MS Q2 Financials

[iceberg187]

I don't see any reason to believe a salesperson tries to sell more expensive versions over Arcade unless they have better margins or they can return any unsold units to MS. Is it the case?

New arcade, w/ used 20GB HDD.

 

[Squilliam]

How about this concept, If all they want to spend is about $200-300 the shmuck will be told to direct them to the Wii which probably has much larger retail margins than the other two consoles. On top of this they can probably sneak in Wii sports plus another game.

On the other hand, if it's between a Premium/Elite and a PS3 I think the store will steer the customer towards an Xbox 360. Warranty + A few back catalog games makes the store more money than just a PS3. These are just assumptions but as far as im aware the PS3 gives lower retail margins than the Xbox.

 

[AlphaWolf]

How about this concept, If all they want to spend is about $200-300 the shmuck will be told to direct them to the Wii which probably has much larger retail margins than the other two consoles. On top of this they can probably sneak in Wii sports plus another game.

No retailer is going to push the Wii, at least not in NA, they can't keep them on the shelves anyway. No point in pushing a product you're going to sell before the end of the day anyway.

On the other hand, if it's between a Premium/Elite and a PS3 I think the store will steer the customer towards an Xbox 360. Warranty + A few back catalog games makes the store more money than just a PS3. These are just assumptions but as far as im aware the PS3 gives lower retail margins than the Xbox.

I'd bet 360 + accessories is a win for retailers over PS3 atm. The points/live cards and controllers. There's really no empirical data to back that up tho.

How much all this retailer shilling would result in actual sales is another question.

 

[AlphaWolf]

NPD releases accessories numbers.

Which is great if you subscribe to the service, but I never see them. I have no idea how many points cards walmart moves, but I know its a lot. They are usually sold out and when they get them in they get in like 50 of them.

I can't think they are anything but highly profitable.

 

[Mintmaster]

Because MS can create a snowball effect in NA. Most people are still playing their PS2's/Xbox's waiting for the prices to come down...

Well I still don't see a huge difference in the size of the snowball. I don't know why you think 73/27 is so much bigger than 65/35.

I'm expecting a $100 pricedrop in 2008, I just think they should do it in spring rather than fall. Admitedly, in order to get a 50% increase in sales, they'd probably have to follow that up with a $50 Holiday pricedrop to $199 for the premium. But anyways...

I personally don't think doing the drop now instead of later gets them many more sales by year end. People waiting for a $250 price point for the Pro will simply buy it later instead of now. As long as MS stockpiles enough consoles, it'll be worth it. There's a lot of profit to be lost by cutting now instead of later.

As for recouping costs, say for example the 360 costs $200 to manufacture (estimated at $320 16 months ago). If they make $150 profit on each console, and sell 6million that's $900million in profit.

I don't think that's a reasonable assumption because MS is not making that much money now. We know they're raking it in on software sales, but $357M overall profit indicates break even at best on the hardware. I know they're losing a bit of cash on the Zune, but not that much.

$200 is way too low of an estimate of total cost per console. Moreover, we're not comparing a $100 price cut to no price cut at all in 2008. We're comparing a $100 cut in addition to what they already have planned. Once you put that in, there's no way in hell that they're making $50 per console.

At the end of the day, they probably lose 200-300million tops when you count all those deferred revenues. And if sales really snowball, they end up making much much more. Obviously it's about their threshold for risk, to secure the greater reward.

Your 200-300M figure already assumes that your extra pricecut snowballs more than the other situation. You're also assuming that none of those 3M extra sales in 2008 wouldn't be yours anyway in 2009 without the price cut now.

Also note that in your previous post you were talking about MS potentially missing out on billions. Now your argument has changed to them losing a few hundred million with the strategy change instead.

It's nowhere $1billion though, they don't have to do worldwide pricedrops.

9M consoles each getting $100 less profit (or more loss) than it would otherwise is pretty damn close in my book.

 

[scooby_dooby]

Well I still don't see a huge difference in the size of the snowball. I don't know why you think 73/27 is so much bigger than 65/35.

Because with the momentum gained with such a split, it would be fairly easy for MS to continue to outell PS3 in 2009, and we end up somewhere like 80/20, which is an absolute blowout.

With 65/35, PS3 is still in the game, and gaining momentum with mainstream consumers.

I personally don't think doing the drop now instead of later gets them many more sales by year end. People waiting for a $250 price point for the Pro will simply buy it later instead of now. As long as MS stockpiles enough consoles, it'll be worth it. There's a lot of profit to be lost by cutting now instead of later.

With the launch of GTA4, I believe it would garner them an extra million at least.

I don't think that's a reasonable assumption because MS is not making that much money now. We know they're raking it in on software sales, but $357M overall profit indicates break even at best on the hardware. I know they're losing a bit of cash on the Zune, but not that much.

That's quite the assumption on your part, we don't really have a breakdown of the entertainment divisions costs and revenues. I find it very hard to believe they are only breaking even, on a $350 console, nearly 2.5 years after launch.

Your 200-300M figure already assumes that your extra pricecut snowballs more than the other situation. You're also assuming that none of those 3M extra sales in 2008 wouldn't be yours anyway in 2009 without the price cut now.

No, that figure simply assumes that there is a mild increase in sales in 2009, due to word of mouth and the friend effect... and some fraction of people in both 2008 and 2009 are converted PS2 owners, who contribute additional revenues through game sales, dlc, xblive, movie rentals, etc etc

When I say snowball, I mean the possibility of ending 2009 with an 80/20 split, and then all the revenues that would flow forth from that from 2010 - 2015.

Also note that in your previous post you were talking about MS potentially missing out on billions. Now your argument has changed to them losing a few hundred million with the strategy change instead.

In my previous post, I was referencing what MS may have gained had they been aggressive since 2006. It is already 2008, and it's a different picture. IMO, they've already lost most of their opportunity to use pricing to their advantage.

9M consoles each getting $100 less profit (or more loss) than it would otherwise is pretty damn close in my book.

It's actually only 6million, as the other 3 would not have been sold anyways. If they are selling at a loss, then there are some additional losses there, but nowhere near $100/unit. If they are not selling at a loss, then they actually recoup costs on those additional units.

 

[Mintmaster]

Because with the momentum gained with such a split, it would be fairly easy for MS to continue to outell PS3 in 2009, and we end up somewhere like 80/20, which is an absolute blowout.

I suggest you run some numbers to see how hard it is to go from the 73/27 situation above to 80/20 in the US.

One example: 360 sells 14M consoles in 2009 while PS3 sells 1M. Yeah right.

With the launch of GTA4, I believe it would garner them an extra million at least.

Guess we'll just have to disagree. MS already has the cheaper platform to play GTA (and it's a lot cheaper if people find the Arcade is good enough) and they also have exclusive content as well. As long as the commercials don't leave the impression that it's just for PS3 (like AC and COD4, at least on my TV), MS already has the upper hand. A $30 dollar cut for GTA and the rest later would be just as effective by year's end as $100 now.

Few people willing to pay $80-$100 more for PS3+GTA with less online content are going to be care if the 360 is yet another $50 cheaper.

That's quite the assumption on your part, we don't really have a breakdown of the entertainment divisions costs and revenues. I find it very hard to believe they are only breaking even, on a $350 console, nearly 2.5 years after launch.

Well we did the same type of breakdown for the Sony results to assume PS3 is still losing hardware. Even if it's 2.5 years later, MS was not making profit at launch, despite the massive cost disparity suggested by iSupply or other reports when compared to the PS3.

I think 360 cost $450-500 at launch and is ~$300 now.

When I say snowball, I mean the possibility of ending 2009 with an 80/20 split, and then all the revenues that would flow forth from that from 2010 - 2015.

Like I said above, that's impossible.

In my previous post, I was referencing what MS may have gained had they been aggressive since 2006. It is already 2008, and it's a different picture. IMO, they've already lost most of their opportunity to use pricing to their advantage.

Well that's a different argument, but still ridiculous. MS would lose at least $2B in further subsidizing your backprojected increased sales over the past two years. For them to gain billions overall they'd need massive profit in subsequent years.

Again, run some numbers (I'm getting tired of giving you examples to prove you wrong again and again). There's no way any remotely realistic sales projection would result in billions more profit that their current strategy.

It's actually only 6million, as the other 3 would not have been sold anyways. If they are selling at a loss, then there are some additional losses there, but nowhere near $100/unit. If they are not selling at a loss, then they actually recoup costs on those additional units.

Like I said, a big chunk of those 3M would be sold in the future (at the same price point, but when the cost is lower). Furthermore, the additional losses would be near $100/unit, because for the last time you are advocating a ~$100 price drop in addition to whatever MS has planned, which is probably $80-100 by the end of the year. That's the only way you can claim that price will help MS reach 9M in the US this year (i.e. ~tying the PS2 for most consoles in a year).

 

[Johnny Awesome]

I agree. As I stated above: Leakage and adoption rate are really the only thing MS needs to track. If they're leaking too many sales to Sony they should lower the pricing a little to increase the differential. If they find the adoption rate is too slow they can also lower the pricing as well.

Right now MS is doing great at $350/$50. By late spring I imagine they'll be at $300/$100 until Sony drops as well.