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."

Comments

No surprise here

[JonN]

This isn't quite a surprise, as there has been a loss on consoles ever since the switch from cartridges to the inexpensive discs. The price for a disc at the high amounts they purchase them would probably be under 10 cents/disc. Now when you see that each game is going to be priced at ~$60 it is easy to see where the profit is.

Don't get me wrong, I'm not saying that video games only take a nickle/disc to make, there are so many games out there that fail, even to the point of being fully developed but never shipped, that these companies need to balance the costs.

Re:No surprise here

[AnonymousJackass]

I'm curious -- does anyone know roughly how much of profits from games goes to the console manufacturer? I wouldn't have thought it'd be much because the retailer/game producers/distributers/etc would want their cut first. Would revenue from the games be enough to make up Sony's shortfall?

Re:No surprise here

[Daxx_61]

It's exactly like Gillette, when they first released safety razors. They sell the razor itself for almost nothing, and the blades are really expensive. They even give them away - I got one for my birthday from them!

Re:No surprise here

[Cornflake917]

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....

Re:No surprise here

[dpilot]

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.

Re:No surprise here

[nitehorse]

That's actually not really true.

(from the linked page)

By the time the PlayStation came out in North America 4 months later, a lot
had changed during the year. RAM had gone from $50US a megabyte to $20. The Yen had gone from 80 yen per US dollar to 110. And Sega had dropped the price of the Saturn to $299. At this point the PlayStation was indeed profitable, and the Saturn was a minor money pit for Sega.

and:

In the end, before the first PS2 rolled off the production line for consumers, Sony had spent $2 billion! TWO BILLION!

Then we look at Sony's stock report for Oct-Dec 2000, and there is an interesting little blurb. It said that had Sony been able to meet demand with another 1 million PS2 units, they would have pocketed $175 million in profits. $175 million divided by one million consoles equals $175 per console profit.

Sony hasn't yet sold a console at a loss. Nintendo did not sell the N64 at a loss (although it appears that the Gamecube was sold at a loss for a while). Sega was the first major videogame system manufacturer to do it and they went out of business. Microsoft also did it but they have too much money for such a small loss as a billion dollars to bankrupt them.

Re:No surprise here

[SirSlud]

If HDTV meant anything to the Nintendo consumer base, they'd have shunned the GC for Xbox.

Really, I think IGN whining for HDTV is a product of Matt and the other cube.ign.com guys being sick and tired of not being able to compare dick sizes with the xbox and ps2 staff.

Nintendo never was about the hardware; and the fact that PS2 fucking blows chunks from a technological standpoint vs the Xbox and the GC provides a good example of how much of a red herring HDTV is.

Games, market perception, and release timing .. thats where its at. The vast majority of users I've met couldn't even tell you the PS2 was less powerful than the Game Cube, so how is anybody but the home theatre crowd going to care whether the console sports HDTV. I simply don't think they will. I think ign.com vastly overestimates their consumer base's desire for cutting edge home theatre gear.

Re:No surprise here

[Joe5678]

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.

Re:No surprise here

[WhyCause]

The Nintendo 64 proved that $60 is too much money for an American consumer to spend on one game.

Oddly enough, the single most expensive game I ever bought cost me $72 (after 6% sales tax); it was on the SNES, not the N64, so at one point, consumers were willing to spend $60+ on a new game. I think it was the disparity between the manufacturing costs (and, thus purchase cost) of SNES/N64 media vs. PlayStation media that drove the prices down here (i.e., You want me to spend how much more for the same game?). While Nintendo tried to keep prices up during the N64 era, they quickly found they could not. If Sony had not had drastically (i.e., half to one-third) lower software prices (all the better to enter the market), I can imagine that we would definitely be paying $60+ today.

For those interested, the $72 game was Final Fantasy III (US), bought new, after finals one semester, at Biggs (are they even around anymore).

Re:No surprise here

[Belial6]

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.

Re:No surprise here

[PhoenixFlare]

They won't succeed in the US unless they get HDTV support on the Revolution, which isn't in the cards.

Why? Nothing even close to a majority of US homes have televisons capable of displaying high-def content yet - A quick Google search shows figures for HDTV penetration around 4-9%, for example. By the time HDTV support is a majority, it'll be time for the next generation of consoles anyway.

People have been predicting Nintendo's doom for years now, but they're still around and actually quite profitable. I seriously doubt lack of HDTV support is going to be the issue that changes that trend.

Re:No surprise here

[TheRaven64]

Note also the international market. In the UK, no one is broadcasting HD content (although I believe Sky - the primary satellite provider - plan to soon, and so the cable companies probably will eventually too). The primary reason is that PAL sucks slightly less than NTSC, and so we do not have the same motivation to upgrade. Digital TV is more or less the norm over here - cable and satellite are all digital and over-the-air digital is very cheap (around £30 for a set top box, no subscriptions) these days.

I'm not that excited about HDTV. I tend not to watch TV live - if a show's good I catch it on a rented DVD without adverts - and I watch DVDs on a projector. The quality is not perfect, but I have to look closely to see pixelation, and so it falls into the category of `good enough'.

Re:No surprise here

[Breakfast Pants]

As long as Nintendo has widescreen support requirement for every title like Microsoft and Sony are doing I won't care. The fact is that Microsoft and Sony will be running HDTV modes with less anti-aliasing than they will on the lower res 480p widescreen mode inorder to keep performance up to par and make maximum use of the hardware in both modes, so really their HDTV modes won't look any better than their 480p widescreen--except in FMV clips (who cares).

Re:No surprise here

[SirSlud]

I'd just like to add to this; the GC is much closer to to what the XBox can do than the PS2 is to the GC.

I own a GC, and it makes the PS2 look like a gameboy in most cases. The improvement from GC to XBox is marginal, in my opinion, although the library is obviously radically different. I'm just going by some of the cross platform games here, like Burnout 2 (fuck them for not releasing 3 and Revenge on GC), Soul Calibur, etc.

Re:No surprise here

[KarmaMB84]

Unlike Microsoft, Nintendo still made profit on their current generation console and will probably make profit on the next.

Re:No surprise here

[BewireNomali]

i agree with you about the GC. It's an interesting thing about marketing though. I hate to say that I fall victim to marketing ploys, but I fell victim to this one.

I assumed that the GC would be the worst of the three. Much of that assumption came from aesthetics and design. The GC looks and feels like a toy that should be tucked into a child's cubbyhole. Playing games on it proved me wrong as both the graphics and gameplay exceeded my expectations and the capabilities of the much better looking and marketed PS2.

marketing is so important man. I think Nintendo needs a ramped up marketing strategy. I think being the console with the least penetration works in its favor this time around because the audience is always looking for something new. The revolution can be that new thing.

Re:No surprise here

[Anonymous Coward]

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.

Re:No surprise here

[JebusIsLord]

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.

Re:No surprise here

[Guppy06]

If everybody wants games on DTV, then Nintendo's component video cables, needed to play GCN games in 480p, would have sold a lot better than they have. They've even removed the digital video out from GCNs with little negative response from consumers.

If DTV were that important, the GCN, with its support for progressive scan, would be seriously trouncing the PS2. The only progressive support you see on the PS2 is on DVD playback, and that's only on the newer units. And yet the market seems content in paying (more money!) for the inferior 480i.

It's a revolution. It's supposed to reach to the common man. The common man doesn't have the latest and greatest in their a/v setup, so there's no reason for the Revolution to cater to the elite(ist). If anything, the people who insist on HDTV and such are the people who Nintendo are actually trying to distance themselves from in an effort to reach a broader audience, the very people some of us feel are causing the games industry to stagnate the way it is.

Only the bourgeois elite care about real-time rendered forearm hair and the picture resolution to see it, and the hidebound electronics industry aristocracy are doing nothing for the gaming proletariat by offering it. The masses need better games! It is time for the people to rise up and demand a gaming industry again, television and set-top box manufacturers be damned!

Video games got started not in living rooms with big-screen TVs, stereo systems, comfortable sofas and easy access to the kitchen, but in cold, unfinished basements with hand-me-down televisions that required "warming up," maybe a boom-box to route sound out of for stereo, and no furniture save for a washer and dryer. If the Revolution is to have any shot at reinventing gaming, it will have to be able to return to gaming's roots to start. There is no HDTV down there.

(On a slightly more serious note, what the heck is HDTV supposed to do for gaming?)

Re:No surprise here

[apoc06]

the article that the second link references: http://www.pro-g.co.uk/news/nid/985/b1205649dd5bee c5c984bb76d506d8bc mentions a sony based network service called "playstation network" [boring i know...], what bothers me is how lax the premise of their network service sounds. im not excited about it at all.

im hoping that its all along the lines of their new going underground ideology. not talking it up; and just springing it on us. xbox live is nice, but it could stand to be better. alot better! and i hope sony realizes that its not to late to at the very least play catchup.

honestly, i think they have a grand plan in mind. why would they pile on the ethernet jacks otherwise?

Re:No surprise here

[NanoGator]

"That's actually not really true."

I wouldn't look at Acts of Gord for 'truth'. Not only does he mention a blurb in a stock report that he didn't even quote, but he draws an extreme conclusion from it.

Here are the two basic problems I have with his claim:

1.) It's a quarterly stock report. Those are MEANT to sound compelling. Since we don't even have the exact quote from the report, we have no way of knowing what type of math Sony was using to impress their stockholders. Also, it's a quarterly report. For all we know, Sony spent all the money making the machines the previous quarter.

2.) Lots of other quite reputable news sources have reported the first run of PS2s being sold at a loss. Sony has never publically disputed this.

I can't say that Gord is wrong about this, but I wouldn't just immediately jump to the conclusion that his interpretation is correct. Not only are his claims dubious, but he doesn't even cite anything of interest to prove his claim. In simpler terms: My bullshit meter beeps wildly when I read that article. It didn't help when he taunted 'fanboys' of other systems.

PS3 for $399

[Anonymous Coward]

Unless of course you wait like 3 months until it is $299.

Re:PS3 for $399

[MyLongNickName]

Yup. That's what I like about electronics... the "First on the Block" tax. Perfectly voluntary. If it is important enough for you to be the first to have it, then you can pay. If not, then you don't.

It helps to subsidize electronics for the masses without a convoluted gov't based needs program.

Re:PS3 for $399

[dpilot]

OK, let's play a simplified math game.

Let's pretend we have a game console, and it's planned competitive lifetime is 4 years. It introduces at $400, and a year later it's available for $300. But really, $400 for a 4 year lifetime means you're "writing down" $100/year. In that case, the early-adopter and the wait-for-the-price-to-drop users have gotten equal value out of the consoles. In fact, the early-adopter may have gotten better value, because his first game is being written down over 4 years instead of 3, so it costs less per year.

I know it's overly simplified, but there is one point that lasts... The early adopter does fork out the big bux, but he also gets that early usage out of the console, and perhaps more usage than the price waiter. The latter argument has holes too, in that the early adopter probably adopts the next generation early as well, so both get about the same amount of usage. Still, you buy it to use it, and if you buy early, you get to use early. The idea model, from a cost basis, would be to be an early adopter for every other generation, either skipping the in-between generations or getting them really cheap on eBay.

But if you're strictly on a cost basis, skip the game consoles entirely, and take up real-world activities that also improve your fitness.

Re:PS3 for $399

[xstonedogx]

That only makes sense if the unit self destructs at the end of that 4 years. Us waiters are perfectly happy to play the unit long after the end of its competitive lifetime. By the time the "price waiters" by the unit, there are more titles, tons of reviews, and everything - games included - costs less money.

The only positive the early adopter gains is the bragging rights of playing it while it's new and exciting.

The negatives include higher cost, a possible lack of titles, possible hardware/software failure, and competition in finding the new console. If any of those other negatives co-exist with the higher cost, he may in fact be getting LESS value over those 4 years than someone who buys it a year later, even if they pay the same amount per year.

For example, if you pay $100/yr, but there are only 20 titles out that first year of which you like 1 or 2, are you really getting the same $100 worth of use out of it?

Re:PS3 for $399

[jandrese]

The other advantage is that the late adopter allows the thousands of early adopters to do extended beta testing for them and let the company fix early wear items and whatnot. It took Sony a few generations to get decent spindle motors in the PS2 for instance.

Re:PS3 for $399

[Flunitrazepam]

My problem is that first gen titles for a "next gen" system are generally not very good, and I don't want to play extra for the chance to play titles that are mainly focused on eye candy rather than playability.

Look how long it took for Donkey Kong Country to come out on the SNES... it just takes developers a long time to learn to exploit every available resource in a new arch.

Re:PS3 for $399

[Zarian]

No

If someone doesn't care about getting the new stuff when it's new, then to them, there is no life of the console.

Does the fun factor of a game change because it's purchased and played a year after the game came out?

You are forgetting that game prices also drop. And hell if I can get an Xbox for $99 and 20 games for $10 each, that's $300 I just spent and I have 20 games to play and have fun with.

If I purchased the Xbox when it first came out at $300 and each game when they first came out at $50 a game thats $1300 total!

Ouch!

[DrMrLordX]

A $1 billion loss in the first year of production? That's going to hurt a lot, considering how much cash they had to dump to get Cell production ramped up this early. Their ability to mass-produce the processor was supposed to help them keep costs down and let them recoup the investment of building fabs in the first place. So much for the economy of scale.

Will It Make A Difference?

[Omega697]

With all these consoles coming out in such a spread-out schedule, I wonder if it will be possible for anyone to keep the hype up.

Meh..

[kutsu119]

Would it be wrong of me to hope that Sony taking this sort of risk backfires and means the playing field is a bit more even this generation?

I'd love to see what would happen if all 3 companies had 33% market share.. Besides the obvious multi-platform title increase, specific and exclusive games could really swing the buying public.

Re:Meh..

[JonN]

It is not really that much of a risk that Sony is taking, as Microsoft is taking nearly the same risk. It is reported that the XB360 will be selling for $299, which still means a ~$75 loss per system for Microsoft.

How is this not considered "Dumping"

[Aumaden]

If a silicon manufacture in Japan/Korea/etc sells chips below cost, it's considered "dumping". Folks start yelling for import tarifs and whatnot. The manufacture is generally painted as being "evil".

How come this is ok?

Is it because this is a direct consumer product?

Re:How is this not considered "Dumping"

[Omega697]

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.

Re:How is this not considered "Dumping"

[parliboy]

Because dumping refers to selling a cost in a foreign market at a cost below a product's home market cost. Here's it's not dumping, simply a loss leader, as the cost is low in all markets. http://www.wto.org/english/tratop_e/adp_e/adp_e.ht m

Weird..

[seti]

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?

Starving Geeks

[Vonotar82]

Well, I can't say I'm that surprised at the price tag, as all new technology is rather pricey. Will that stop all the random single people from buying one immediately? Not at all. In fact, I'm pretty sure we'll see those self same buyers out on street corners with signs saying "Will max out materia for food".

More R&D Coming

[JonN]

I cannot say I agree with you, however just an fyi; Sony's new CEO Howard Stringer is saying that Sony is going to cut back on other research and development in order to finance more R&D into the two parts of PS3 which is supposed to seperate it from the competition (XB360). No surprise, these two things are: the Cell processor, which will be used not only to power the PlayStation 3 but also many of Sony's electronics, and the much ballyhooed Blu-ray disc, which will be the standard hi-def format for the PS3 and the format that Sony hopes eventually replaces DVD in the marketplace.

Re:A billion dollars????

[taskforce]

From TFA (first one):

During its first year of release, Sony Computer Entertainment suffered a loss of 51.1 billion yen ($458 million), but it recovered the next year with a profit of 82.9 billion yen ($759 million), followed by 112.6 billion yen ($1.03 billion) the year after.

Going underground a mistake

[slusich]

Putting the PS3 underground for a year with the 360 coming out in a few months seems like a mistake to me. It would seem they would want as much exposure as possible during this time to keep from being completely overshadowed by Microsoft.

WTF?!

[LegendOfLink]

The PS3 goes underground until it comes out next year.

I feel bad for the poor bastard who has to dig the hole to bury all of those units...

Pricing

[dannyitc]

I wonder if MS and Sony are creeping up on the ceiling price of what consumers are willing to pay for a new console. With an initial price of $400 and games costing $60 apiece, it'll be interesting to see their sales figures for the first few months after launch.

Also, anyone else think that Nintendo may be a bit more successful at undercutting MS and Sony with MS and Sony both ramping up prices? I would assume that Nintendo will make the Revolution's price point a large issue.

From TFA:

[Shadow Wrought]

Sony estimates that the aging console has only completed 10% of its lifespan in Iran. No, seriously. There's a Sony office in Iran.

I can only imagine how well GTA: San Andreas is doing over there...

Re:From TFA:

[Hinhule]

You haven't heard of GTA: Tehran eh?

Re:From TFA:

[Anonymous Coward]

Yeah, it's too frustrating though. The cops catch you and you get executed instead of just fined.

Re:From TFA:

[Dolly_Llama]

GTA: Tehran has a neat plot that follows your development from a cheap street punk, through your time hostage taking in the Islamic revolution, all the way to your darkhorse victory as president!

Dumping

[DarthVeda]

This sounds a lot like:

"Dumping: selling goods at less than the normal price, usually as exports in international trade. It may be done by a producer, a group of producers, or a nation. Dumping is usually done to drive competitors off the market and secure a monopoly, or to hinder foreign competition."

Drive off competitors? Secure a monopoly? Sony? Never!

More from the Corporation of Arrogance:

[kryogen1x]

From TFA:

The press was saying that it was expensive, but it was a huge hit. It's the same thing with the PlayStation Portable from last year. The Game Boy Advance is a same handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). But people lined up overnight to buy it, and it sold out on the day of its launch. It all depends on whether people want it. Of course, I'm confident that the PS3 is a product that people will definitely want.

Funny, I remember Slashdot covered this and the PSP didn't sell out on opening night.

Has History tought them NOTHING?

[Orion83]

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....

Have to hand it to Sony.

[mr_luc]

I have to hand it to Sony.

They really know how to do this "business" thing.

Microsoft comes to E3 with a console that is looking amazingly polished, down to the extensive new XBox Live features, and with tons and tons of in-engine first looks.

Sony comes to E3 with a gigantic press event held at their cinema, with 2 simple real-time tech demos, prerendered (although using PS3 hardware) gameplay footage that blows away any other *footage* to date, and a bunch of video clips featuring their spider-man franchise.

There is no doubt about it -- MS is shipping earlier, MS has a better online infrastructure, and many of MS' games are already playable ...

But Sony won E3. All anyone wanted to talk about was the KillZone trailer.

Now, to keep anyone from pointing out that the Emperor has no clothes, they're disappearing. So all anyone will talk about, until they're ready, will be ... the KillZone trailer. Which is not a bad situation to be in, because that trailer was pretty amazing.

It's absolutely a great idea. For the record, I have nothing against MS, but I'm WARY of them. Anything, even something unfair, that keeps them on their toes is probably a good thing for the rest of the world.

I won't buy either until they're both out next summer, though, so it's sort of moot.

Judging by Sony's record

[EmperorKagato]

If they decide to take a $1 Billion dollar loss they should make sure this time no extra finances will have to go into system recalls, fixes etc.

I have a strange feeling that two giants may fall hard from a war this huge.

Um?

[oGMo]

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.

Re:Um?

[faust2097]

Yeah, like most of the time we have misleading headlines and article.

Most analysts thought there was no way the the PSP would be less than $350-500 when it came out. Analysts are the people who were saying "Apple should become a software company" in 1996. Anaylists are the people who saw "significant upside" in Pets.com and Webvan. More recently, Merrill Lynch [who issued this report] paid $35 million in penalties for their involvement in the Enron scandal.

Also, the "go underground" thing was in reference to SCEE [Sony Computer Entertainment Europe] and the teams working on stuff like Killzone. Sony has an uncanny knack for taking the wind out of their competitors' marketing sails at very inopportuno moments.

Ahem!!!

[alvinrod]

From 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.

Nintendo will probably launch the Revolution somewhere between $200 and $300 and still manage to make a profit on every console they sell. A while back there was an excellent article on /. that explained how Nintendo's business model was different from Sony and Microsft, and that even though they came in third place against the Xbox and PS3, they were still the most profitable.

For Sony to release a console after Microsoft and for a higher price could cause problems for them like the article stated. Microsoft has deep enough pockets to launch the console at around $350 when it comes out and cut it down to $300 when the PS3 launches. They'd be taking some huge hits in the pocketbook, but it would probably get more people to buy Xbox 360's.

However, as illustrated with the PSP, some people will buy something no matter how much it costs just because they want it. Sony is really going to need to count on its fan base to help out a lot.

Distinction: Government Subsidies

[reporter]

When a company sells a product below cost, such behavior is consistent with free-market principles except in 2 situations: government subsidy or monopoly. When Korean companies like Hynix sell their memory chips at very low prices (or at prices below cost) in the USA, Hynix is receiving financial support from Seoul so that Hynix can afford to sell at a loss or at no profit. Such financial distortions (which are common in Korea) materially impact the American economy because Washington opens the American economy to "free" trade with Korea.

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.

They want YOU to get addicted

[xiando]

Gilette did it with razors.
The printer corps do it with printers.

1. Sell some product which addicts you to something cheap.
2. People must buy more of your razor-blades, printer-ink, games/controllers,
3. ???
4. Piles of profit.


Anyone know a Playstation owner will spend at least ten times what the console cost on other things.

Re:They want YOU to get addicted

[drew]

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.

$100 more than the Xbox 360? Ouch.

[AvantLegion]

Microsoft has already confirmed that they're targeting the $299 price point, and have said that it will definitely be "in the neighborhood of $300" (translation: definitely shooting for $299 but not yet ready to commit to it).

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)

Eating their own words?

[moankey]

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.

Worth It For HD

[DeadBugs]

If Sony comes to the market with the first High Definition DVD player in it's PS3, $399 would be a steal of a deal.

My first DVD player was $300, I can only imagine what the first HD-DVD players will cost.

Maybe they will even bundle a 1080p version of Spider-Man 2 to with it.

Nintendo focused on limited monopolies

[alexhmit01]

What was smart about Nintendo, is instead of joining the fray and getting bashed by Sony and Microsoft (three companies in cutthroat competition means profits drop considerably...) Microsoft didn't make any money, and Sony didn't mint money the way they did with the Playstation.

Nintendo took their limited Monopolies (Mario, Metroid, Zelda, Pokemon, etc.) and pushed them into that market. They made money along the way, kept their costs down, and sold most of their own titles. Sony/MS make something like $8/game on third-party games. Nintendo makes considerably more per game.

Even if customers bought fewer games/console, Nintendo probably made more per customer, and wasn't trying to recover a $100/customer acquisition cost.

Sony ONLY makes money on its fan base. A recreational player that buys a few sports games each year will never pay Sony enough in its fees to cover the $100 Sony spent subsidizing their hardware.

HOWEVER, in this case, Sony has another advantage. Getting the PS3 out means getting Blu-Ray DVD players into millions of homes. When the HD-DVD crew comes out with their $1000 HD-DVD players, and Apple and Sony have moved their Blu-Ray DVD machines (including Apple machines that will no doubt let you burn HD Blu-Ray DVDs of your kid's little league game), this might be the first time that the superior technology wins DESPITE being backed by BOTH Apple and Sony... :) I loved Blu-Ray, and was saddened to see adoption by Apple, because I feared that it would go like Firewire/iLink that Apple/Sony managed to kill through poor technology marketing (they both rock at consumer marketing, but technology marketing is NOT their strong point). Note, I am typing this from my Powerbook. :)

Alex

Anyone else getting deja vu?

[Namarrgon]

The original Xbox was late to the party, oversized, had weird controllers, was technically advanced, and cost way more to make than it sold for. The sleek PS2 wasn't, and didn't.

This time round, looks like it's Sony coming out second with the advanced yet fridge-sized beast & freakshow controllers, and it's going to really cost them a bundle, while the Xbox 360 seems to taking it more carefully...

I'm guessing that Nintendo will stay right where they were before though.

Inflation

[tepples]

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.

Moreover

[mcc]

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.

Re:Geeze

[Theaetetus]

That's a pretty steep price tag for a poor college student like me. That had better be the price with a decent sized harddrive, and Linux preinstalled.

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.

hmm taking a loss eh

[Naikrovek]

if the gave it away for free they'd have near 100% market share.. ah maybe its just me that thinks so. can anyone hear me? is this thing EVEN ON?!

Don't Believe Everything You Read

[Modab]

Just because it has the name "Merrill Lynch" doesn't mean they know everything there is to know. The same people cast doom and gloom over the PS2 pricing, while Sony kept mum. After everything settled down, it turned out that when everyone thought that PS2 bled money with each unit sold for the first years, it was actually Breaking Even!

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.

And the myth continues

[Ceallach]

Most consoles have NEVER been sold at a loss, and the PS2 made OODLES of profit from day one (enough to recoup the R&D costs within a year).

The Sega Saturn was sold at a loss and failed. The Xbox was sold at a loss but M$ could afford it. We'll see if the PS3 actually gets sold at a loss or not.

Don't believe me? The numbers and such are available if you search, or just read the Gord's little article ... http://www.actsofgord.com/Proclamations/chapter02. html

If that is the case...

[SetupWeasel]

Expect a launch like the PSP:

March 2006 in Japan with 100,000 units. ("We launched on time!")

November 2006 in the US with a million units ("We are focusing on the PSP")

And Summer 2009 in Europe, proscuting anyone who tries to import one.

PS3 is smaller than Xbox 360...

[YesIAmAScript]

It's longer, but slimmer and a tiny bit shallower too. In the end, both really are about the same size as the original PS2.

It's not fridge-sized.

I have an original US PS2 (SCPH-15000), and I've taken it apart before. I'd be shocked if it didn't cost more to make than sell at that time. The DVD drive alone must have hurt a lot. Have you forgotten when the PS2 came out, standlone DVD players were about $400-$500? The PS2 was $300 and contained a lot more stuff inside than a DVD player did. Plus that crazy complex (expensive) cooling solution.

Re:Geeze

[Politburo]

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.

research...

[YesIAmAScript]

"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.

Re:Microsoft seeks to ensure Sony win

[AvantLegion]

They talk about it, but won't necessarily do it.

Remember when they were talking about selling 3 different versions of the Xbox 360 at launch? They backed away from that fracturing of the market too.

Also, if they DID sell an HD-DVD version down the line, it wouldn't mean that games would make use of it. Game developers are not so quick to turn their back on millions of installed base users. Notice how nobody made use of the PS2 hard drive peripheral? Game developers are not so stupid about their bottom lines.

And I don't know what you're talking about when it comes to developers shifting from PS2->PS3 compared to Xbox->X360. I'm guessing you're not a computer programmer. What are you talking about by "familiar world"? Familiar API abstractions? X360 developers will continue to be in a DirectX-derived world, something that's been around far longer than Sony's kits. Familiar hardware? The PS3 is far more radically different from the PS2 than the Xbox 360 is from the Xbox - the PS2 didn't have a GPU, programmable shaders, etc. So I'm not seeing what you could possibly be talking about.

I bought a PS1 and a Saturn...

[YesIAmAScript]

The PS1 cost me $299 and the Saturn cost me $399. Both were bought in the US on the first day.

I took both apart. Although the Saturn did look more expensive (mostly unnecessarily, due to how it was put together with several boards instead of the PS1's one), I'd be shocked if it couldn't be built and shipped to the US for $399.

I took apart my first gen US PS2 ($299?), and I have to say that was probably on the fence. There was a huge cooling solution and a couple sandwiched boards in there, and DVD drives were a bit pricey at the time. The first-gen JPN PS2 was even crazier, with a PCMCIA slot and such, it surely would have been sold at a loss if it was $299, which it wasn't. Gord's declaration of $120 profit per PS2 sold is most definitely wrong, at least on the day of release.

I do agree with him the N64 wasn't losing N any money. That thing was a beauty. If you took it apart, there was NOTHING in it from day one. And I don't mean that in a bad way. It was probably the same cost to make as a SNES. Nintendo did an excellent job with that system (if you don't mind cartridges).

For the record, the Xbox seemed like a clear money loser to me. It's very complex inside, it steals more than just controller designs from Sega. They are fools for what they did, never significantly cost-reducing the box. And the hard drive, it's just a money sink. The dirty little secret of hard drives is they never get cheaper, only bigger. MS started out with 8 and 10G drives in the Xbox, probably paying $50/each for them. Now if you get an Xbox, it has a 40G drive in it (the only one on the market) with firmware to only do 10G of capacity. How much does Seagate charge for that drive? $40/each.

When you make a console, you plan to cost-reduce it over time to match the price drops. But you can't do that with the hard drive. I'm very surprised MS bundled the HD on Xbox 360, after learning that lesson the hard way with Xbox.

Anyway, back to the topic. I don't take what Gord says here as gospel. Of course, I also don't think Sony is going to pay $105 for a CPU chip or BluRay drive either. Finally, you left out parts of Gord's article. He mentioned other consoles which were sold at a loss (Dreamcast).

A lot of misinformation on all sides here. Especially that $120/PS2 at launch. Give me a break.

Re:Geeze

[Total_Wimp]

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 long as blue-ray discs start being released at about the same time as the PS3, people will justify part of the purchase price as going to their "free" blue-ray player. Sony will not only make money off PS3 games, but also off of an extensive library of hit movies that they'll be able to sell to PS3 owners.

If you want to see the model, it'll play out exactly like the PSP and UMDs. PSP early adopters justified a portion of their purchase price as going to the movie playing capabilities of the PSP. UMDs, despite high prices, have been selling well and making money for Sony. More UMD movies are on their way every week.

When I bought my first CD player I had a couple of friends that commented, "but you don't have any CDs." Eveyone starts out this way with a new format and they don't let it stop them from making that purchase. The only thing that will stop people from factoring the value of blue-ray into their PS3 buying decision is if they think HD-DVD will win. Otherwise they'll be delighted at the possibility of getting a BR disc player so cheap.

TW

Re:Say WHAAAT ?

[DeadScreenSky]

Other Sony PR people have said it is a "concept video". When G4 interviewed one of the bigger Sony executives (I want to say head of Playstation Europe) he actually gave both contradictory answers in the same interview. Sony wants the public confused about the Killzone video, which is why they are doing this. The fact that the PS3 hardware's videochip wasn't even taped out yet at the time of E3 (and still isn't, AFAIK) is proof enough that this wasn't actual PS3 footage. But just a careful visual inspection of it shows that it was clearly prerendered.

But anyway, here's one of the devs of Killzone 2:

Jan-Bart: Yeah, it's basically a representation of the look and feel of the game we're trying to make.

That sounds like prerendered to me. That interview is enlightening.