Ars Technica rumor claims 399 40GB PS3 this year

[dobwal]

The reason why would be because each of those sales would equate to $100 extra loss per unit; 1 million additional sales, $100 million additional loss to absorb. 2 million would be $200 million. Not saying what's right or wrong or what the various decision chains for Sony are - as we clearly can't know - but in terms of why, that would be the why.

Actually the loss would be larger because the $100 revenue loss would be incurred by all units sold.

If Sony would sell 1.5 million in Nov and Dec at $499.00 (PS3 sold at cost) versus 2.5 million at $399.00 (PS3 sold at $100.00 loss) then at the $499.00 price point you would generate $748.5 million in revenue with no loss versus $399.00 you would generate $997.5 million in revenue with 250 million in losses.

Its like selling 1.5 million units at $499.00 then basically giving 500K PS3 away for free under these hypothetical circumstances.

The $499.00 price point would immediately generate returns with the first game purchased while the $399.00 price point would require that revenue generated through game sales and peripherals would have to eat through $250 million before any real profit generation. $250 million is the equivalent of licensing fees of ~20-30 million PS3 games.

 

[Evildeus]

That depends on econmies of scale. And don't forget that selling more hardware also means selling more sofware, ie, where the profit is.

 

[Heinrich4]

I think the price in europe is too high (early US$800/850) despite bundles etc(2 controllers 1 or 2 games) does not sells like North American(40k per week),they need pay more attention, because this region tradicionally for sony sells almost same numbers consoles as NA.

(each console with BOM = US$650 estimates in august...sells price is too high in ps3 euroland maybe hold/maintaim /finances lower prices in USA and japan)

 

[dobwal]

That depends on econmies of scale. And don't forget that selling more hardware also means selling more sofware, ie, where the profit is.

But whats the point of selling extra hardware when you incur a loss that can't be made up through software sales?

 

[Evildeus]

But whats the point of selling extra hardware when you incur a loss that can't be made up through software sales?

There's 2 points at least:
- The potential impact of buyer on friends
- The fact that the futur flow of software sells may reduce greatly the losses

If fact that is a tread of between present lost and future profit. Moreover, do we know when the smaller process will be use to produce the PS3? Do we know what is the actual loss/profit on PS3?

Sony is already selling PS3 at less than 399$ in japan, isn't it?

 

[scooby_dooby]

But whats the point of selling extra hardware when you incur a loss that can't be made up through software sales?

What's the point in investing hundreds of millions of dollars in an HD format, only to allow it to die because of a prohibitive price?

I think when you look at the long term implications of a pricecut, it means much more than simple an extra 1.5million units in the field. It keeps them competetive in the NA marketplace, which gives them a lifeline where they can maintain publisher support while they continue to reduce manufacturing costs.

I see this as a major turning point in the North American market, it really would keep sony in the game. So in the end, a pricedrop now could potentially lead to an extra 5-10million in (profitable) sales , and hundreds of millions of extra software units sold for Sony. Not to mention, much higher penetration for BR.

 

[one]

Sony is already selling PS3 at less than 399$ in japan, isn't it?

No.
http://forum.beyond3d.com/showpost.php?p=1065292&postcount=102

 

[Rangers]

No.
http://forum.beyond3d.com/showpost.php?p=1065292&postcount=102

They still have 20GB PS3 in Japan? I thought it was discontinued?

How much is the 60GB and 80GB PS3 over there?

 

[one]

They still have 20GB PS3 in Japan? I thought it was discontinued?

How much is the 60GB and 80GB PS3 over there?

20GB is not officially discontinued in Japan, 80GB is currently only available in the US and Korea.

60GB PS3 is 10,000 yen ($87) more expensive than the 20GB.

 

[DuckThor Evil]

No.
http://forum.beyond3d.com/showpost.php?p=1065292&postcount=102

That's right and like Arwin said in some other thread, it's not accurate to use foreign currency in other markets. PS3 is very cheap in japan though compared to other regions. E.g. in Japan the launch price of PS3 was only 25% higher than the PS2 launch price, whereas in the US PS3 launch price was 66% higher. Europe is about on par with Japan on this metric, but I think we still got the short stick. 639€ for the starter pack is lowest I've seen.

 

[TheChefO]

What's the point in investing hundreds of millions of dollars in an HD format, only to allow it to die because of a prohibitive price?

I think Sony is realizing they can't kill HD-DVD as easy as they figured and with recent actions on that front, they may never kill it (China, Dreamworks, Paramount).

With that very jagged pill to swallow, I wouldn't want to incur any more losses than I had to if I were them. I'd try to salvage what I could of the established PS brand and ease into BOM reductions when they come (seemingly early next year).

I still think I'd throw a mail-in-rebate for December to get some late buzz and jump the gun a bit on BOM reductions allowing some momentum to build into spring where they have a strong lineup.

They certainly have the stock available to flood the channel with such a plan if need be.

 

[Carl B]

So, are you of the opinion sony should just cede North America at this point, accepting a spot behind MS?

Or, do you think they still have a chance of competing in NA without any cuts this year?

Scooby I'm not saying what Sony should or should not do - I'm simply stating why they would not have cut prices. I'm not making a judgement on whether it's intelligent or not; truly, how can I know anyway without access to all the information? And beyond that I'm simply stating that a $100 price cut further premised on a 40GB hard drive never made sense to me to begin with - me I'd just drop the 80GB to $399 if I were going to bother with that.

Now, they may still introduce a 40GB SKU at $399 - expect the unexpected! But I made my feelings on it known on the first page of the thread.

Actually the loss would be larger because the $100 revenue loss would be incurred by all units sold...

I think you're reading too much into what I said; I was just using even million figures for ease of the example. Obviously I agree that a $100 cut would enlarge the losses of all unit sales going forward.

That depends on econmies of scale. And don't forget that selling more hardware also means selling more sofware, ie, where the profit is.

Things aren't so cut and dry though; if they were, in that world it would make sense to price a console at $100 no matter the loss. Yet neither Sony or MS is onboard for that, and thus in between selling your hardware at virtually no cost to the consumer, and selling your hardware for a profit, we have many shades of grey with lots that goes into the decision/pricing process.

 

[TheChefO]

But whats the point of selling extra hardware when you incur a loss that can't be made up through software sales?

Very good point and there is a line that can't be crossed in this regard.

Just throwing a number in here to illustrate the point but:

Selling ps3 at a $300/unit loss generating 10million units in sales would net them 3 billion in losses.

$3 billion dollars...

To make this up would take:
300 million BR disc sales at $10 profit per movie
or
150 million PS3 games sold at $20 profit per game

Such a number is quite extreme ($300 loss per unit), but if I'm not mistaken, they have already been taking substantial losses on the division.

Also keep in mind, this is only for 10 million units.

I think for any console company to really push their box into mainstream, they have to at least be breaking even on the hardware.

Who knows where this line is for Sony, but I'm sure they have one in mind and are also mindful of the likely userbase discrepency between this console and their previous ones, thus, software sales or profit per console via software/accessories will add up to a lot less for ps3 than ps1 or ps2 did.

 

[dobwal]

What's the point in investing hundreds of millions of dollars in an HD format, only to allow it to die because of a prohibitive price?

I think when you look at the long term implications of a pricecut, it means much more than simple an extra 1.5million units in the field. It keeps them competetive in the NA marketplace, which gives them a lifeline where they can maintain publisher support while they continue to reduce manufacturing costs.

I see this as a major turning point in the North American market, it really would keep sony in the game. So in the end, a pricedrop now could potentially lead to an extra 5-10million in (profitable) sales , and hundreds of millions of extra software units sold for Sony. Not to mention, much higher penetration for BR.

The point is overall revenue cost > revenue isn't worth market leadership or a dominant HD format.

The purpose of gaining marketshare or establishing a dominant format is too maximize profits and revenue.

Marketshare leader or dominant format means nothing in and of themselves.

 

[Mythos]

Very good point and there is a line that can't be crossed in this regard.

Just throwing a number in here to illustrate the point but:

Selling ps3 at a $300/unit loss generating 10million units in sales would net them 3 billion in losses.

$3 billion dollars...

To make this up would take:
300 million BR disc sales at $10 profit per movie
or
150 million PS3 games sold at $20 profit per game

Such a number is quite extreme ($300 loss per unit), but if I'm not mistaken, they have already been taking substantial losses on the division.

Also keep in mind, this is only for 10 million units.

I think for any console company to really push their box into mainstream, they have to at least be breaking even on the hardware.

Who knows where this line is for Sony, but I'm sure they have one in mind and are also mindful of the likely userbase discrepency between this console and their previous ones, thus, software sales or profit per console via software/accessories will add up to a lot less for ps3 than ps1 or ps2 did.

Before we jump to conclusions...the price cuts are in line with the PS3 efficiencies and their expecting to break even on hardware soon.

 

[Shifty Geezer]

Can you link to that info please?

 

[Mythos]

Can you link to that info please?

"Speaking to the New York Times, Yuhara said the company plans to ensure that the division is no longer making a loss by the financial year ending March 2008. He went on to add that "such factors, including price cuts to some extent, are factored in" Sony's strategy for breaking even."

Source: http://www.gamesindustry.biz/content_page.php?aid=22507

 

[dobwal]

Can you link to that info please?

I concur. Given that there is little public info on manufacturing cost of the PS3. All we're left with is jumping to conclusions, we just spend our time here debating on how we arrived at those conclusions.

 

[scooby_dooby]

The point is overall revenue cost > revenue isn't worth market leadership or a dominant HD format.

The purpose of gaining marketshare or establishing a dominant format is too maximize profits and revenue.

Marketshare leader or dominant format means nothing in and of themselves.

Obviously. But you have to look at Sony's strategy so far, they've launched an extremely high priced machine, which they've sold at a loss, and are investing in 20-30million ultra high bidget games, and have also invested a ton of money into developing BR as the HD format of the future.

So imo, Sony's strategy so hinges on them being one of the market leaders, as well as BR beign the established HD format.

That's the only way they'll ever recoup the huge amount of investment they've made in the BR format, and the PS3 itself.

It seems that by not dropping the price this holiday(i still think they will), they are failing to follow through on their own strategy. Like, they are not taking that one last step which allow all their previous efforts to bear fruit.

Now, perhaps Sony has already accepted their fate as 3rd place console, are confident BR will survive on it's own merits, and are re-focusing on profitability, it's possible, but it also seems rather risky, and inconsistent with the entire design and goals of the PS3.

 

[Carl B]

Well you say risky, but really it would be the more conservative of the two approaches... and indeed seems in line with Stringer's style. These 20-30 million dollar games I don't think will sell extremely well this year with or without price-cut; their luster has been tarnished. And is there anyway for Sony *not* to end up 3rd place by years end in NA, even with a price cut? (I know you mean globally by gen's end... but for the point I'm making the above stands)

You're essentially saying "double or nothing," and indicating that Sony can't afford not to. But... rather, for whatever tangible rewards it might bring, is it worth it to toss good money after bad? Every extra billion down the hole is a billion it's going to take years of profitability to recoup. IMO there's no point in attempting the price cut right now in the face of 360's software onslaught this Fall; some might say sales territory must be defended, but I would say the price is too high. Accept defeat for the season in NA and marshal the resources for next year.

Again this is all musing out loud; they may still cut afterall and it might be the better move whatever else I'm talking about. But I think Sony will be more cautious moving forward, because their plans have come unraveled in a number of ways this year, and I think that's left them somewhat stunned from an action perspective.