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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."
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.
do.what.promptcmds
Unless of course you wait like 3 months until it is $299.
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.
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.
How come this is ok?
Is it because this is a direct consumer product?
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?
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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".
"I drank WHAT?!"--Socrates
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.
do.what.promptcmds
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...
IGB: More fun than eating oatmeal!
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.
I can only imagine how well GTA: San Andreas is doing over there...
If brevity is the soul of wit, then how does one explain Twitter?
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....
I have to hand it to Sony.
...
... the KillZone trailer. Which is not a bad situation to be in, because that trailer was pretty amazing.
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
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.
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
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.
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.
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.
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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)
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.
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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.
:) 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. :)
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...
Alex
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.
Why would anyone engrave "Elbereth"?
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.
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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 $1500 each. At a tenth the cost for a player (not unreasonable), it makes the PS3 look more attractive.
Most consoles have NEVER been sold at a loss, and the PS2 made OODLES of profit from day one (enough to recoup the R&D costs within a year).
... http://www.actsofgord.com/Proclamations/chapter02. html
The Sega Saturn was sold at a loss and failed. The Xbox was sold at a loss but M$ 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
-- More Smoke! The mirrors aren't working!!!
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.
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.
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.
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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