MS Q2 Financials

[Mintmaster]

Yeah thats great, except what do I care if they're not cutting the price for the consumer, i.e. me?

£30 in two years? Ridiculous in my opinion.

I never said that you do care. However, you were the one that claimed console cost is the reason that MS is not cutting price.

There reason that MS isn't cutting cost is entirely due to the target audience. MS has the opinion (probably with market research and surveys to back it up) that they won't get rewarded for the price cut or hurt for not doing it.

You can probably blame (well founded) brand loyalty to Sony for much of that.

 

[Vic]

First of all, I said it was the biggest. And it is. I didn't necessarily say it was bigger than every single other game combined.
But fine, lets run through them.

Killzone 2 - Is what? An unproven IP that could very easily flop, or slip to 2009.
GT Prologue - Is a glorified demo, I think most people are really waiting for GT5.
MGS4 - This series has never generated massive mainstream success. Nowhere near the success of GTA.

Mario Kart, Smash Bros...these have no place in a discussion about PS3 vs 360.

Funnily enough, I agree with you on your general points. MS needs desperately to pricedrop in Europe. They have been extremely slow to pricedrop 360 so far, and will probably pay for it in future sales.

If they continue this extremely conservative pricing model, they will cede the console lead to Sony sooner rather than later. Their window of opportunity to take advantage of the lower BOM on 360 grows smaller by the day.

I'm just sick of hearing "Wait for the big exlcusives"...it's the oldest argument in the book, it's never proven to be true (LAir, R&C, HS, Uncharted...did nothing). If PS3 succeeds in overtaking 360, it will be mostly on the back of it's brand name, maybe bluray, not a few exclusives.

Only GT5 and FF13 hold that sort of power IMO, and neither of those will be released in 2008.

You can eye roll, but to me it shows that GTA is just big fish in a pond with other big fishes...

Give me a break. If KZ2 was on 360 it would be hyped to the hills in the US, just like Gears' was, even though it was a new IP...GT5 is coming in around 12 months...thats a long time to wait...Didnt MGS 2 sell 7m? Not bad for a series that hasnt generated mainstream success (sorry but that assertion is laughable).

I'm glad we agree. £30 is nothing like enough and I'm interested to see sales this year.

It doesnt matter if your sick of hearing the exclusives argument, because you'll keep on hearing it from me until the BIG franchises are released...dismissing certain games because they arent your cup of tea, or not quite as big as GTA 4 is absurd.


EDIT: And VG Chartz has Uncharted as having reached platinum. Even if their 10% off, its hardly done nothing.

 

[Mintmaster]

To be accurate:
B - 360 sells 11.5M this year with a price cut now, causing it's competitor to sell less.

That was the crux of my argument, that an increase in your sales would negatively impact your competitors sales. That's the entire idea behind maintaining momentum.

True, but I took that into account in the marketshare part of my post, where I replied to your 65% scenario.

Moreover, my point still stands about what's best for Microsoft. Taking away sales from your competitor is only useful insofar as it helps your own sales, so you're using a circular argument.

And 15% was simply a number, not meant to be taken literally. A $100 pricedrop, worldwide in time for GTA, would probably cause a much bigger increase than 15%, but who can say...

I know. I just used it because you did. Remember, though, that my alternate scenario eventually has the same price as yours for Holiday '08, so a 15% improvement in 2008 translates into ~30% boost for the next 8 months.

 

[scooby_dooby]

Moreover, my point still stands about what's best for Microsoft. Taking away sales from your competitor is only useful insofar as it helps your own sales, so you're using a circular argument.

I don't think so, as that negative impact can affect longterm sales for the life of the competitors console, and that impact can't really be predicted. That's why I don't feel any short term calculation tells the whole story.

But fair enough, I think we can agree to disagree

 

[scooby_dooby]

You can eye roll, but to me it shows that GTA is just big fish in a pond with other big fishes...

Yes, the biggest fish in the 08 pond. I'm glad we agree.

Give me a break. If KZ2 was on 360 it would be hyped to the hills in the US, just like Gears' was, even though it was a new IP...

So? Plenty of games are 'hyped to the hills'. Gears turned out to be a great game, KZ is still an unknown.

Didnt MGS 2 sell 7m? Not bad for a series that hasnt generated mainstream success (sorry but that assertion is laughable).

It sold ~5.5, as a first-year title for PS2.

Certainly a big franchise, but not on par with a GTA or Final Fantasy.

For example:
GTA SA: 15 million.
GT3: 15 million
FFX: 8million
MGS3: 4 million

It doesnt matter if your sick of hearing the exclusives argument, because you'll keep on hearing it from me until the BIG franchises are released...

Sorry but I heard the same shit about Heavenly Sword, LAIR and Uncharted for the last 16 months. Unless you're talking about real, established franchises with massive western appeal, the argument holds no water.

dismissing certain games because they arent your cup of tea, or not quite as big as GTA 4 is absurd.

Who said they are not my cup of tea? Most of those games look great to me.

However, GTA will sell twice as many units as any game you're talking about. At least.

EDIT: And VG Chartz has Uncharted as having reached platinum. Even if their 10% off, its hardly done nothing.

In terms of hardware sales it didn't do much.

As seen with 360 exclusives tend to only maintain a certain sales rate. Only the most massive franchises have a noticeable impact on sales. Halo 3 for example. GTA for example.

 

[Squilliam]

Consider the fact that GTA is probably twice as big as Halo, they have pretty much double the sales of the Halo franchise. Looking at the spike on the VG chartz graph, Halo was probably worth half a million sales to Microsoft. How many Xboxes will be sold because the game came with exclusive content on that system? This is critical because it's not just preaching to the crowd of Xbox fanatics, it's actually taking sales away from Sony's core crowd. This is a definite win for Microsoft and a painful loss to Sony. Half a million sales from one to the other is no mean feat.

The problem with taking games like MGS is the fact that people who love the game, would probably already be Sony fans and if they haven't got the console already they would probably get one anyway. Same goes for FF fans. This also applies to Halo fans as well.

What Scooby said is pretty much what I think. Sales taken from Sony are all a boon for Microsoft.

 

[Vic]

Yes, the biggest fish in the 08 pond. I'm glad we agree.



So? Plenty of games are 'hyped to the hills'. Gears turned out to be a great game, KZ is still an unknown.



It sold ~5.5, as a first-year title for PS2.

Certainly a big franchise, but not on par with a GTA or Final Fantasy.

For example:
GTA SA: 15 million.
GT3: 15 million
FFX: 8million
MGS3: 4 million



Sorry but I heard the same shit about Heavenly Sword, LAIR and Uncharted for the last 16 months. Unless you're talking about real, established franchises with massive western appeal, the argument holds no water.


Who said they are not my cup of tea? Most of those games look great to me.

However, GTA will sell twice as many units as any game you're talking about. At least.



In terms of hardware sales it didn't do much.

As seen with 360 exclusives tend to only maintain a certain sales rate. Only the most massive franchises have a noticeable impact on sales. Halo 3 for example. GTA for example.

I've just said we need to wait for the BIG franchises to drop, so that statement makes no sense whatsoever.

Killzone is almsot guaranteed to sell a couple million couples, on the basis of its graphics alone.

OK so MGS 3 didnt sell as well as FF so its OK to be dismissed? And I like the way you conveniently ignore how well MGS 2 sold to a small PS2 userbase (and also the Uncharted figures which are pretty good for a new franchise, not every new franchsie can sell 4 million).

Since you love talking about GTA so much, let me point you to some figures. Vice City sold around 10m on the PS2, San Andreas sold around 12 million to a huge PS2 userbase, while MGS 2 sold 7m to a much smaller userbase.

Many of the games listed will have as big an impact on the PS3 as GTA 4, because they can only be bought on that platform.

 

[pipo]

An aggressive pricedrop by MS in time for GTA, should help them tremendously in EU.

Yup.

If they back it up with some serious marketing power.

 

[pipo]

Killzone is almsot guaranteed to sell a couple million couples, on the basis of its graphics alone.

No way. And besides, do you think MS won't have surprises in store? They've been playing their cards close to their chest for this year.

 

[Laa-Yosh]

MGS2 was a rather large step forward, a very cinematic game, but that kind of distinction has faded away. MGS4 at a first look isn't really different from any other 3rd person shooter with some stealth action; and while I admit that there aren't many games like that, it's still missing that novelty factor.

Fans will obviously get it, but I don't see Konami's marketing trying to reach a larger audience so far. The trailers featuring recurring characters and past events that the player should be familiar with don't really help either. Halo at least kept these references to a minimum and concentrated on simple stuff - war with aliens and humanity's hero against them. And Gears didn't even bother with this much, neither COD4. So it's perfectly reasonable to question the mass market appeal of MGS4.

 

[Mintmaster]

I don't think so, as that negative impact can affect longterm sales for the life of the competitors console, and that impact can't really be predicted. That's why I don't feel any short term calculation tells the whole story.

You don't get it. I already talked about that.

Going from 50% marketshare to 65% marketshare (when total units are constant) means you have to sell 30% more total hardware and the competition has to lose those sales. If only the former happened, then you'd only go from 50% to 56.5%. The latter is implied in all these discussions.

And, for the last friggin time, nothing I mentioned is limited to "short term". I am talking about lifetime differences as the result of one strategy compared to another.

 

[scooby_dooby]

You don't get it. I already talked about that.

Going from 50% marketshare to 65% marketshare (when total units are constant) means you have to sell 30% more total hardware and the competition has to lose those sales. If only the former happened, then you'd only go from 50% to 56.5%. The latter is implied in all these discussions.

And, for the last friggin time, nothing I mentioned is limited to "short term". I am talking about lifetime differences as the result of one strategy compared to another.

I understand what you're saying, I just don't see how you think you can ever accurately estimate that change, and therefore how can you predict when a price drop is necessary(before it's too late and you start to lose significant marketshare)??

I don't really care how much research MS has done, it does not mean they're right, they really have no idea how stong PS3 is going to sell next year or beyond.

 

[Vic]

No way. And besides, do you think MS won't have surprises in store? They've been playing their cards close to their chest for this year.

I'll guess we'll see.

I cant see what 'surprises' they would have that'll be released this year.

Anyway, my point is a price drop may be beneficial to MS's bottom-line in the long-term.


EDIT: @NAVNUCST3

You're seeing things that arent even there, though certainly Gears' was no classic. And what does me being a PS3 owner have to do with MS's performance? Stop being so defensive...jeez.

 

[Acert93]

When I get the energy to re-enter the discussion I will, but I would put this forward (again): I think MS's biggest problem is their stream of failed moves post-launch. Their execution is horrible. Their cost reduction planning is tragic (August for 65nm Xenos?) and due to a host of variables and mistakes have painted themselves into a "corner" of the market.

While I don't necessarily agree with Johnny's positive spin to the situation, I think he hit it dead on irt who MS is now forced to court (Xbox owners and a segment of former PS2 owners) and his generation sales numbers are similar to what I have been saying for a while. Some may look at this as a success; I see a lot of poor choices, worse execution, and an ocean of missed oppurtunities. Philosophically the 360 got a lot right, market entrance was solid and developer courting and appeasment also went very, very well for MS.

But at the end of the day the guy who leapt first put himself in a position to chase and react to the market. And for all the poo-pooing of the PS2 demographic, 2007 software sales for the PS2 were staggering. While going with tight, even negative, margins on hardware is a tough call, when you cast a big net and bet on software revenue carrying the day the result can be significant. The "problem" is, and MS themselves have laid this out, they stopped looking at generational profits in 2005--the 360 was given a firm timeframe to return not just a profitable quarter, but a profitable year.

So the agenda was pretty much laid out:
* Make a profit in 2007 (originally 2006, but this was pushed back)
* Increase market share
* Reduce the market leader's (i.e. Sony's) market share
* Further develop IPs; minimize acquisitions that can impact the bottom line

While the differences may be subtle, the impact this has had on their console planning is clear as day to me. They have put early returns above and beyond long term generational profits (see some of the past slides from the PS2 and its early losses) and the concessions made toward market share. Ironically Sony's market share issues, notably in NA, are all self inflicted for the most part.

In the long term I think MS has a problem that could be substantial: while other companies have been picking up key development talent (EA w/ Bioware, Activision with BC, Sony with Evolution Studios, etc) MS has a very false sense of title sponsorship. Put another way, if Sony had co-launched in 2005 the strategy to help fund early next gen development for exclusive release wouldn't have flown well.

People snidely point to how Lair, HS, R&C, and Uncharted haven't moved a ton of software (and, indeed, may have cost Sony a lot). But look at the mess if they don't have those titles. Or, imagine, a 360 launch without PGR3, Kameo, Oblivion, FN3, and GRAW as exclusives, but instead being on the PS3 as well. Put GeOW on the PS3... as well as Halo 3.

You need exclusive content. MS got lucky (smart) with the 1 year lead. They cannot bet on it again. And the pick-up of talent by their competitors makes on of MS's core weaknesses (internal development) even more shakey. Especially when you look at how crummy their internal studios are doing. Bye-bye FASA. And it looks like next gen Bungie multiplatform software.

Which, btw, I am curious why we didn't see a huge bump in revenue for the Bungie walking papers. If, indeed, Bungie walked and down the road can be multiplatform (which it seems... down the road) and MS didn't extract a painful amount ... wow.

Anyhow, I see things similar to Johnny, but with an emphasis on, "Only? That is it?!" You look at the mistakes Sony made and the market focus Nintendo has taken and I find it curious that Microsoft's 360 hasn't outpaced the Xbox by more. Yeah, 45-60M sales are in the cards, as well as profits, the strength of the Live brand established as a killer app, and so forth. But there was much more potential there. Notibly potential for significant LTD profits for the 360 platform that could have benefited investors much more in the longterm. Especially if MS thinks $44.6B for Yahoo is a good thing 0_o

The 360 NEVER had to wait for the "big" franchises to hit in year one, year two, and now in year three, the hits just keep on coming. If the PS3 is dependent on those "big" hits and most of them are coming this year, then what is next, wait another two or three years for them to hit again? The 360 is typically selling mediocre, good, great games, the PS3 is having difficulty selling its own great games, therein lies the problem.

Yeah, I am pretty tired of hearing that myself. If these titles were so important why did Sony slot them 2008? As much as I see problems in the MS camp, Sony's PS3 planning has been laughably bad at times. 2008 will be an important window for Sony. If they are struggling to reach parity in console units sold in NA as well as software units with their lineup it will be a sure sign of not only the fickleness of the NA videogamer but also their altered perception in the market.

If MGS4, FF, etc vault the PS3 into a position with 50% increased hardware sales in NA in 2008 it will be a clear demonstration that the king isn't dead and the brand and franchises are strong in NA.

But if we are talking about relative 2008 parity I absolutely don't want to hear anything about, "Wait until X releases!" or "Look at how we jumped back to even the competition" -- with that lineup, if the historonics are true, they should regain some of their past glory. Anything less is dissappointing. I also don't want to hear about delays. If you are delaying your big titles into 2009, 3 years after this generation launched, whose fault is that?

All three platforms have a lot to prove in 2008. I pegged a lot on the 2007/2008 window for when the next gen landscape will be settled as that is when we would see a much better picture of "ground up" software, how their platform decisions were executed, and how well they are going to react for the tail half of the generation. e.g. If Sony has another sloppy year in 2008 in NA then, effectively, there is no way they will end up any place but third in NA. Yet I believe they all have a lot to prove at this point. Can MS get some effective cost reduction in gear to make sensible price reduction moves? Can they get a couple big hitters to compete with Resistance 2, KZ2, FFXIII, MGS4, Motorstorm 2 (GeOW 2? as much as Vic will slam it as not being a classic, 5M+ sales and a number of GotY awards dissagree. I lament the title, but it offered a change of pace for shooters and some innovation, a solid core experience, strong COOP, and excellent MP, great sound... and great art. But PS3 owners will hate on it, oh well!). Nintendo... just show they can continue their sales pace and begin producing healthy software sales for 3rd parties across the board and branch out of their "casual gamer" angle. Sony... they need to sell consoles to people who buy games. They need to continue their market growth in Japan. I don't think Europe is Sony's problem (I think they will end up making some noise there in 2008 and put a stamp on non-English speaking countries for the most part) but NA looks pretty bad for Sony. If they are struggling, with their lineup and sub-$400 price + BDR + free online pay, to exceed MS in NA it will be pretty clear that the market has shifted.

And I don't want to hear excuses. I don't want to hear about overhyped Halo or the shallowness of GeoW. Sony has had a horrible free fall and market purge. As a long time Ninny fan I know what it is like to love a platform/games but conceed it isn't meeting the bulk of consumer desires. Heh, and the Wii may be Ninny's best console yet in that regards and I most things about it. Go figure. (Note to self: making a console for me != market leadership)

 

[Mintmaster]

I understand what you're saying, I just don't see how you think you can ever accurately estimate that change, and therefore how can you predict when a price drop is necessary(before it's too late and you start to lose significant marketshare)??

WTF? Where did I say that I can accurately predict sales? You're not paying attention to me at all.

What I said was given a set of predictions for various scenarios, we can figure out which is most profitable, and it's definately not alway the one with the lowest cost and highest volume. Similarly, given two pricing schemes, we can see how many more consoles the cheaper scenario must move in order to be worthwhile.

What I did was give you examples, not predictions. The reason I gave them was to give people a feel for how many more consoles sales need to be attributed to a price cut. Not everyone realized MS needs a whopping 50% boost (compared to no cut sales) to make a $50 cut worthwhile (assuming $100 per console in accessories/games/downloads).

I don't really care how much research MS has done, it does not mean they're right, they really have no idea how stong PS3 is going to sell next year or beyond.

Even if PS3 does sell strongly next year or beyond, it does not mean you're right about MS needing to be more aggressive on pricing. It's entirely possible that a price drop won't do much, and a many of the remaining gamers w/o a current system simply want a PS3.

 

[Acert93]

Successful consoles have a pretty long history of using price cuts to boost sales / carry momentum.

$350 is quite expensive. It would be shocking if a significant price cut wouldn't do much. Price sensativities are a real factor. An Xbox 360 at $199 is a totally different product/appeal than a $399 Xbox 360. For those in the know the RRoD issue does cause some hesitation to jump in at $350.

At some point MS will saturate the $350 price point. The Feb-Mar-Apr will give a picture of such. While I cannot say I will be shocked if MS doesn't make a move this spring, this slow market period is the ripe time to do a price drop to boost sales during a slow period (you cannot magically bump these sales to the holidays) as well as even out production and supply channels.

 

[mrcorbo]

@ Joshua

I have some slight issues with a couple of your points.

Firstly, the 360's sales may not be far outstripping the XBOX's sales, but just looking at those numbers alone without digging deeper fails to take into account that not all console buyers are the same. The fact that the XBOX had to sell at a deep discount to attract those sales also reflected itself in the type of gamers who bought the system and how much more they were willing to invest in the platform. 360 owners have shown themselves to be much more active game buyers relative to their actual numbers than XBOX owners ever were and becuse of this the 360 as a platform is much more attractive to development than the XBOX ever was. And this time everyone, including the platform holder, is making money. At this point the 360 is virtually guaranteed to be a viable platform through the end of this console generation just based on what they have done already and that is clearly something that the XBOX hadn't achieved by this point in its life.

The other thing I have an issue with is the sentiment that having smaller in-house development is all bad. I actually see some benefits to being leaner. They have much more flexibility in allocating their resources this way. Keeping in mind that titles like PGR3&4, Mass Effect, and GeOW were all exclusives published by MGS, but developed by 3rd parties this looks like a perfectly viable strategy to me given the strength of the 360 platform. It's going to be a lot easier for MGS to now go out and use its financial resources to secure publishing and co-publishing deals than it would be if they had a whole stable of studios that they had to make sure are financially viable. There's also a point where being a strong first party publisher on your platform begins to make your 3rd party partners into competitors when there is a finite amount of gamer dollars to chase.

As an aside I just talked to a friend who got a new 360 today. He got an Elite because that's the only non-arcade unit he could find in 4 different stores at the local mall and when he asked when they were getting more in no one knew. Just a little more anecdotal evidence of 360's being in short supply.

 

[scooby_dooby]

WTF? Where did I say that I can accurately predict sales? You're not paying attention to me at all.

I never said you were trying to predict anything, and I acknowledged your argument about the magnitude of consoles that need to be sold in order to make a pricecut worth it.

What I said was given a set of predictions for various scenarios, we can figure out which is most profitable, and it's definately not alway the one with the lowest cost and highest volume. Similarly, given two pricing schemes, we can see how many more consoles the cheaper scenario must move in order to be worthwhile.

Sure. My argument is that we have no clue which one of these various scenarios will unfold, so it's a rather meaningless exercise.

Even if PS3 does sell strongly next year or beyond, it does not mean you're right about MS needing to be more aggressive on pricing. It's entirely possible that a price drop won't do much, and a many of the remaining gamers w/o a current system simply want a PS3.

Anything is possible. What's your point?

Alternately, if 360 goes on to be a profitable console, it does not mean you are right about MS not needing to be more aggressive. They very well may have left billions of dollars on the table ...there will never be any way to determine what would have happened had MS used a more aggressive pricing strategy from 2006 forward.

 

[one]

360 has been offered for $299 for 2 years and now it's $279, it's likely that absolutely price-sensitive people to whom the magic $299 matters are already counted in the current 360 install base.

 

[Mintmaster]

Alternately, if 360 goes on to be a profitable console, it does not mean you are right about MS not needing to be more aggressive.

I never claimed so. Realistically speaking, though I can't see it being worth it. A 50% lifetime increase in sales from a $50 cut just seems to be so far from the realm of reasonable estimation, and even you seemed to admit as much.

If Sony cut the PS3's price down to parity with the 360, then I'd say it's possible simply because 360 sales would likely plummet.

They very well may have left billions of dollars on the table ...there will never be any way to determine what would have happened had MS used a more aggressive pricing strategy from 2006 forward.

Billions of dollars is definately an exaggeration. Maybe in revenue, but not in profit (which is all that matters). A price cut would need to have a monsterous impact - like a factor of two or three - for that to happen.