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

[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

[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

[KarmaMB84]

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

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?

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.

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".

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.

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:

[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!

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.

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: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

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.

$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)

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.

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.

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.