Are all current consoles sold with loss?
- Thread starter MistaPi
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40%? Really? Jeeze, I had no idea it was that high!karlotta said:
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digitalwanderer said:40%? Really? Jeeze, I had no idea it was that high!karlotta said:
I don't think it's that high, I would questimate 15-20%
they would go out of biz if it was 25%. they have to pay for shipping, and the labor to unload and stock. Price margins maybe that thin in the console market.... but to go with the 25% a 100$ console is 75$, what comes with the console, controlers a memcard, the console...
From what I know, the PS2 shrink has resulted in a profitable machine for Sony, along with the highest price. I've heard Nintendo have always stayed on the +ve side of profitability. XB is a huge loss maker.
As for real world figures, I don't think anyone knows or ever will know. It'd take the engineers to spill the beans on how much they spend manufacturing these systems, which they won't do for a variety of reasons, not least because people might well balk at the markups.
eg. A £5 watch battery from a jewellers might cost them 40p to buy in, bought from a merchant who paid 20p for it, from the manufacturer who spent 1p manufacturing it - a 50,000% markup from cost to retail price. No, these sorts of markups don't feature in consumer electroncs! But if a company had found a way to keep costs down and get a bigger markup, they wouldn't want that public knowledge.
As for real world figures, I don't think anyone knows or ever will know. It'd take the engineers to spill the beans on how much they spend manufacturing these systems, which they won't do for a variety of reasons, not least because people might well balk at the markups.
eg. A £5 watch battery from a jewellers might cost them 40p to buy in, bought from a merchant who paid 20p for it, from the manufacturer who spent 1p manufacturing it - a 50,000% markup from cost to retail price. No, these sorts of markups don't feature in consumer electroncs! But if a company had found a way to keep costs down and get a bigger markup, they wouldn't want that public knowledge.
I'd be seriously surprised to find any retailers making that much profit on hardware - otherwise you'd see some places undercutting by quite a margin. Short of importing from somewhere they're cheap and avoiding duty on them, mostly places are all pretty close to the RRP.
Margins are typically made on peripherals and software - look at the discounts available on stuff via (for example) Amazon and you'll see the discount on a console is a much lower % than for many other goods.
Losses won't be taken by a retailer, unless they're dumping stock they just can't shift otherwise. However the manufacturers may well be taking a loss at any given time.
As I understand it, Sony (and I expect Nintendo) aim to make a profit out of their hardware over the long-haul, but have to take a hit initially (and any time they slash the price). The trick is to build a bit of hardware you know will be cheaper to make in the future when processes improve, or parts become more mass produced.
Microsoft I believe have taken a loss on every XBox ever sold and continue to do so, because they have a design that limits their ability to make cheaper. Which only goes to show that they really plunged in head first but are pretty determined to stick it out...
Margins are typically made on peripherals and software - look at the discounts available on stuff via (for example) Amazon and you'll see the discount on a console is a much lower % than for many other goods.
Losses won't be taken by a retailer, unless they're dumping stock they just can't shift otherwise. However the manufacturers may well be taking a loss at any given time.
As I understand it, Sony (and I expect Nintendo) aim to make a profit out of their hardware over the long-haul, but have to take a hit initially (and any time they slash the price). The trick is to build a bit of hardware you know will be cheaper to make in the future when processes improve, or parts become more mass produced.
Microsoft I believe have taken a loss on every XBox ever sold and continue to do so, because they have a design that limits their ability to make cheaper. Which only goes to show that they really plunged in head first but are pretty determined to stick it out...
I'm not really sure which console is cheapest to manufacture at this point. We have reasonable information about the Cube, since Nintendo itself said they were losing about $10 per unit after they dropped their price to $99 (though I can't find the link right now), but the PSTwo is an indescernable quantity, and Sony rarely lets slip any manufacturing price info. After all the die-shrinking and the board redesign, I actually think it more likely the PSTwo costs less now. (Especially since they'd be aiming that unit at the expected $99 price drop, and I rather doubt would spend the time designing the PSTwo to start losing money again at that point instead of spending a bit more time to make sure they get under that key pricing ledge.)
Overall costs over time, however, I must assume go Nintendo's way. They haven't actually redesigned the Cube much at all (stripping out a digital audio port and occasional color changes seems to be the extent) so they aren't likely to have manufacturing cost cuts that weren't built into the deals they made with IBM/ATI/NEC/whoever-else in the beginning, but that means they've probably held just about that price for the long haul--and you can see the kinds of profits they pulled in at $200 and $150. Sony started off much higher with the PS2 and has spent more money at each manufacturing redesign stage, so... There's no way to really measure that without an in-depth look at a LOT of their books, but Nintendo's way was certainly less headache-filled.
Overall costs over time, however, I must assume go Nintendo's way. They haven't actually redesigned the Cube much at all (stripping out a digital audio port and occasional color changes seems to be the extent) so they aren't likely to have manufacturing cost cuts that weren't built into the deals they made with IBM/ATI/NEC/whoever-else in the beginning, but that means they've probably held just about that price for the long haul--and you can see the kinds of profits they pulled in at $200 and $150. Sony started off much higher with the PS2 and has spent more money at each manufacturing redesign stage, so... There's no way to really measure that without an in-depth look at a LOT of their books, but Nintendo's way was certainly less headache-filled.
Nintendo lowered the price to $99 a long time ago so I think it's still the cheapest to manufacture. Just looking at the PCB you could pretty much tell that it's much less complex than the PSTwo board. The PSTwo uses a relatively fairly costly slim DVD drive used in notebooks too.
The Gamecube is currently making a profit and has been for quite a while. I think it's been making a nice $10 profit per machine sold (for Nintendo) for over a year now.
The PS2 shoudl also be making money now, but it probably is in the $5 range. For all I know the PSTwo could be making buttloads of money due to the smaller design. Still, if the price was reduced to $100 then I am sure it would lose money again.
The Xbox has never made a profit from what I can tell. It is the biggest and has the most devices of any other machine. MS hasn't reduced the size in order to kep up with the newest process techs out there.
In general, retailers make very little from consoles. They would be lucky if they made $3 per machine sold. The reasons why they don't worry about pricing is because theyknow the machines will sell. They sell the console to the customer and then sit and wait for the customers to come back in and buy the games.
The PS2 shoudl also be making money now, but it probably is in the $5 range. For all I know the PSTwo could be making buttloads of money due to the smaller design. Still, if the price was reduced to $100 then I am sure it would lose money again.
The Xbox has never made a profit from what I can tell. It is the biggest and has the most devices of any other machine. MS hasn't reduced the size in order to kep up with the newest process techs out there.
In general, retailers make very little from consoles. They would be lucky if they made $3 per machine sold. The reasons why they don't worry about pricing is because theyknow the machines will sell. They sell the console to the customer and then sit and wait for the customers to come back in and buy the games.
BOOMEXPLODE
Regular
Tahir said:
Heh, that might be changing, if the cost of development keeps rising. Alot of people are now willing to spend a premium on premium hardware though.
...and it was that move that brought commentary saying they lost $10 per Cube at that point. Now that likely doesn't mean it costs $110 since I assume they're including all packaging and shipping costs and were measuring that against the price they're paid by retailers--not what retailers charge the public--but those considerations are bound to be pretty even for Sony and Microsoft as well. (It probably comes out better for Microsoft, though, as it doesn't have to go through as much import/export rigamarole for the dominant US market, but even that fluctuates around due to conversion rates.)PC-Engine said:
The PSTwo may have a more complex motherboard and drive, but they internalize lots of the chipware cost that Nintendo can't, and I'm certain they've leveraged the selling expectations of the PSTwo to make for the best deals they can with the people they're now dealing with: they know what volumes they can expect over its lifespan, and Sony would leverage that to drop margins.
The only thing I can say with assurance is that you can't look at one or two components and tell ANYTHING for sure.
My guess is just that--a guess--but I'm mainly measuring it against what seems like the most sound business plan. Why would Sony bring out an unneeded redesign as soon as they did to start losing money again at the $99 price point which they'll be forced into relatively soon?Were are you pulling that information, out of curiosity? Nintendo dropped to $99 something like 18-20 months ago, so if they were losing $10 then, what improved over the next half-year?
...or otherwise, what set of information is wrong, and just how are we supposed to know which is right?
ADDED: I did find at least one reference, from Perrin Kaplan (VP of corporate affairs) in an interview with IGN in Jan. 2004. He doesn't state specifically $10--I'm likely remembering that amount from a different source--but he does talk about the Cube losing money after the price drop. He just calls it "negligible" and offset by software sales. (Duh.
) I also ran across an odd tidbit on Nintendo's hardware loss--though there doesn't seem to be a way to estimate what is Cube-specific or not.TheMightyPuck
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Tahir said:
Margins are effectively zero on consoles at retail. They make it up in peripherals and games. Go to Best Buy. Look at all the space allocated for the actual consoles any time other than Christmas. Then look at the space allocated for games and controllers and memory cards etc.
A friend of mine own a video game shop, I can safely say that his margin on consoles are between 0-1%.
Clearly they are here only to sell games, for the retailer as well as the console maker.
Margins on games are between 20-33%, except on second-hand games which are sold with a margin of 50%.
Clearly they are here only to sell games, for the retailer as well as the console maker.
Margins on games are between 20-33%, except on second-hand games which are sold with a margin of 50%.
Not sure what your arguing here, but the key phrase is *long time ago*...
And that's been argued ad nauseum already. Inhouse isn't always cheaper than outsourcing and vice versa so there's really no point in going there again.
Decreasing PS2 sales maybe? This has been discussed already. Using a smaller condensed PCB with the EE+GS@90nm is cheaper, but using a more expensive slim DVD drive raises the cost right back up. BTW nobody said they were losing money on the PSTwo at launch, but nobody knows if it made money either. Why is it so hard to believe that GCN with only two chips costs more than PSTwo to manufacture? Because it's being outsourced?
