Dude, go back and read it again. My argument was that the PS2 is profitable for Sony. But since I can't easily find what the numbers are for a true cost (I'm on the other side of the world at the moment), I used the most recent quarterly online filing to show how Sony HAS to be making money with the unit.
We know how much Sony Computer Entertainment spent. We know how much they sold. I just plugged in the magical $300 to show how it must cost less than $300, because at $300 the numbers don't add up with what we know.
If only we had www.sony.co.jp/ps2/cost_breakdown.html then this would make all our lives a lot easier.
If I knew what all of Sony's other expenses were (like wages, utilities, promotion, etc.), we could deduct that and get a total on fixed asset costs. And from this we could figure out the true cost on the PS2. But those numbers aren't available either.
In the end, we can only prove two things. By using basic accounting, we can see that Sony has to be making money on the PS2 (as the numbers don't work even at a breakeven, let alone a loss per unit) and we know that Sony claimed earlier this year that they were making over $100 profit per machine sold.
And those two facts compliment each other.
The myth is dispelled. Sony is making money on each PS2 sold.
The "blast processing" argument was to show how people will often believe something if they hear it enough times. Who knows how many things I believe to be true simply because they are outside my realm of immediate knowledge. Though for this debate, I do believe I am very much in right.
I would agree that the console market has gotten very expensive to produce a console. The days of when everyone went down to RadioShack, bought some parts, and sold it as a console are now pretty much over.
If memory serves, from 1993 to 1994 we had 14 consoles introduced into the market (Jaguar, 3DO, PlayStation, Saturn, CD-32, NeoGeoCD, PC-FX, 32X, hmm.... memory failure). Well, I have the number 14 in my head. Anyway, there were a lot of consoles coming out in the early 90's. And all were pretty much off the shelf parts.
The PlayStation pretty much ended that era. Suddenly Sony wasn't playing by the rules, and this gave them a huge advantage. Further, SGI wanted to sell their console idea and they floated it around, and eventually Nintendo picked it up and packaged it as the N64. (old interviews in Next Gen magazine with SGI said they offered it to Sega, but Sega declined).
Anyway, that takes us to today. For a console to have a shot, it's got to be bleeding edge. It's got to make us stand up and go "damn that's pretty". To do that costs a lot money.
Nintendo, MS, and Sony all spent a lot of money on their consoles before the first one were made. How much? A hell of a lot more money than I have.
Then we enter the production phase. MS and Nintendo have outsourced for all their parts. It is by far a cheaper way to do things, though it costs more in the long run.
Sony on the other hand is walking into this console generation with all hands saying they will win. They can afford to spend billions building facilities to make PS2 parts, and that they did. Over $2B!
Now, let's go do some math.
Let's assume that the cost of a PS2 if $300US. We'll also pretend that Sony sets all sorts of records. They'll hit 100M sales by the end of 2004, and a billion games by then too.
Assuming they hit a billion games by then, they will have earned $6 billion in royalties. That is the magic number. $6B.
Now, from this $6B, we take away the $2B they have already spent on new facilities. THat leaves $4B. Ok, $4B in the bank.
Next, advertising. Sony spend over half a billion annually on PlayStation brand promotions. We'll round down to $2B for the sake of argument. That leaves $2B in the bank.
Ok, Sony is now sitting at $2B in the bank after a 4 year worldwide record run of the PS2. And that's assuming the machine is a breakeven.
Right now the PS2 is $240US in Japan. Now Japan, and $280US in Europe. Let's say all three regions sell equally, that brings a mean price of $273 per console. That would mean Sony is losing $27 per console now. Assuming we keep this loss average over the course of the life of the console, that would be 2.7B.
Sony just lost $700M assuming the PS2 is a breakeven at $300. And that still doesn't cover what Sony spent actually designing the machine up.
Let's go better! Let's say the popular price of $350 is the cost. So Sony is losing $77 be console on average. Assuming this was the average for the life of the console, Sony would have just lost $5.7B.
Hell, assuming that Sony is losing $77 per console now, even if they were to reduce the cost of the machine every month by $10 a month, Sony would still never post a profit from the PS2, assuming Sony sticks to regularly scheduled price drops of the retail price.
And this still doesn't factor in how the PS2 cost more to design as Sony designed all the parts in it.
The financial arguement that Sony is losing money does not make sense. With Nintendo and MS it does, because they have outsourced. They didn't spend an extra $2B+ up front. Instead they are paying a premium to use someone elses parts and to use someone elses facilties to build their machines.
Which brings us back to the stock fraud arguement. It does not make sense that Sony would hide not only losses from the PS2 from investers to gain a marketshare in which they will continue to lose money, but to then pay dividends on that money they claimed? That further pushes up the loses.
Further, according to Sony's quarterly stock filing, they have $7.6B in cash and cash equivelants on hand. That just isn't enough to carry the kind of losses that everyone is expecting the PS2 to lose.
It also states Sony spent $2B in that quarter on cost of goods as well as advertising and other such ongoing expenses during that quarter in the SCE department. Sony sold 4.62M PS2's and they also also sold 2.37M PS1's.
Assuming we go with the $80 for PS1's ($189M), and $300 for PS2's ($1.407B), that brings a total of $1.596B. Then we add in things like advertising ($100M+ to we're at $1.7B), wages (assuming SCE has only 5000 employees, that would be $100M a month). And boom. We're already at the total money spent without adding in extra things like phone calls, rent, electricity, travel expenses, cost on extra things like controllers, etc, etc. And this is assuming the PS2 is sold at cost!
The cash argument does not make sense either in the long term or the short term.
As for my view on the XBox and GC, it's simple market and consumer buying patterns at work. There has been no change in the level of support the PS2 has, and consumers have no compelling reason to forgo buying a PS2 to buy any of the other two consoles.
It's possible to like something and be critical of it. I'm just being a realist. Further, the PS2 still continues to dominate the GC and Xbox on daily sales. As such, the PS2 will continue to get the most games, and by default the most consumers. It's a vicious cycle.
And as it now stands, I don't see how MS or Nintendo can overthrow the PS2 juggernaught.
As for the site, just for you I'll get on my ass and do an update by Thursday. Just because I love you! I'll bring on the funny!
I wrote that essay up because I got tired people saying every console is sold at a loss. It's just as annoying when people were saying the Genesis had blast processing. "It must be true! I heard it from a few people!"
The reason why Sony is profitable is because they went out and spent $2B before the first PS2 was even created on things like the chip foundry with Toshiba and the dual-oscillating DVD/CD laser, while MS and Nintendo are paying someone else a profit to design their machine chipsets and assemble their machines. Everyone involved is going to be making a profit. No one is going to work for free or lose money just because they want to be nice.
For us to accept that Sony is losing money per console sold, we also have to accept that many, many, many employees at Sony are involved in a conspiracy to defraud investers of billions of dollars in stock value by misrepresenting hundreds of millions of dollars in profit. And all these employees are looking at jailtime if Sony gets caught. And Sony will face fines in the hundreds of millions of dollars from government agencies in Japan.
Further, we have to accept that SEVERAL governments are turning a blind eye while Sony then violates trade laws and continues to engage in dumping their products in foreign markets around the world at below cost in order to leverage their market share.
And most importantly we have to accept that Sony chooses to sell their machines at a loss AFTER spending $2B to even make the first one. Sony will have to sell 330 million PS2 games just to reach a break even on the $2B, and that doesn't even factor what you claim they would be losing per console sold or the money Sony spends on advertising.
I don't even have to prove that I am right when I can prove that I can't possibly be wrong.
At least we all agree the humour on the site is good...;)
If you were to go back, you would notice that the essay not only listed the total amount of profit Sony listed per console with games and accessories, but also what a barebones profit would be without such extras.
And for the record, Gord kicks ass. Don't hate him because he knows more than you and disagrees with you.
Slashdot Mirror
Dude, go back and read it again. My argument was that the PS2 is profitable for Sony. But since I can't easily find what the numbers are for a true cost (I'm on the other side of the world at the moment), I used the most recent quarterly online filing to show how Sony HAS to be making money with the unit.
We know how much Sony Computer Entertainment spent. We know how much they sold. I just plugged in the magical $300 to show how it must cost less than $300, because at $300 the numbers don't add up with what we know.
If only we had www.sony.co.jp/ps2/cost_breakdown.html then this would make all our lives a lot easier.
If I knew what all of Sony's other expenses were (like wages, utilities, promotion, etc.), we could deduct that and get a total on fixed asset costs. And from this we could figure out the true cost on the PS2. But those numbers aren't available either.
In the end, we can only prove two things. By using basic accounting, we can see that Sony has to be making money on the PS2 (as the numbers don't work even at a breakeven, let alone a loss per unit) and we know that Sony claimed earlier this year that they were making over $100 profit per machine sold.
And those two facts compliment each other.
The myth is dispelled. Sony is making money on each PS2 sold.
The "blast processing" argument was to show how people will often believe something if they hear it enough times. Who knows how many things I believe to be true simply because they are outside my realm of immediate knowledge. Though for this debate, I do believe I am very much in right.
I would agree that the console market has gotten very expensive to produce a console. The days of when everyone went down to RadioShack, bought some parts, and sold it as a console are now pretty much over.
If memory serves, from 1993 to 1994 we had 14 consoles introduced into the market (Jaguar, 3DO, PlayStation, Saturn, CD-32, NeoGeoCD, PC-FX, 32X, hmm.... memory failure). Well, I have the number 14 in my head. Anyway, there were a lot of consoles coming out in the early 90's. And all were pretty much off the shelf parts.
The PlayStation pretty much ended that era. Suddenly Sony wasn't playing by the rules, and this gave them a huge advantage. Further, SGI wanted to sell their console idea and they floated it around, and eventually Nintendo picked it up and packaged it as the N64. (old interviews in Next Gen magazine with SGI said they offered it to Sega, but Sega declined).
Anyway, that takes us to today. For a console to have a shot, it's got to be bleeding edge. It's got to make us stand up and go "damn that's pretty". To do that costs a lot money.
Nintendo, MS, and Sony all spent a lot of money on their consoles before the first one were made. How much? A hell of a lot more money than I have.
Then we enter the production phase. MS and Nintendo have outsourced for all their parts. It is by far a cheaper way to do things, though it costs more in the long run.
Sony on the other hand is walking into this console generation with all hands saying they will win. They can afford to spend billions building facilities to make PS2 parts, and that they did. Over $2B!
Now, let's go do some math.
Let's assume that the cost of a PS2 if $300US. We'll also pretend that Sony sets all sorts of records. They'll hit 100M sales by the end of 2004, and a billion games by then too.
Assuming they hit a billion games by then, they will have earned $6 billion in royalties. That is the magic number. $6B.
Now, from this $6B, we take away the $2B they have already spent on new facilities. THat leaves $4B. Ok, $4B in the bank.
Next, advertising. Sony spend over half a billion annually on PlayStation brand promotions. We'll round down to $2B for the sake of argument. That leaves $2B in the bank.
Ok, Sony is now sitting at $2B in the bank after a 4 year worldwide record run of the PS2. And that's assuming the machine is a breakeven.
Right now the PS2 is $240US in Japan. Now Japan, and $280US in Europe. Let's say all three regions sell equally, that brings a mean price of $273 per console. That would mean Sony is losing $27 per console now. Assuming we keep this loss average over the course of the life of the console, that would be 2.7B.
Sony just lost $700M assuming the PS2 is a breakeven at $300. And that still doesn't cover what Sony spent actually designing the machine up.
Let's go better! Let's say the popular price of $350 is the cost. So Sony is losing $77 be console on average. Assuming this was the average for the life of the console, Sony would have just lost $5.7B.
Hell, assuming that Sony is losing $77 per console now, even if they were to reduce the cost of the machine every month by $10 a month, Sony would still never post a profit from the PS2, assuming Sony sticks to regularly scheduled price drops of the retail price.
And this still doesn't factor in how the PS2 cost more to design as Sony designed all the parts in it.
The financial arguement that Sony is losing money does not make sense. With Nintendo and MS it does, because they have outsourced. They didn't spend an extra $2B+ up front. Instead they are paying a premium to use someone elses parts and to use someone elses facilties to build their machines.
Which brings us back to the stock fraud arguement. It does not make sense that Sony would hide not only losses from the PS2 from investers to gain a marketshare in which they will continue to lose money, but to then pay dividends on that money they claimed? That further pushes up the loses.
Further, according to Sony's quarterly stock filing, they have $7.6B in cash and cash equivelants on hand. That just isn't enough to carry the kind of losses that everyone is expecting the PS2 to lose.
It also states Sony spent $2B in that quarter on cost of goods as well as advertising and other such ongoing expenses during that quarter in the SCE department. Sony sold 4.62M PS2's and they also also sold 2.37M PS1's.
Assuming we go with the $80 for PS1's ($189M), and $300 for PS2's ($1.407B), that brings a total of $1.596B. Then we add in things like advertising ($100M+ to we're at $1.7B), wages (assuming SCE has only 5000 employees, that would be $100M a month). And boom. We're already at the total money spent without adding in extra things like phone calls, rent, electricity, travel expenses, cost on extra things like controllers, etc, etc. And this is assuming the PS2 is sold at cost!
The cash argument does not make sense either in the long term or the short term.
As for my view on the XBox and GC, it's simple market and consumer buying patterns at work. There has been no change in the level of support the PS2 has, and consumers have no compelling reason to forgo buying a PS2 to buy any of the other two consoles.
It's possible to like something and be critical of it. I'm just being a realist. Further, the PS2 still continues to dominate the GC and Xbox on daily sales. As such, the PS2 will continue to get the most games, and by default the most consumers. It's a vicious cycle.
And as it now stands, I don't see how MS or Nintendo can overthrow the PS2 juggernaught.
As for the site, just for you I'll get on my ass and do an update by Thursday. Just because I love you! I'll bring on the funny!
Note: Seems in order to have spacing for things like paragraphs, you have to change to post as "plain old text." That I did not know.
:(
The previous post was all nicely paragraphed and spaced! I didn't write it as the super paragraph from hell. I'm not retarded! Honest!
I wrote that essay up because I got tired people saying every console is sold at a loss. It's just as annoying when people were saying the Genesis had blast processing. "It must be true! I heard it from a few people!" The reason why Sony is profitable is because they went out and spent $2B before the first PS2 was even created on things like the chip foundry with Toshiba and the dual-oscillating DVD/CD laser, while MS and Nintendo are paying someone else a profit to design their machine chipsets and assemble their machines. Everyone involved is going to be making a profit. No one is going to work for free or lose money just because they want to be nice. For us to accept that Sony is losing money per console sold, we also have to accept that many, many, many employees at Sony are involved in a conspiracy to defraud investers of billions of dollars in stock value by misrepresenting hundreds of millions of dollars in profit. And all these employees are looking at jailtime if Sony gets caught. And Sony will face fines in the hundreds of millions of dollars from government agencies in Japan. Further, we have to accept that SEVERAL governments are turning a blind eye while Sony then violates trade laws and continues to engage in dumping their products in foreign markets around the world at below cost in order to leverage their market share. And most importantly we have to accept that Sony chooses to sell their machines at a loss AFTER spending $2B to even make the first one. Sony will have to sell 330 million PS2 games just to reach a break even on the $2B, and that doesn't even factor what you claim they would be losing per console sold or the money Sony spends on advertising. I don't even have to prove that I am right when I can prove that I can't possibly be wrong. At least we all agree the humour on the site is good... ;)
If you were to go back, you would notice that the essay not only listed the total amount of profit Sony listed per console with games and accessories, but also what a barebones profit would be without such extras. And for the record, Gord kicks ass. Don't hate him because he knows more than you and disagrees with you.