Ars Technica rumor claims 399 40GB PS3 this year

[dobwal]

6 months later with another exec. constitent with the PS3 goals....

"During a conference call Sony executive VP Nobuyuki Oneda said the firm may be able to break even on PS3 hardware this fiscal year, which ends in March 2008."

Source: http://www.next-gen.biz/index.php?option=com_content&task=view&id=6573&Itemid=2

That interview is laced on a bunch of "maybe"s that dependent on cost reductions on the RSX, Cell and BluRay that may or may not happen in fiscal 08. A margin of zero is dependent on a uncertain price point but its unlikely its a $399.00 price point as that would more than likely mean that the $599.00 80Gb PS3 is already breaking even.

The article seems to pull out of thin air that the Sony loses $200.00 for every PS3 sold, which means it cost Sony $700 for the 60Gb sku and $800 dollars for the 80Gb, which seems unlikely because 20 extra gigs and a pack in game shouldn't cost a $100.00 for Sony.

 

[Evildeus]

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

I would say yes...
http://forum.beyond3d.com/showpost.php?p=1062737&postcount=48

 

[Evildeus]

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.

That would suppose that present loss can be overrule by future profits. It's an arbitration...

 

[one]

I would say yes...
http://forum.beyond3d.com/showpost.php?p=1062737&postcount=48

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

It's not Sony, but some retailers. Most stores are selling it at around the retail price.

 

[scooby_dooby]

There comes a time where maintaining market presence, learning from your mistakes and gearing up for the next generation is more pertinent to the health of your company then simply wasting money trying to become market leader under less than ideal circumstances.

Well that's the fundamental difference I guess. I think Sony can still stay in this, and doesn't need to 'focus on next generation' already.

MS left them a huge window with their inability to pricedrop, and then a mere $50 after 2 years. But, I guess it remains to be seen if Sony is in a position to capitalize, MS may have rightly guessed that they are not.

 

[Joe DeFuria]

Scooby,

Sony doesn't need to be in either first or second place (in terms of installed base) in N.A. to "stay in it."

You mention MS's "inability" to price-drop. It's not inability IMO...it's lack of need.

I'll reiterate something Carl B has said: we simply don't know enough about BOM, anticipated manufacturing ability, profit projections on games, attach rate etc. to make decent guesses as to what either Sony or MS "should" do in terms of price drops.

It's obvious to me that if Sony believed that the pros of a price-drop outweighed the cons, they would do it.

 

[TheChefO]

But, I guess it remains to be seen if Sony is in a position to capitalize, MS may have rightly guessed that they are not.

I think that is their biggest problem right now.

Sony doesn't have the software this year to really capitalize on aggressive pricing.

Next year will be a different story.

Problem I have with that strategy is, I think next year may be too late.

 

[patsu]

I'll reiterate something Carl B has said: we simply don't know enough about BOM, anticipated manufacturing ability, profit projections on games, attach rate etc. to make decent guesses as to what either Sony or MS "should" do in terms of price drops.

This is why I tend to stay out of company strategy vs threads these days.

It's obvious to me that if Sony believed that the pros of a price-drop outweighed the cons, they would do it.

Yes... plus Sony delegate decisions to regional HQs. The gamers in different regions may see/value things differently. The signals we see on the web may also be for different regions (e.g, TGS).

Sony doesn't have the software this year to really capitalize on aggressive pricing.

Next year will be a different story.

Problem I have with that strategy is, I think next year may be too late.

For hardcore gamers, if they don't do a good job, they will lose even more momentum in the short term. They may get some back when enough exclusive A* titles accumulate _and_ price becomes attractive. In parallel, I think they are investing resources heavily on casual gamers and non-gamers. Some of the cards are still not on the table.

For now, I don't think a price drop is good enough to generate a sustaining momentum. Without addressing some fundamental marketing issues, a price drop will help for a few weeks and then dip again. Sony knows this and are in the middle of plugging the holes.

Once their proposition for general entertainment are ready, we should see their first assault (together with price drop). For now, they seem to be content with addressing hardcore gamers and Blu-ray enthusiasts without losing too much money.

Anyway, have fun guessing. I'm outta here.

 

[DuckThor Evil]

It's obvious to me that if Sony believed that the pros of a price-drop outweighed the cons, they would do it.

Of course and they could very well be right not to cut it. I personally think they need more good games out there before the price cut does anything major. However what Sony believes does not automatically equal Best scenario for them. They thought that PS3 would fly off the shelves with it's current price tag and games library. Obviously they were mistaken. They can make other mistakes too. Naturally their position to make these decisions is superior to anybody else, but sometimes being close to something can hinder the ability to see the big picture.

 

[scooby_dooby]

Scooby,

Sony doesn't need to be in either first or second place (in terms of installed base) in N.A. to "stay in it."

They risk ending up a distant 3rd place, thus losing western publisher support, and cascading to other markets, having a negative effect worldwide.

I think the PS brand loyalty is remarkebly strong, but if publishers start making too many 360 exclusives, eventually the market will shift.

A relatively small investment now, would *maybe* stop that from happening. Of course it's risky, but I'm convinced that at $400 legions of PS2 fans will jump ship to PS3, their lineup is not that weak right now.

You mention MS's "inability" to price-drop. It's not inability IMO...it's lack of need.

I don't think so. According takahashi MS planned to be on 65nm by now, and have already cost reduced. Obviously their failure to to that, combined with the RROD problem has limited their ability to drop the price.

It a little of both I'm sure, Sony is not exactly pressuring them, but the Wii certainly is.

'll reiterate something Carl B has said: we simply don't know enough about BOM, anticipated manufacturing ability, profit projections on games, attach rate etc. to make decent guesses as to what either Sony or MS "should" do in terms of price drops.

I'm just looking at it from a market perspective. There's no doubt in my mind Sony 'should' or needs to drop price, the question is whether they can afford to.

It's obvious to me that if Sony believed that the pros of a price-drop outweighed the cons, they would do it.

Sony has made a ton of mistakes already this generation, so this doesn't hold alot of weight.

 

[dobwal]

MS left them a huge window with their inability to pricedrop, and then a mere $50 after 2 years. But, I guess it remains to be seen if Sony is in a position to capitalize, MS may have rightly guessed that they are not.

MS's conservative price cutting strategy shouldn't be construed as an inability to price cut. MS's has already learned that trying to keep pace just off price with a competitor with a more popular console with better price cutting flexibility can lead to a situation where you have unrecoverable revenue costs. Furthermore, with Sony having a higher price thats leading to lower sales, MS can sit in between Sony and Nintendo and find a comfortable place that leads to profit.

MS sales had been stable for the last two years at its original price point. Its a benefit of releasing a year early and I think that MS recognized that advantage. It gave MS the ability to price cut real early in the life cycle of the Wii/PS3 if sales dropped due to their arrival or the ability to sit at one price point for a relatively long period if the PS3/Wii waited to cut until the traditional time of spring and sales remain competitive.

 

[scooby_dooby]

MS's conservative price cutting strategy shouldn't be construed as an inability to price cut. MS's has already learned that trying to keep pace just off price with a competitor with a more popular console with better price cutting flexibility can lead to a situation where you have unrecoverable revenue costs. Furthermore, with Sony having a higher price thats leading to lower sales, MS can sit in between Sony and Nintendo and find a comfortable place that leads to profit.

MS is the market leader, thus they should be learning from Sony and what Sony did with the PS2. i.e. Aggressive pricedrops, putting the pressure on the competition, and maintaining ultra-high sales.

I have no doubt that in 2001, both you and Joe would be arguing that Sony should maintain their $299 pricepoint to increase revenues. There was certainly no pressure, or any need for them to drop price at that point, yet they did.

And, in hindsight, it led to the most dominant platform in console history, and a huge revenue stream which is still going strong today.

 

[ihamoitc2005]

Price drop

MS is the market leader, thus they should be learning from Sony and what Sony did with the PS2. i.e. Aggressive pricedrops, putting the pressure on the competition, and maintaining ultra-high sales.

I have no doubt that in 2001, both you and Joe would be arguing that Sony should maintain their $299 pricepoint to increase revenues. There was certainly no pressure, or any need for them to drop price at that point, yet they did.

And, in hindsight, it led to the most dominant platform in console history, and a huge revenue stream which is still going strong today.

Price drop does not generate demand. This is why GameCube price drops failed. They dropped price hoping to increase demand but unless there is demand at higher price there will be no demand at lower price. PS2 price dropped worked because there was demand at higher price and they knew that that this was like the iceberg where you can see the top but the bottom is much bigger.

For luxury goods like video game machine unless there is demand at high prices there will be no demand at low prices.

 

[scooby_dooby]

There's certainly a ton of demand for the PS3...just not at $500/600.

 

[dobwal]

They risk ending up a distant 3rd place, thus losing western publisher support, and cascading to other markets, having a negative effect worldwide.

Sony is not liable to lose any more support than they already have. Sony is bound to have way more support than the GC or the Xbox1. They were the defacto console coming into this generation so a lot of projects were alloted to the PS3. The Xbox and GC didn't have that luxury as PS2 was the predecessor of the PS1 and was shown to be wildly popular from its outset.

PS3 lost a lot of exclusives but those were replaced by multi platform version of those games. If you look at the number of exclusives that the 360 has planned the majority are either first/second party, from devs that were strong xbox1 supporters or second tier games from devs that are still putting their biggest franchises exclusively on the PS3.

Even if the Wii ends up with the majority share of the market, its doesn't provide the most pub friendly enviroment. Nintendo's first and second party will dominate the landscape and the majority of hardcore gamers will still have a 360 and or PS3, the hardcore gamers are still the core group of buyers who drive sales of high budgeted titles.

 

[dobwal]

Price drop does not generate demand. This is why GameCube price drops failed. They dropped price hoping to increase demand but unless there is demand at higher price there will be no demand at lower price. PS2 price dropped worked because there was demand at higher price and they knew that that this was like the iceberg where you can see the top but the bottom is much bigger.

For luxury goods like video game machine unless there is demand at high prices there will be no demand at low prices.

Price drop do generate demand. However, competitors often follow suit and cut prices and the same time, which makes price cutting a tool for keeping sales stable at or above previous sales but not enough to overtake a competitor.

The PS2 wouldn't sale 100+ million console over 6-7 period if Sony had stuck to a $299.00 price point through out that period.

 

[Carl B]

There's certainly a ton of demand for the PS3...just not at $500/600.

Is there though? I'm not feeling the love right now in NA for the PS3. There's a fan base for sure, but it's not very 'mobilized,' and I think that has more to do with the titles atm than the price.

This was Kaz's own answer when asked about it:

"Price is a very important aspect, but at the same time the urgent matter is to what extent we can further enrich the software titles," he said.

And I have to reason to think otherwise myself. I'll say ironically, the press is only wrapped up in the 'failure' of a price cut because they bought so whole-heartedly into the $399 rumor to begin with. Anyway we all know what each other feels on this and the reasons why, so... I'll ask this secondary question instead:

Kaz reiterated his goal for 11 million consoles shipped to retail by year-end. Now, what I'm wondering is, what do people here think they'll actually succeed in shipping?

 

[dobwal]

MS is the market leader, thus they should be learning from Sony and what Sony did with the PS2. i.e. Aggressive pricedrops, putting the pressure on the competition, and maintaining ultra-high sales.

I have no doubt that in 2001, both you and Joe would be arguing that Sony should maintain their $299 pricepoint to increase revenues. There was certainly no pressure, or any need for them to drop price at that point, yet they did.

And, in hindsight, it led to the most dominant platform in console history, and a huge revenue stream which is still going strong today.

PS2 popularity was not interrupted by the the release of the GC and the Xbox. MS saw Wii's popularity out of the gate wasn't something that could be combat with just a simple price cut. Remember you have a the previous generation where the third place player was the cheapest and the xbox was the same price as the PS2 and both were more powerful, but it did little to combat the sales of the PS2.

Plus there is nothing aggressive about the PS2 price cutting strategy as it took something like 18-19 months before a price cut was seen in the US.

 

[TheChefO]

I have no doubt that in 2001, both you and Joe would be arguing that Sony should maintain their $299 pricepoint to increase revenues. There was certainly no pressure, or any need for them to drop price at that point, yet they did.

And, in hindsight, it led to the most dominant platform in console history, and a huge revenue stream which is still going strong today.

Agreed.

MS could have made this a very lopsided victory (sans Wii).

It seems they are content with maintaining "comfortable" sales and "decent" profit margins in the near and distant future...

 

[scooby_dooby]

Plus there is nothing aggressive about the PS2 price cutting strategy as it took something like 18-19 months before a price cut was seen in the US.

A 33% cut after 18 months is not aggressive? When you're drastically outselling your competition??

Surely, at the time, you would've argued that Sony was not in need of a pricedrop, and should concentrate on profitability, no?

It certainly was aggressive, much moreso than the 13% pricecut implemented by MS after 18-19 months.