Next-Gen Shift Costing Sony and Microsoft

The shift to the next generation of consoles is costing their parent corporations dearly. GameDailyBiz has an article up claiming that the gaming division at Sony may lose almost $900 million this year, thanks to rollout costs for the PS3. The 360, already in the marketplace, is looking pretty solid. However, in among increased Microsoft revenue announcements (up 13% for the quarter over last year) and a healthy number of shipped systems by the end of June (almost 5.5 million) is a hard statistic. From the Gamastura article: "As for specifics on the Xbox 360 and Xbox's financials, the company's Home and Entertainment division, which includes the Microsoft Xbox video game console system, PC games, the Home Products Division, and TV platform products for the interactive television industry, lost $388 million for the quarter on $1.06 billion in revenue, a sharp increase from the $175 million loss the previous year." A reminder that these systems may be successful, but they're costing to get out there.

Comments

"products for the interactive television industry"

[bunions]

Well, shit, there's your problem.

Sony losing money blah blah blah

[zerocool^]

Where have I heard this before?

Sony will be losing money maybe for a few months on the ps3, then like its' ancestors, they'll break even and be rolling in cash.

Flash forward to May 1995. The E3 Expo was having it's first go, and
everyone showed up. Nintendo was telling us to wait for the Ultra 64 as it
could do "real-time ray tracing" and was just so damn pretty they couldn't
show it to us as we weren't ready to handle it. For if we saw it, we would
go insane!

At the show, Sega and Sony announced their launch plans.

Sega: "The Saturn will be $399US.... and it's out now! We launched it
today! Remember Pearl Harbor? That's right! Strike when don't expect it! Take that Sony! We are going to kill you and dance about on your grave! You can't handle us! We're Sega!"

Immediately following that press conference down the hall was the Sony press conference. There was a big lead up to what the price point would be, and when it would be launched. Finally, the president of Sony walked out slowly on stage and a silence fell upon the room. We all awaited his words, and finally he spoke.

"Two hundred ninety-nine dollars."

Then he turned and walked away.

Back at the Sega conference room....

"Oh no! This can't be happening!"

Everyone was in awe. Sony was bringing the super console known as the
PlayStation to America for almost half the price it was selling for in Japan.

This brought force claims of dumping by Atari. Atari swore that they would have the PlayStation stopped before it came out at that price "because it
was being sold below cost and that's dumping!"

The myth was born.

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.

Sega was not only losing money on the Saturn, but asked retailers to expect the same. A "modest $15 per console" loss to help Sega. Well, you can
imagine what many retailers said...

The Saturn was the first console that was actively being marketed and the
company was losing money. While Sony was building the PlayStation from parts they made themselves, Sega was paying a higher price and buying parts from others.

The Nintendo 64 came out the next year at $199 US. Nintendo claims that
they were not losing money on units sold, which I have no doubt not to
believe. Nintendo has better things to do than sell a console at a loss.

The Dreamcast was a money losing venture for Sega. Sega went for broke in building the best console they could buy with the Dreamcast, and sold them at less than cost. A lot less than cost. The theory being that scale of economics would catch up to let them rebuild their once glorious market share and, that the margins on their own games would be good enough to justify a loss.

$800 million lost later, Sega cancelled the Dreamcast.

Xbox. MS has decided to follow the Sega model. Buy off the shelf parts,
have someone else build it, and take a loss in order to push units out the
door. The Xbox was to have been a super console that could do 200 million polygons a second... and then 300 million! Then 125 million.... then... well, tech demo's have it running at 60 million.

Anyway, Microsoft is losing money per console sold, not including what they are spending advertising and support. Reports have it fall between $50 to $105 lost per console. MS has only said that they are losing money, and
won't comment on how much.

Notice what isn't on that list? The PS2.

Unlike Sega and MS, Sony is an R&D hardware company. They make a lot of things. In designing up the PS2, they spent a lot of cash. Then they spent a hell of a lot more cash to build th

At some point, Microsoft may have to dump the Xbox

[Animats]

Microsoft's "Home and Entertainment" business unit is a money drain. It's never made money. At some point, Microsoft may have to sell that business off and focus on their core business, business computing.

The stockholders are getting impatient. Microsoft stock has been flat for five years now. It's definitely not a growth company any more. Trying to grow into the entertainment sector has been a financial disaster. Microsoft is a high-margin company trying to grow in a low-margin area, and that almost never works.

The End Of The Playstation Generation

[The_Real_Quaid]

M$ can handle the enormous costs. Sony is barely scraping by right now with the hardware costs of the failed PSP. The PS3 costs and failure will be their undoing. Never underestrimate M$ viciousness, when they smell blood they go for the kill.

Here is an article I wrote last year about the coming decline of Sony marketshare in the game biz, and the resulting overall financial disaster for Sony Corp as a whole.

Oh and in case anyone wants real, comprehensive financial data, here is a chart that shows profits/loss for Nintendo, Sony (game division) and M$ (game division) by quarter for the last 3 years.

The Source of Nintendo's Revenue

[Nazmun]

When speaking strictly from a console point of view I wouldn't be surprised if Sony had the upperhand in the home console department. WHen you think about the last three years that 1.252 billion includes the money pissed away on the psp as you mentinoed. But 9/10 times the games nintendo has on the top charts in japan are portable titles. I wouln't be surprised if it was the same here in North America.

When you take out the portables i'm sure the numbers will get a lot closer.

But your right from a business standpoint. Nintendo tries to go for the most conservative/cheap route for hardware and still make it up with low cost development games.

Sony on the otherhand is almost always try's to fulfill some crazy grand vision. It's the only way you can justify the 400 million they spent just on R&D for the cell chip. That's not something you'd expect from either Nintendo or MS who would just buy the best (or maybe few grades down ala Nintendo) processor they can put in their console.

Although, Sony's hardware looks like a huge clusterfuck (ps3) it's only slightly more riskier. The EE in the ps2 cost the same to fab (the die size is almost identical) at launch time as the cell and was also quite radical and different from the psx and all other processors around at the time. The dvd was still fairly new 5-6 years ago and high end players cost several hundred dollars. They still pulled it off...

I'm pretty confident they'll pull it off this time too. I hope they don't go crazier in 5-6 years. Every generation they took a bigger and more ambitious risk, if they keep up with this pattern they'd have to spend a crazy amount on the ps4 hardware development and launch.

Re:No chance for the smaller guy

[Anonymous Coward]

You do realize that Nintendo is the most profitable game company of the three don't you?