Can Sony afford to have the most powerful console next-gen? *spawn

Where do people get this idea that the processing power in a box is a function of company size, or that the only way to sell a box with a decent amount of power is to lose billions of dollars?

None of these companies plan on losing money in the console business. The goal of a game console is making money, not burning down capital to give gifts to gamers. And no, contrary to popular Internet Gamer Mythology, Microsoft did not intend to lose money on the original Xbox. That product failed to meet sales targets and the projected cost-curve. It's that simple. This silly idea that losing billions of dollars to "gain a foothold" was really the original plan all along has no reliable sources. It's just one of those "everyone knows" things that's been repeated so many times that it's become accepted as fact.

 

I know what Sony cannot afford to do: to pull the failure that I think the Wii U is going to be, because of being too greedy on the hardware specs.


It just needs to be at least as fast as a 350-400€ (~$500?) PC when it released (2014?) in order to output next-gen graphics. And honestly, screw efficiency on development day one (Nintendo seems to be too fixated on this). As long as they don't pull a "hey, let's use something other than triangles" like Sega Saturn, developers seem to always be able to squeeze the potential out of the system eventually. Look at how PS2 and PS3 turned out. They started as development hells and in the end the systems came out pretty good.

I also think they will have to invest lots in very-low-latency networking hardware for their next console (802.11ac with dedicated processor, 40/100GBit ethernet, etc).
I think the next gen may be the last gen of non-cloud processing game consoles, so it needs to be compatible with cloud processing and real-time video+audio streams with very high bitrates.

 

You're reading the arguments wrong. It's not being argued that anyone is planning to lose billions of dollars it's being argued that more investment in better hardware comes with the risk of billions of dollars of losses and MS are in a better position to take this kind of risk since they are in a better financial position to absorb those losses should a worst-case scenario play out.

 

thanks for your support but apparently as you have said it "the idea that the processing power in a box is a function of company size or that the only way to sell a box with a decent amount of power is to lose billions of dollars" is widespread enough in this thread that I start to think I am in the minority here despite the fact that we have no proof for that...I still dont get it how people arrive to that conclusion...

maybe this reasoning started with the coincidence of xbox1 (most powerful) being produced by the biggest company (microsoft) and than microsoft lost a lot money, so people made a direct link between those complicated events, they thought its BECAUSE of Microsoft being the wealthiest company they produced the most powerful system, and to produce the most powerful system, companies SHOULD Loose billions of dollars...

 

No, you misunderstand. The more money you spend on hardware (from the same technological base as your rival), the more competitive you will be. If your rival has performance of 8 Gigablops, the only way to supercede that 8 Gigablops is to spend more money. Potentially, you could have a special tech your rival doesn't have that gains you efficiency for the same price, but Sony and MS are apparently dipping into the same technology bin so it's going to come down to a factor of how much money they spend on the hardware. There's no limit to how much they spend. MS could spend $300 on each box, and Sony could trounce them with $500 of hardware in their box. Then Sony could sell their machine at $1000 and not lose money and not make sales. Or they could sell it at $500 and maybe find gamers want the better hardware and sell loads, or maybe find gamers want the economy option and buy XB. Or they could sell it $300 and get everyone's custom and lose so much money they go bust. In the past, it was a valid gamble to sink up-front costs in offering powerful, expensive hardware and selling it at a loss because shrinks and software returns provided a significant net profit, but that approach is looking more and more risky.

The take-home point - as MS and Sony are providing the same basic PC architecture in their next consoles (AFAWK), the difference in terms of power will be based on how much they spend on the components in their boxes. And in that respect MS are in stronger position with more to lose (they want to establish Windows 8, so Windows game apps that work on console and PC and mobile as really important to them and install base matters), so the probability is very much in MS's favour of spending big. There's an argument that Sony will go all-in on their console business as a desperate last-ditch salvation move, which seems to be what you are hoping for, but realisitically we should expect Sony to come out with a well-balanced package that matches price and performance and integrates with Sony's corporate wide strategy.

And a free pro tip - lose the rolly eyes as if you're so much smarter than everyone else.

 

Dont worry guys. Im sure Japan will rescue Sony and we will get true socialist console

 

And Sony will also have massive sunk costs before bringing the first unit to market, regardless of the profit/loss for each console sold, so there's no point in having profitable consoles on the market that don't sell enough to cover those costs, obviously.

What I wonder about is the software investment that Sony will have to be making to compete with 720. Microsoft should be able to spend far less on bespoke software development for the 720's system software and libraries than Sony will need for PS4, given the ability to raid the Windows 8 organ bank at will.

Not to be all Jeff Rigby about this, but Sony's software choices for PS4 are the most interesting to me. One presumes they'll bring forward all the open source and commercial application components (e.g., NetFront) that they used in PS4 and Vita, but I don't know if the OS used on the PS3 is full-featured enough to support concurrent application execution, which seems likely to be a requirement to compete with the 720.

 

Lets say if next XBox is going to provide first generation Xbox level of performance, Sony just need to provide something close to Gamecube level of performance and they should be fine.
Considering it is likely that Orbis and Durango's GPU will be based on sea island, likely with similar feature set, I dont think they will be much different in terms of IQ.

 

As long as you also believe that the next Xbox will also be years late to the party and be dependent on ports from weaker hardware for its library.

Disclaimer: I do not expect a huge difference in the performance of the ps4 and nextbox.

 

It's a safe bet that there won't be a MAJOR difference between the two. But if there's a minor difference, the losing side could be the most powerful one, because the additional expense won't lead to a noticeable visual difference. Unless of course the advantage is caused by a better balanced design (as happened with 360), or an advantage in production cost (as is expected for Sony this time).

 

yes, theyve just had an election there. The new party is going to help out japan exporters with the yen, though the party is right wing not left

 

PS4 should be much better balanced than the PS3 at least lol. Cell and RSX, GDDR3 and XDR, looked impressive in terms of raw crunching numbers, but the design as a whole was a mess compared to 360.

 

Nothing to worry, Right wing outside of the US is the equivalent of Center-Left in the US.

 

At this point, I think "more powerful" is moot, since 90% of the games will be cross-platform. They'd be better off trying to make the systems as close to each other as possible. Power sure as hell didn't decide this last generation, did it?

 

It wasnt the original plan, but the fact that they continued to fund it even though it generated billions of losses for years shows that, it was the updated strategy later on until they released the next XBOX

 

They don't have to have the most powerful. Just the most popular...

 

Well there could be a huge gulf between the xbox and the wii u. So as long as sony is closer to the xbox than the wii u it shouldn't be a problem. I doubt the majority of people care.

 

Its not as simple as that. Liabilities come at an interest and payment installments of those long term liabilities have to be made at certain periods. So an amount of cash reserves are actually reserved for liability payments and a remaining amount should be reserved to be able to operate. Additionally if you are in deep need for liquidity you need to find ways to get money from. That comes from either borrowing or issuing shares. You need to be a good debtor to be able to get loans and a company that is profitable enough. The larger the liabilities the more cash you will have to reserve for your debt obligations. If you find difficulties paying them you will be considered a high risk debt company and you will not get loans so easily. And if I remember correctly Sony's debt is now rated as junk which is usually a result of a company who may have difficulties meeting its debt obligations.
Profitability also does not mean extra cash reserves available from day one
A company could have profits of millions but a large amount of those profits come from money that others still owe you and profits you are waiting to be finally converted to actual cash.
Cash is king for every company.
Also I dont know what you mean when you are referring to financial results. The total final value of liabilities are not posted in the Profit and Loss account. So you may have some profits but you may also have an unhealthy amount of liabilities that will "kill" you in the long run if you cant get enough cash inflows in the company

 

In financial reports, liabilities are split into "current liabilities" and the rest. Current liabilities are everything that will have to be paid within the next accounting period, which for Sony is a fiscal year beginning at the 1st of April and ending at the 31st of March. That $55B is explicitly the accounts and debt that come due and have to be paid back during the current fiscal year. Note that most of it isn't actually debt -- it's accounts due to their suppliers that need to be paid back. In addition to that, they have some $70B of long term liabilities.

Being profitable is measured before paying back debt. If you are $500 in debt, earn $100 this week but spend all of it on paying back your debt, you still have no money, are $400 in debt, and you made $100 in profit this week.

Sony will be profitable this fiscal year, but the amount of profit will be absolutely dwarfed by the short-term debt and obligations coming due. They will have to take billions of debt just to finance their operations. Aka, they have no money.

While Sony Financial Holdings is doing better this year than last, it's not exactly blindingly profitable. It's expected to pay a dividend of 25¥ this year -- that would make Sony's share $500M. Not exactly enough to balance their book.

This would be correct. The R&D has been spent already, now we are talking about the financial impact of manufacturing a few million consoles for launch.

No, they really, really, don't. They are in the red. Their current operations are funded by short-term debt. And accordingly, the ratings agencies have punished them for that, rating their debt just above the level where bankruptcy risk is considered significant.

It's always about the money. I'd like to launch a superpowered console. I cannot afford to pay for it, and no-one would be dumb enough to loan me the money. So I can't. Neither can Sony.

MS could, but I doubt they'd want to.

Business strategies have to be grounded in reality. If you cannot afford to purchase something, and no-one will lend you the money for it, you're not going to be basing your strategy on selling it. Even if you'd calculate that you could make a nice profit on it in the next 5 years.

Sony still has enough fat to cut that it will probably be fine. However, they can no longer throw money around and worry about it later like they used to. You can do that when you have the cash in your pocket or good enough credit. Sony has neither.