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PlayStation 3 to Sell For $399, Going Underground
Merrill Lynch Japan has conducted research that indicates that the PlayStation 3 will retail for $399. According to Gamespot's coverage of the paper, the unit will cost $494 to manufacture. Sony will thus be taking an almost $1 Billion loss in the first year of the PS3's lifespan. From the article: "It is normal for game companies to take a loss on hardware whenever a new console launches, since they typically focus on acquiring market share rather than generating a profit during the first year. During the second year and afterward, they can recover the losses with the savings that come from mass production and with licensing fees from publishers." Meanwhile, Press the Buttons is reporting on a Pro-G article in which SCEE Chief David Reeves states that "I feel proud that E3 went well from the presentations that they did...I feel very happy about that, but I told the troops: OK now we go underground. The PS3 goes underground until it comes out next year."
Unless of course you wait like 3 months until it is $299.
Correct me if I'm wrong, but doesn't the loss or profit made on each unit depend initially on the development costs, and then on the actual amount of units produced?
i.e. if the development costs were a theoretical $1000 and each unit has a cost of $1, making 1000 units will be $2 each, whereas making 2000 will cost $1.50?
Coca-Cola, sometimes War.
Well first off, they're not just "dumping" it here, they're "dumping" it in Japan too (and anywhere they can sell it). I think dumping has to do with attempting to invade a particular market by offering goods (ones that are extremely similar to others offered on that market, i.e. the PlayStation brand alone is enough to differentiate it) at well below what they are worth. However, just because it costs Sony $494 or whatever to make them, doesn't necessarily mean they are worth that much. They're only worth what people will pay for them, and I'd bet dollars to doughnuts that Sony's going to be asking exactly what they think people will be willing to pay.
The hubris of these guys... how many times in history has a $399 game console sold well?
Oh wait, it's not just a game console "this time"?
It's an entire entertainment center? A supercomputer too? Gee, in THAT case....
People seem to be taking this for gospel, when both numbers are analyst estimates.
Of course, retailing for $399 on lauch is probable: in Japan, the PS2 retailed for about this. When it came here, it went for... $299. The PS1 retailed for $599. When it came here, it went for... $299.
So let's wait for a real number from someone with a clue, as opposed to an analyst.
Don't think of it as a flame---it's more like an argument that does 3d6 fire damage
The other situation that is prohibited is for a monopoly to sell a product at a price below cost in order to destroy the competition. In such situations, the monopoly aims to destroy the competition so that the monopoly can, at a later point in time, dramatically raise the price of the product to reap monopoly profits. Such actions also hurt the American economy.
Except for these two problems, there is no issue with companies using selling-at-a-loss to gain market share. IBM sells its server hardware at zero profit or at a small loss in order to reap the profits from a service contract. Sony sells its Playstation at a loss in order to reap the profits from software sales. Neither IBM nor Sony is a monopoly. Further, neither IBM nor Sony (unlike Korean companies) are being subsidized by either the American or Japanese governments.
Not only is that $100 less, but by the time the PS3 launches, the Xbox 360 will be out long enough to cut its price. It could conceivably go down to $250-275.
For the casual gamer that isn't necessarily married to the Sony brand label, the 360 price point will certainly look much more attractive. To the slightly more technical buyer, one would note that the PS3 price doesn't even include the damn hard drive (sold separately!), while the 360 does.
I don't see a really good "win" scenario for Sony here. If they do price competitively with the Xbox 360, then they'll be taking losses per unit that blow away the losses MS was taking with the original Xbox (and those were crazy enough that MS built their new console with keeping losses in control - and apparently have succeeded).
There's still plenty of Sony faithful that want their Final Fantasys and Metal Gears, but Sony could stand to lose a huge share of the massive casual fan base that made them the #1 console seller this past gen.
(This post was written by a decidedly non MS cheerleader - he likes Ubuntu, Gentoo, and Apple)
$399 is retail price. Which means - at this price the retailer needs to take a cut. If the bill of materials is $500, then they'll be subsidizing by between $200-$300 per unit.
Isnt this the same company that laughed at M$ when they came out with Xbox with the same model of losing money on the hardware and making it up with games?
Seems even though Sony claims Xbox has not hurt their sales and is not a threat, taking up this give away the razors and make money on the blades approach says otherwise.
Yeah because a console's success is 100% dependent on it's HDTV support. Just look how much more X-boxes are sold than PS2's. Oh wait....
Abaddon: An Xbox 360 Indie game
I suspect Nintendo knows their market, and it's not the top-feeders. I don't have 1080i, not even 720p, and neither do most of the people I know. Given the penetration rate of HDTV, I'd say that at the lower end it's feasible to ignore 1080i for this generation, if a little risky. For the current generation, Nintendo has occupied a lower space than XBox and PS2, and it looks like they're playing there, again. The XBox2 and PS3 are sounding so expensive that they may actually expand Nintendo's niche, assuming it's well-tuned to its market.
I agree that the XBox2 and PS3 will need 1080i, and everyone in the following generation will.
The living have better things to do than to continue hating the dead.
Selling games for $60 is not a new thing in Japan.
Japanese gamers tend to have more disposable income.
The Nintendo 64 proved that $60 is too much money for an American consumer to spend on one game.
There will also have been 10 years of wage inflation between the PS1/N64 generation and the PS3/Revo generation.
I saw this link a few days back, and I haven't been able to red the report, but I really think Merill Lynch is kind of looking at some things as unit costs that really ought to be considered to be sunk costs.
Example: They're assuming $100 the Bluray Disc player. A DVD player would be... what, I dunno, definitely less? Let's make up a random number and guess that they're spending $80 more per unit because they went with Bluray instead of DVD. Except wait a minute. Does it really make sense to lump this in $80 or whatever in with the per unit cost of the PS3? For one thing, this money is subsidizing the portion of Sony's business that's interested in selling Bluray drives and discs, and that's something Sony has a lot of money riding on. For another thing, I'd assume one of the main reasons the BD drives are so expensive is that they are new and unproven technology. But the PS3 manufacturing itself will help to break the technology in. To some extent by spending this money on the BD drives for the PS3 to break in the production lines and all, Sony probably is relieving money that it will have to spend later on manufacturing BD drives for other consumer products. To some extent that $80 per bluray represents a sunk cost that Sony would have had to have paid anyway for other purposes.
So I question how important these numbers are. If you look at previous Sony Playstations, Sony's been pretty good at the whole thing of bringing down production costs relatively quickly. If they can keep this up they can probably afford to just eat a high production cost since they know their costs are eventually going to come down.
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
How about a single unit that provides you with a DVD player, CD player, and Blu-ray disc player, in addition to being a game center?
When the PS2 came out, a lot of people justified the expense by saying "well, it's also a DVD player - that's like $150 right there" (which is what DVD players cost at the time... I know they're cheaper now). No one currently makes a Blu-Ray disc player, but the recorders are around $1500 each. At a tenth the cost for a player (not unreasonable), it makes the PS3 look more attractive.
Digital television will likely become much more affordable. Although HDTV is digital, not all digital televisions are HDTV. HDTV's will likely still be only for enthusisits.
There are many many economies of scale that could potentially apply to the PS3, and the Cell. It's based on yield, true R&D costs, Blu-Ray DVD unit costs, and a slew of other things. And Sony has their finger in just about every part of that, meaning that it not only know exactly what those costs are, it can actively prevent them from getting too high. Too many faulty Cell chips? Sell them to put in Hitachi TVs that can make do with fewer SPEs!
*If* the PS3 sells for $399, I expect Sony will be making about $50 per machine. I expect the machine to sell for $350 give or take a few bucks.
I don't think an op-ed piece is definitive enough proof to call shananigans on the "console at a loss" theory.
The only problem with that argument is that there was a market for DVDs when the PS2 came out. Right now, there is zero market for blu-ray. As you say, there aren't even stand-alone players. Whether this will change by the time the PS3 arrives, I don't know.
"Merrill Lynch Japan has conducted research that indicates that the Playstation 3 will retail for $399."
This is just research, not a Sony announcement. Also, consoles that debut in Japan first (as Japanese consoles usually do) often cost more there until they come out elsewhere. The Playstation was $400 in Japan when it came out. It was $299 when it hit the US (although it was not significantly cost-reduced, they just repriced it). The PSP was $350 or something in Japan, $250 by the time it came to the US.
I know Saturn was $400 in Japan and came to the US at $400, but quickly fell to $300. I don't know how much Dreamcast was in Japan, or any of Nintendo's consoles.
Honestly, like the PS2, supplies of the PS3 will probably be limited when it first comes out, due to supply constraints/yield problems. And as long as you sell every one you can make, you have a good price.
So I wouldn't get too worried about Sony ceding the market because of price just yet.
And I don't know that PS3 costs a lot more than Xbox 360 to make. As you point out, Xbox 360 includes a hard drive. That hard drive probably costs MS at least $40. I'm sure Sony is smart enough to not make a device that they cannot afford to sell at a competitive price.
http://lkml.org/lkml/2005/8/20/95
I'm with you. The line that the console manufacturers loose money on each sale is not likely. It amazes me how many people can accept the "creative accounting" done by the MPAA and RIAA to rationalize the price/profit in the movie and music industry, but don't believe that the same goes on in the console industry.
Really, I understand that the music and gaming parts of Sony are different divisions. But, to think that the Music division of Sony uses smoke and mirrors in their accounting, but the console division is giving us the staight scoop, seems kind of silly.
Mod parent -1, Stupid.
Monopolies can't enagage in predatory pricing, because they have no one they're competing against.
I actually suspect that the reason Nintendo is not going to be supporting HDTV (whether this means that the hardware won't support HDTV or that Nintendo software won't support HDTV) is that by forcing support of HDTV you may actually be making your games look worse on most (lower end) TVs.
Up until now, most of the features that have been implemented on programmable shaders (in particular on the XBox) have been vertex shading programs. This means that the 'hit' your performance takes from implementing this feature is Geometry dependant; that is the vertex shader is ran once per vertex on a particular piece of geometry. In this generation there will be a far larger focus on pixel shader effects (BDRF, Sub-Surface Scattering, per-pixel lighting), anisotropic filtering, and on Anti-Aliasing; all features that are resolution dependent.
By supporting higher resolutions Developers will (probably) have to sacrifice some of the pixel dependant feature; and (in most cases) will probably drop these features across all resolutions. This means that the average slob (no offence) who owns a 480i or 480p display will be able to notice that either the images still have bad jaggies (from no AA), muddy textures (from no AF), or less advanced materials or lighting (from worse Pixel Shaders) from the decision to support 1080i or (if the developer is really dumb) 1080p.
On a side note: I personally think that it is foolish for Nintendo not to at least support 720p as a 'olive branch' to the handful of technophiles that may be put off by 480i or 480p; at the same time, I'm not sure which is the worse decision, not supporting 720p or forcing the support of 1080i. In general, I think that HDTV will become much like the 'surround sound' debate that occured between the PS2, XBox and Gamecube; tons of people complained on the internet that Nintendo and Sony didn't support Dolby DTS but in the grand scheme of things the inclusion of surround sound capabilities probably didn't sway too many potential purchacers.
True, but don't forget: The first buyers will be enthusiasts who buy more games, and have a longer console lifespan than those why buy years later. Also, the first bunch of consoles might indeed never be profitable for the company, but they need to establish a decent user base for profit later. 3 years from now the PS3 will cost around $80 to manufacture, and will sell for $100 or so (if history is any indication), so THOSE customers will be the cash cows.
Jeremy
Anyone know a Playstation owner will spend at least ten times what the console cost on other things
Maybe some playstation owners do. I doubt I've spent even the cost of the console since I bought it. I paid for one extra controller and a memory card, and I have about a half dozen games, only one of which cost me more than $20. I know quite a few other playstation owners who are the same way. One of my best friends has a PS2 that only gets used for the three Grand Theft Auto games. Everything else he plays on XBox or on his computer.
If Sony really does take a $150 dollar loss on each console, and makes $10 per game sold in licensing fees, how many games does the average customer have to buy for them to even break even? How many guys like me and my friend does it take to make that proposition highly improbable?
Ink cartridges and razor blades are consumables. They will run out in a fixed amount of time, and people will have to purchase more if they want to continue using the product. Games don't ever run out, so Sony gets no dependable recurring revenue stream from their loss leader.
If I don't put anything here, will anyone recognize me anymore?