD players. Or how much Sony have increased the cost of the BR player to offset the development costs away from the PS3.


I guess you could take it either way. You could say that Sony wouldn't be daft enough to create such a gulf in price between their own new format and the rival, or they're being cute and keeping the price artificially high to push the PS3 as the cheap option and get it into homes.
#8 at 12:21:05 - 22/02/2007
Rhythm
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JimJam said:
I guess you could take it either way. You could say that Sony wouldn't be daft enough to create such a gulf in price between their own new format and the rival, or they're being cute and keeping the price artificially high to push the PS3 as the cheap option and get it into homes.


I suppose that'd make sense if Sony were the only firm behind BluRay, but Samsung and Panasonic charge a lot for them too.
#9 at 12:27:58 - 22/02/2007
quedex
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The interesting thing about Panasonic BR players though, is that their drives are supposedly BR writers. If true, that would push the price up a little ;-)
#10 at 12:35:21 - 22/02/2007
Rhythm
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quedex said:The interesting thing about Panasonic BR players though, is that their drives are supposedly BR writers. If true, that would push the price up a little ;-)


Heh, that could explain the $600 difference between the Pana and Sammy players :-D
#11 at 12:40:49 - 22/02/2007
JimJam
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Even the Sammy player is twice the price of the HD-DVD players though. Is the price difference really down to one lot pricing cheap to get a player into homes and the other not ? It's a huge disparity, and a dangerous game for Sony/Samsung/Panny to be playing with a new format.
#12 at 12:51:32 - 22/02/2007
mal
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Truk said:
quedex said:
I'm with you - I don't believe the costs of components for either PS2 or PS3 were as high as "analysts" claim. It may take a while for them to claw back the substantial development costs, but I suspect they've covered the cost of the hardware already.

Well, like I said before I edited, I really prefer my source to him or the Inquirer. They weren't losing a lot of money and they weren't losing it all the time - indeed, they've not lost money on the PS2 for a long time - but that is exactly how it was shown to me. They started at a loss, costs drop enough so they make a profit on the hardware, they drop the price again, and so on.


You may be right, but I'd be slightly surprised if that was the case. My recollection is that the PS2 stayed hellaexpensive for a significant period, so I doubt they ever dropped the price to below cost, though they almost certainly started out slightly below cost.

Edit: Although I've just read to the end of that Gord article, and he disputes that it even began below cost. Course, a lot of computing hardware is sold at more than cost and still makes a loss because the profit isn't able to cover the R&D costs. But that's not an issue for Sony since they have the previous generation nicely subsidising the R&D costs.

I suspect only the real failed consoles get a price cut while they're still being sold at a loss - I'd be surprised if the DC was sold at a profit for much of its life, ditto the Jag and possibly even the Saturn.

That Inq article is a decent introduction to game economics, but doesn't say anything new. And it ignores the power of certain territories - that limits the size of the install base you're going to reach.
#13 at 16:14:11 - 22/02/2007
billdoor
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I've switched work pc's recently and all my interesting stuff is on the old machine :(

I did have a quite detailed look into this a while back, someone said that Nintendo have never made a loss on hardware and I decided to dig into it for all the main manufacturers. Anyway, I can hardly remember what I result I came to so this post is a little pointless :(
#14 at 17:16:56 - 22/02/2007
Blerk
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mal said:
My recollection is that the PS2 stayed hellaexpensive for a significant period, so I doubt they ever dropped the price to below cost, though they almost certainly started out slightly below cost.

The PS2 actually had two price cuts within its first year, knocking £100 off the original sale price of £299.99.
#15 at 17:40:27 - 22/02/2007
Carrybagma
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#16 at 20:05:18 - 22/02/2007
Micro_Explosion
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Agree with the point there that it needs a killer app and soon. I honestly can't think of a single PS3 exclusive that I want until maybe the end of the year.

No longer likely to be interested in the next Gran Turismo and FFXIII isn't enough for me to bother getting the machine for (I know that is some way off).

Profit margins are likely to be lower than making for 360 I can't disagree with; costs of blu ray, developing for a more complicated structure etc.
#17 at 20:11:41 - 22/02/2007
Harry
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There's danger in the tie-ratio of games sold per console for Sony. Although PS2 spanked Xbox in sales, MS did a lot better with the tie-ratio, with more games sold per console. I think that's a function of the perception of the Xbox has a hardcore gamer's console, or at least a gamer's console.

I have a few friends who did get a PS2 eventually, but they hardly ever play games. These tend to own two games, FIFA and a GTA - both of which may have been bought with the console itself.

PS3 can't exist on those kind of users. It needs the sort of folks who bought an Xbox/Xbox 360 and plenty of games.
#18 at 20:21:28 - 22/02/2007
mal
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Blerk said:
mal said:
My recollection is that the PS2 stayed hellaexpensive for a significant period, so I doubt they ever dropped the price to below cost, though they almost certainly started out slightly below cost.

The PS2 actually had two price cuts within its first year, knocking £100 off the original sale price of £299.99.

Heh, ta. I had a suspicion I'd be corrected when I made that statement ;)
#19 at 20:27:47 - 22/02/2007
mal
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Harry said:

PS3 can't exist on those kind of users. It needs the sort of folks who bought an Xbox/Xbox 360 and plenty of games.


The PS2 made money of those type of users, because it made money off the console sale and the few games that were sold. I'll stick my neck out here and state that I can't see the PS3 not selling enough to be able to take a price cut and still be sold for a profit, at some point down the line.

Is the 360 selling any better in Japan at the moment, by the way?
#20 at 20:36:10 - 22/02/2007
Harry
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mal said:
The PS2 made money of those type of users, because it made money off the console sale and the few games that were sold.


Not at that time it didn't. It would have made a small amount from the games and nothing from the console sale.
#21 at 20:43:06 - 22/02/2007
mal
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Really? I assumed by the way you said 'eventually' you meant they got round to getting one in that long period where they steadfastly refused to implement a price reduction while the console sold like hot cakes. I got one just after that period, and there's *no way* that device cost what I paid for it to make.
#22 at 20:50:32 - 22/02/2007
Carrybagma
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That writer is a bit of doom merchant. Every console is at risk of a change of fortune. Nintendo were doomed a while ago; now Sony are. Perhaps Microsoft will be doomed tomorrow. It's dead obvious that Sony must be losing money at the moment, but that will change when BD player and cell production ramps up and costs drop. Then 'all' they have to do is sell. They should be in a better position to sell losds than anyone.
#23 at 21:35:05 - 22/02/2007
Blerk
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mal said:
Is the 360 selling any better in Japan at the moment, by the way?

There was a bit of a jump in popularity over Christmas due to Blue Dragon, but that seems to be wearing off quite quickly now. Sales are back in the 4-5000 units a week region and dropping by about 2000 units per week. Most of last year it was selling round about 2000 units a week, so it'll probably settle round about there again.
#24 at 09:41:44 - 23/02/2007

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