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.

PS3 for $399

[Anonymous Coward]

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

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.

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.

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

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)