Sony PS3 loss 'to reach $2bn' by March

[LogisticX]

I think you guys are seriously underestimating the breadth of Sony's plan for this generation. You're looking far too narrowly as the PS3 making its splash simply as a gaming console.

The main reason why PS3 is in this position is because of Blu-Ray. All of these losses can easily be offset with the success of BluRay as the standard for the next generation in movie-playing technology. To simply look at it as losses per console and the inability to make up these losses through cost reduction and software sales doesn't capture the scope of what is trying to be done here.

I don't even think Sony particularly cares, per say, that they are market leader this generation (of course, they will try to be and want to be as best case scenerio but I digress). As long as their console gets decent market penetration then most of the work has been done. BluRay as a medium will most certainly be the dominant medium and Sony stands to make huge royalty fees from this venture.

 

[DudeMiester]

I'm pretty sure Sony can absorb a $2 billion hit.

Now, if you want to talk about scary losses, talk to Pfizer. When they're Liptor patents expire, its $12 billion in revenue/year out the window overnight, or 20% of all their revenue. Not to mention the $1 billion they already lost in their failed attempt to develop a replacement. In any case, they're now laying off thousands of people.

 

[TheChefO]

I think you guys are seriously underestimating the breadth of Sony's plan for this generation. You're looking far too narrowly as the PS3 making its splash simply as a gaming console.

The main reason why PS3 is in this position is because of Blu-Ray. All of these losses can easily be offset with the success of BluRay as the standard for the next generation in movie-playing technology. To simply look at it as losses per console and the inability to make up these losses through cost reduction and software sales doesn't capture the scope of what is trying to be done here.

I don't even think Sony particularly cares, per say, that they are market leader this generation (of course, they will try to be and want to be as best case scenerio but I digress). As long as their console gets decent market penetration then most of the work has been done. BluRay as a medium will most certainly be the dominant medium and Sony stands to make huge royalty fees from this venture.

Assuming Toshiba doesn't get desperate and fund HD-DVD embedded into xbox360.

 

[jb]

I'm pretty sure Sony can absorb a $2 billion hit.

Now, if you want to talk about scary losses, talk to Pfizer. When they're Liptor patents expire, its $12 billion in revenue/year out the window overnight, or 20% of all their revenue. Not to mention the $1 billion they already lost in their failed attempt to develop a replacement. In any case, they're now laying off thousands of people.

My brother was one of their employes that was effected. He was based in one of their Michigan location that they are closing. He is being relocated at the first of next year

 

[LogisticX]

Assuming Toshiba doesn't get desperate and fund HD-DVD embedded into xbox360.

That's a pretty big assumption and goes into the realm of perhaps wishful thinking. It's not impossible, but these plans should/would have been announced prior to the PS3 launch to cut down on potential PS3 sales.

If Toshiba continues to wait, there will be millions of PS3's in homes - that is, millions of bluRay players already established in the market.

That's not to say Sony's game devision won't have some pull in this either, since they've been making stellar software for years.

 

[TheChefO]

That's a pretty big assumption and goes into the realm of perhaps wishful thinking. It's not impossible, but these plans should/would have been announced prior to the PS3 launch to cut down on potential PS3 sales.

If Toshiba continues to wait, there will be millions of PS3's in homes - that is, millions of bluRay players already established in the market.

That's not to say Sony's game devision won't have some pull in this either, since they've been making stellar software for years.

If Toshiba sees ps3 adoption rapidly affecting hd-dvd uptake they may go this route. How much are we talking about in losses? The drive itself can't be more than $200. The dvd drive in xb360 is probably costing MS in the neighborhood of $25-30. This drive would add percieved value to the 360 so MS may be will to contribute funds to include it. Say MS agrees to pay $50/ HD-DVD drive, this is effectively $150 loss per console for Toshiba to guarantee relative userbase parity with ps3 thus ensuring their platform stays viable for the next few years.

MS has little to gain by this move so it would be up to Toshiba. But MS already has the software ready to go if Toshiba want's to pull the trigger and Gates has said in the past that he would be surprised if at the end of the 360's lifecycle it doesn't have a hi-definition player built-in.

Certainly not wishful thinking on my part - I already have the HDDVD player

 

[Rangers]

never mind all this, it was all wrong.

 

[borowki]

The main reason why PS3 is in this position is because of Blu-Ray. All of these losses can easily be offset with the success of BluRay as the standard for the next generation in movie-playing technology. To simply look at it as losses per console and the inability to make up these losses through cost reduction and software sales doesn't capture the scope of what is trying to be done here.

It is harebrained strategy that's going to backfire on them spectacularly. There is little indication consumers want to use their console for playing movies (at least outside of Japan). So unless this trend changes, they're handicapping the PS3 for no good reason. And all is not rosy either if its turn out that consumers do want to use PS3 to Blu-Ray movies. Game consoles are subsidized by game licenses. If people buy them for some other purpose, it's a permanent loss. And why would other manufacturers want to support Blu-Ray, when it means paying Sony a fat royalty while getting undercut by them? Why invest into Blu-Ray when prices will inevitably plunge to the $100 ~$200 level within a few years?

 

[London Geezer]

And why would other manufacturers want to support Blu-Ray, when it means paying Sony a fat royalty while getting undercut by them?

Why don't you ask them? That's obviously not much of an issue, seeing how there are many more (and bigger) manufacturers supporting Bluray, and with Bluray players already on the market, then HDDVD will ever see.

 

[wazoo]

It is harebrained strategy that's going to backfire on them spectacularly. There is little indication consumers want to use their console for playing movies (at least outside of Japan). So unless this trend changes, they're handicapping the PS3 for no good reason. And all is not rosy either if its turn out that consumers do want to use PS3 to Blu-Ray movies. Game consoles are subsidized by game licenses. If people buy them for some other purpose, it's a permanent loss. And why would other manufacturers want to support Blu-Ray, when it means paying Sony a fat royalty while getting undercut by them? Why invest into Blu-Ray when prices will inevitably plunge to the $100 ~$200 level within a few years?

This question reminds me too much of 2000.

A lot of early ps3 are geek enthousiasts also interested in movies. ps3 seems to be an excellent player - something the ps2 was not. I do not mean that they will use the ps3 as movie player, but if they get interested in HD movies, they are less likely to go out and buy a HD DVD player than just go out and buy BR disc for their already owned BR player.

I used my ps2 as a DVD player for years before buying a cheap (and more efficient) DVd player. Lots of people did it also in the beginning. If people do it long enough to kill HD DVD birth, it is ok for Sony.

 

[borowki]

A lot of early ps3 are geek enthousiasts also interested in movies. ps3 seems to be an excellent player - something the ps2 was not. I do not mean that they will use the ps3 as movie player, but if they get interested in HD movies, they are less likely to go out and buy a HD DVD player than just go out and buy BR disc for their already owned BR player.

In the confusion of a format war, the market wants clear signals that consumers perfer one over the other. When someone buys a standalone BR player, he is clearly expressing his preference. We also sort of know that he's a movie buff and/or AV enthusiast. When someone buys a PS3, what can say about him? Most likely he's a gamer. He might use the console for movies, or he might not. In many American homes the game console isn't connected to the television on which movies are screened. The gaming set-up might be in the den, while the movie set-up is in the living/family room. So the PS3 can't honestly be counted as part of the install-base for BR. The Xbox 360 HD-DVD drive on the other hand can, since movie playing is its only purpose.

I used my ps2 as a DVD player for years before buying a cheap (and more efficient) DVd player. Lots of people did it also in the beginning. If people do it long enough to kill HD DVD birth, it is ok for Sony.

I suspect that the PS3 is better at suppressing sales of standalone BR players. It certainly constraints the supply of components.

 

[LogisticX]

So you're saying because PS3 has multi-functionality, that this actually hinders the intent of having a dedicated BR player in the home?

I can see what you're driving at but the numbers just won't add up. Just because many will buy the PS3 as a gaming console doesn't mean that the likelihood one of these owners is going to pick up BluRay software won't go up. And this is the potential value of having the BluRay inside of the PS3.

Some people buy a truck to get from point A to point B....but then they find that this truck has hauling capabilities and so they may choose to begin using it for other purposes in addition to the primary task originally intended. The point is that there is a greater opportunity for BluRay software to be purchased if there are more pieces of hardware out there in the homes that can play them.

If PS3 can ramp up sales, and move beyond the HD DVD units sold, then just like developers who feel safer developing for the platform with the greatest userbase, companies will begin to move to this platform, effectively strangling out HD DVD from the market.

Like already mentioned, this opens up the market to the possiblity of BluRay. Thats all it needs.

 

[Carl B]

I suspect that the PS3 is better at suppressing sales of standalone BR players. It certainly constraints the supply of components.

All the components used in PS3 as they relate to Blu-ray are sourced from within Sony themselves, so PS3 is not taking component supply off the market in terms of the components sourced by the other manufacturers from Nichia, etc...

Even Sony's *own* Blu-ray player does not use the internally-developed three-in-one Sony drive head array, for example. Though this should change with the second gen player.

 

[borowki]

So you're saying because PS3 has multi-functionality, that this actually hinders the intent of having a dedicated BR player in the home?

I can see what you're driving at but the numbers just won't add up. Just because many will buy the PS3 as a gaming console doesn't mean that the likelihood one of these owners is going to pick up BluRay software won't go up. And this is the potential value of having the BluRay inside of the PS3.

What I'm saying is IF things happen as Sony wishes, that is, the PS3 sells as well as the PS2 and their owners en masse use it to play movies, then it'd hurt the sales of standalone BR players. Obviously if you're have a player that you are using already, you probably are not going to spend good money for another. Other manufacturers would be hurt by this, and would rally around the alternative instead.

I don't think things will turn out this way. Home theater is a different market segment from video game consoles. Movie buffs--those who build personal film libraries--are not going to choose a format just because they happen to have something that plays it.

 

[Kryton]

What I'm saying is IF things happen as Sony wishes, that is, the PS3 sells as well as the PS2 and their owners en masse use it to play movies, then it'd hurt the sales of standalone BR players. Obviously if you're have a player that you are using already, you probably are not going to spend good money for another. Other manufacturers would be hurt by this, and would rally around the alternative instead.

I don't think things will turn out this way. Home theater is a different market segment from video game consoles. Movie buffs--those who build personal film libraries--are not going to choose a format just because they happen to have something that plays it.

Manufacturers will not up-sticks (to another technology) at the first sign of competition because they have massive sunk investment in the technology. If people are buying the things off Sony, and it isn't an exclusive technology, you can get them to buy it off you as well. Those manufacturers who are in this position have 1 big advantage: price. A standalone BR player does not need a massive chip in Cell/RSX to function! So, they cut prices, ship to those people who don't want the game functionality (your argument works both ways).


Saying the HD DVD add-on is a `better purchase' is stupid. These numbers are supposed to count raw drive units capable of playing BR/HDDVD content. Obviously, one uses a trojan horse approach but, if you have the drive already, you are far more likely to buy a BR disk (than if you had to buy the drive then a disk).

Even if BR does flop, Sony can retain it as a propreitary game distribution technology (remember the fudged PS1/PS2 CDs using disk errors?)

 

[PatrickL]

Is there actual numbers supporting the fact that ps3 owners are actually buying a lot of bluray movies ?

 

[inefficient]

Is there actual numbers supporting the fact that ps3 owners are actually buying a lot of bluray movies ?

http://www.beyond3d.com/forum/showthread.php?t=38229

 

[Diamond.G]

Manufacturers will not up-sticks (to another technology) at the first sign of competition because they have massive sunk investment in the technology. If people are buying the things off Sony, and it isn't an exclusive technology, you can get them to buy it off you as well. Those manufacturers who are in this position have 1 big advantage: price. A standalone BR player does not need a massive chip in Cell/RSX to function! So, they cut prices, ship to those people who don't want the game functionality (your argument works both ways).

I agree with your statement, but I think that the borowki had a point. As it stands the PS3 is the cheapest BR player. Standalone or otherwise. None of the BR supporters have even hinted at bringing out cheaper players.

So lets say Sony does drop the price of the PS3 by $100 (both SKU's) this year. Coupled with the news that the PS3 is a superb BR player why would I want to buy another player? In the end it would seem like Sony would be stepping on the toes of the other BR player (standalone) manufacturers.

 

[assen]

Standalone players also have expensive chips in them - somebody on AVSForums said that one of the HD-DVD players is essentially a PC with a dual-core P4, so Cell is not an inherent price disadvantage (maybe RSX is, though). After all, it was designed to be included in consumer electronics, right?

However, if the cheapest Blu-ray player remains at $500, I can't see how Blu-ray will gain much marketshare... it's one thing to fight HD-DVD for the 1% of the market that is HD; it's another thing completely to expand, eating the $50 supermarket brand DVD players.

 

[Kryton]

I agree with your statement, but I think that the borowki had a point. As it stands the PS3 is the cheapest BR player. Standalone or otherwise. None of the BR supporters have even hinted at bringing out cheaper players.

So lets say Sony does drop the price of the PS3 by $100 (both SKU's) this year. Coupled with the news that the PS3 is a superb BR player why would I want to buy another player? In the end it would seem like Sony would be stepping on the toes of the other BR player (standalone) manufacturers.

DVD was exactly the same.

The seperate solutions you see at the moment are for the high-end consumers who must have top image/audio fidelity. PS3, like the PS2 before it, is aimed at the middle-ground consumer who doesn't really care about pixel perfect output, but still wants new technology. Irrespective of this observation, just consider the scenarios...

If Sony does drop the price by $100, they must be able to cut costs somewhere, or can afford to heavily subsidise it. Discounting the second option because it's extremely unlikely, when you consider ammortized movie and game royalties over 10 years, they could get $100 worth back, you end up with 2 situations:
o The drop in price is due to BluRay - it suggests other manufacturers will experience equivalent component price drops leading to similarly priced models.
o The price drop is external to BluRay - it suggests other manufacturers are artificially inflating the prices of current models.

Either way, because a standalone BR player does not have huge amounts of additional technology like PS3, they should be able to compete on price i.e. if BR manufacture costs do decrease, it should be the same for everyone and, once again, the difference is then in having to include Cell/RSX.

Standalone players also have expensive chips in them - somebody on AVSForums said that one of the HD-DVD players is essentially a PC with a dual-core P4, so Cell is not an inherent price disadvantage (maybe RSX is, though). After all, it was designed to be included in consumer electronics, right?

That was Toshiba's choice, do they need it? Who knows, but any manufacturer can include Cell if they want, if they do you just need to read my above 'analysis' as "BluRay and Cell" rather than just "BluRay".


Edit: Also, mass production drives prices down. If Sony ramp up BR production and perfect the process, you'll see them selling the output cheaper.