NPD February 2007

[speng]

Not being funny, but what does revenue have to do with anything in this situation? For a console thats selling at a loss revenues mean zero. All that matters is install base so that those losses are are recouped through software licensing. Revenues being the same on a high priced console thats making a loss has a net result of lower install base, hence lower license fees.

Revenue equals how much money the company is making. It's a key indicator for how the company is performed.

Wikipedia:
http://en.wikipedia.org/wiki/Revenue

If I sell a product 10 products for $400, I make $4000 in revenue. Selling it for $600 I make more revenue.

For a large company their stock price is based on growth, potential growth and revenue growth. Profits are important but not necessarily the driving factor in the stock price that shareholders and investors key in on.

Now, it's not the best interest to reduce the revenue. Forget about the losses that the company may be taking, that's why you have other divisions in the group to subsidize the overall company loss.

Like I've been saying, look at the whole company and not one divisions. Most companies don't break down which units are underperforming as it's the company as a whole that needs to be judged.

There are several areas where the company may be making money despite not making much profit if any on the PS3, even from areas directly related to the PS3 like accessories and licensing.

Speng.

 

[DuckThor Evil]

Revenue equals how much money the company is making. It's a key indicator for how the company is performed.

Wikipedia:
http://en.wikipedia.org/wiki/Revenue

If I sell a product 10 products for $400, I make $4000 in revenue. Selling it for $600 I make more revenue.

For a large company their stock price is based on growth, potential growth and revenue growth. Profits are important but not necessarily the driving factor in the stock price that shareholders and investors key in on.

Now, it's not the best interest to reduce the revenue. Forget about the losses that the company may be taking, that's why you have other divisions in the group to subsidize the overall company loss.

Like I've been saying, look at the whole company and not one divisions. Most companies don't break down which units are underperforming as it's the company as a whole that needs to be judged.

There are several areas where the company may be making money despite not making much profit if any on the PS3, even from areas directly related to the PS3 like accessories and licensing.

Speng.

That makes sense with conventional products, but not with game consoles. It's different business model, being software driven. Revenue coming from hardware is pretty much pointless if you are not Nintendo.

 

[Cryect]

Revenue equals how much money the company is making. It's a key indicator for how the company is performed.

Oh my, do you really think Dave doesn't know what revenue is >_>

 

[speng]

Oh my, do you really think Dave doesn't know what revenue is >_>

Nope, but if you click the link and read it, you will see what my post means in the BIG picture.

Speng.

 

[PARANOiA]

Nope, but if you click the link and read it, you will see what my post means in the BIG picture.

Speng.

I don't know who you work for, but "revenue growth" (ie, your CV line) is largely never looked at, expect by the idiotic sales teams, since they don't care about profit. You look at what hits your bottom line - PBT (profit before tax).

All this talk of "revenue growth" is just spin, since it's the only thing going well in terms of sales for Sony right now. I'm not saying they'll lose money over the life of the machine, but your point is way, way off.

 

[Sis]

Revenue equals how much money the company is making.

Dollar for dollar, the Wii and PS3 might be pulling in similar revenue numbers from console sales, but console manufacturers make their money on license fees. More units available typically means more software sales which means more license revenue. Using console sales revenue as an indicator of anything, let alone some nebulous big picture, is merely obfuscating the issue.

 

[iceberg187]

Well, I'm still not convinced that Sony is freaking out or anything. The slow sales are almost certainly on the low side of what they expected, but given the cost v benefit of the machine, I think there's a good possibillity that they saw this coming.

Your question still stands unanswered, but I think Sony probably has the answer. They could take the hit and drop the price, but they aren't doing it. They probably have good reasons and no inclination to share them.

All hyperbolic statements about selling 5 million without games aside, Sony anticipated there being game support for them. Short term, they got that, because of the assumptions that the PS3 would be a runaway success. I'm not sure if you know or pay attention to the market in Japan, but most developers largely support just the winner there. Undoubtedly, the most dominate force there is Square-Enix. Final Fantasy 13 was already in production for the PS3 before it was released. However, look at where almost all of their other games are going, a Nintendo console. They are basically telling consumers to buy Nintendo.

About you saying they saw this coming, no way in the world did they picture this.

http://www.foxnews.com/story/0,2933,243925,00.html?sPage=fnc.technology/videogaming

TOKYO — Shipments in Japan of the new PlayStation 3 video game machines reached 1 million Tuesday, Sony said, hitting the company's target about two weeks behind schedule.

That article was written January 16th.

This (752,398) is where they stand as sold in Japan as of the March 11th Media Create total. At the rate that they sell that first million in Japan, we'll be in the middle of May. I'm not a retailer, but I know that is wrong, very wrong. With that said, Defcon hasn't been reached yet, but we are fast approaching it.

 

[quest55720]

Well, I'm still not convinced that Sony is freaking out or anything. The slow sales are almost certainly on the low side of what they expected, but given the cost v benefit of the machine, I think there's a good possibillity that they saw this coming.

Your question still stands unanswered, but I think Sony probably has the answer. They could take the hit and drop the price, but they aren't doing it. They probably have good reasons and no inclination to share them.

I can almost guarentee that the sony execs are in shock over the PS3 sales. They fully expected people to pay what ever it took to get a PS3. You think they expected to sell 20k units a week in their home territory? Come on these are the same people who have made some great quotes like sony could sell the first 5 million with 0 games or people are willing to get a second job to afford a PS3. I just hope the sales continue to be slow or slower till sony has to admit they are wrong and cut the price.

 

[DuckThor Evil]

I can almost guarentee that the sony execs are in shock over the PS3 sales. They fully expected people to pay what ever it took to get a PS3. You think they expected to sell 20k units a week in their home territory? Come on these are the same people who have made some great quotes like sony could sell the first 5 million with 0 games or people are willing to get a second job to afford a PS3. I just hope the sales continue to be slow or slower till sony has to admit they are wrong and cut the price.

The thing is it's already quite cheap in Japan... I'm all for a price cut in the western markets though.

 

[Crayon]

@iceberg & quest

I don't have any proof otherwise, but I don't think you can gurantee that they are "in shock". And by "in shock" I assume you mean Sony didn't think these numbers where even possible.

I'm just taking a stab here, but I figure Sony worked out a best and worst case scenario ahead of time, and hopefully figured out appropriate actions for both and everything in between.

127,000 is er... most likely ... on the low end. How close to that worst case I don't know. I just would have trouble believing that it is below their projected worst case.

I don't know if I'm rebutting or clarifying here. Basically when I say "saw this coming" I don't mean everything is going accordign to plan. I mean that they knew this would be a grim possibility.

No doubt some people at Sony are seriously pissed off. But it's my opinion that they have a plan of action. And it apparantly doesn't involve a pricedrop before March 18th 2007.

 

[quest55720]

@iceberg & quest

I don't have any proof otherwise, but I don't think you can gurantee that they are "in shock". And by "in shock" I assume you mean Sony didn't think these numbers where even possible.

I'm just taking a stab here, but I figure Sony worked out a best and worst case scenario ahead of time, and hopefully figured out appropriate actions for both and everything in between.

127,000 is er... most likely ... on the low end. How close to that worst case I don't know. I just would have trouble believing that it is below their projected worst case.

I don't know if I'm rebutting or clarifying here. Basically when I say "saw this coming" I don't mean everything is going accordign to plan. I mean that they knew this would be a grim possibility.

No doubt some people at Sony are seriously pissed off. But it's my opinion that they have a plan of action. And it apparantly doesn't involve a pricedrop before March 18th 2007.

If they thought that 127k was a real possibility they would not included the blue ray drive and launched at the same price as MS. There is no way any executive would willing thow away 70% or more of such a huge industry to win such a small market such as HD-movies. By thier actions and words sony fully expected people to line up and buy the ps3 in droves. You think they expected to have so many unsold units out there? You don't manufacture millions of extra units that you lose a ton of money on to sit unsold. If they saw this coming they would of slowed down production and saved a lot of money.

 

[Dave Baumann]

Revenue equals how much money the company is making. It's a key indicator for how the company is performed.

And entirely meaningless for an established business model such as this one.

There are several areas where the company may be making money despite not making much profit if any on the PS3, even from areas directly related to the PS3 like accessories and licensing.

And this is presicely an area where "equal revenues" from sales of fewer high cost units are going to further compound the issue - you have fewer units in the market in order to gain peripheral attachments from. Who do you think has the greater potential for attachment revenues - N/Wii, MS/360 or Sony/PS3?

Using console sales revenue as an indicator of anything, let alone some nebulous big picture, is merely obfuscating the issue.

In this case I think its beyond that - its entirely meaninless. The only way that it could mean something is if Sony were making some kind of profit on the units (but then you'd be expecting them to drop the price PDQ if that were the case).

 

[Crayon]

If they thought that 127k was a real possibility they would not included the blue ray drive and launched at the same price as MS.

Are you sure? Because I'm not.

You sound sure.

What if they do care that much about Blu Ray?

I'm not saying you're wrong, I'm just not going to take your word for it.

 

[Carl B]

....

Ok, first of all the revenue crew has to realize immediately that revenue numbers don't mean sh*t; PS3 could cost $2000 at retail, and if it cost $3000 to make all that massive revenue is not going to be indicative of anything healthy. Profits are what matters, and profits are why you start a business to begin with - not revenues. Both MS and Sony have been hiding behind the revenue shield in their gaming businesses lately; my advice, ignore it as the PR fluff it is.

That leads us to the next line we're hearing in the last two pages, the call for a price drop. Not going to happen, and it shouldn't happen, so move along from it. The plan here is not to build the PS3 install base "at any cost;" indeed, Playstation is to make money, and not the other way around. So whatever the crippling effects on install base (and I myself would not dub anything as 'crippling' so far), there is simply no way that SCE is dropping the price in the immediate future.

Case in point, see this scenario: For all the talk KK did of 'people saving money' etc etc... when it came down to it he saw the public was lukewarm on the price, and he pushed for a pricedrop in Japan and ok'd it without consulting Stringer. The cost to Sony for that $100 was estimated at roughly $1 billion, and Stringer pushed for an internal SCE promotion of Kaz Hirai to COO to help ensure that the primary objective over at SCE this coming fiscal year would be to come out income neutral or better. (DrEvil you better believe Sony loses money on that $600 console!) So... I'm certainly not seeing a pricedrop on the horizon in that climate.

And Sony doesn't need it to have the effort be worth their time; where they are three years from now is more important than where they are at the end of this one, and that marker is based on more than simply install base... it relates to revenue streams.

On two tangent points - one I think that the Blu-ray effort is quite important, and it will be worth the effort assuming that a new era of physical media proves as prolific in an increasingly digital distribution world. We'll see how that goes. It'll be worth the effort even if it falls short, so it's hard to quantify. The second tangent is third-party development. It's ok if 360 becomes the lead platfrom - IMO it already is anyway for multiplatform titles. But that doesn't mean that PS3 won't get the ports, or that 3rd party development will cease for it, because it certainly won't. Porting is a simple matter between these two consoles. As time goes on, Cell familiarity builds, and the codebase compounds, I have little doubt that PS3 games will game a unique feel to them even *if* the PS3 is still in a minoroty position - so, whatever.

 

[patsu]

All that matters is install base so that those losses are are recouped through software licensing. Revenues being the same on a high priced console thats making a loss has a net result of lower install base, hence lower license fees.

or (this is just a guess)...

Sony may be able to earn more per unit PS3 sales (even with a smaller installed base initially) via earnings from Blu-ray, third party licenses, more first party titles (risky !), smaller online titles and Playstation Home.

Once they hit a critical mass in installed base, they can go to third parties to strike exclusive titles to expand the base further.

As for why the 599 price, I have been thinking about it. There are quite a few theories/possibilities but I hesitate to post it here. The simplest and most straightforward answer is probably to fund the initial PS3 software effort.

 

[Carl B]

The simplest and most straightforward answer is probably to fund the initial PS3 software effort.

Seriously the most straightforward reason is that Sony would rather *just* lose $2 billion with the PS3 launch rather than $3 billion...

Sony has money for whatever they want money for, and SCE has massive budgetary control - if it's game funding they're looking for, they don't need higher console prices to secure it. A billion is a lot of money, and for every billion you lose in that first year, that's another billion you're going to need to earn back over the next ~seven to reach parity or greater.

People just really need to accept that PS3 is expensive as hell to build, has its price because it needs to for financial reasons (not to to any backroom brilliant planning over at Sony HQ), and yes even though it's causing slow sales right now, the story on a console is not written after one year, let alone three months. I think PS3 will be fine in the end; look at XBox at the beginning of its life vs the end to see how drastically perceptions of a console can change over its life.

 

[quest55720]

If blueray does not take over DVD as the physical movie format then it was wasted effort to put the blueray drive in the PS3. The only way it pays off is if blueray crushes hd-dvd and replaces DVD. Blue ray has costed them market share in the gaming industry and money on each ps3 produced so it better pay off. If the 360 becomes the default lead platform then the blue ray drive will be useless for gaming outside a few exclusives. Sure developers might become familier with the cell but that won't matter if the 360 is the lead platform. The cell/blue will go under utilized just like the xbox was under utilized because the PS2 was the default lead platform. Now and not 3 years from now matters. Every day the Wii and 360 stay in the lead is another day towards losing exclusive games. Sony has some good first party talent but not enough to hold a platform up like nintendo. If sony loses enough exclusives they are screwed. Why would anyone buy the PS3 when you can get the same games on the 360 for less money?

 

[Carl B]

If blueray does not take over DVD as the physical movie format then it was wasted effort to put the blueray drive in the PS3. The only way it pays off is if blueray crushes hd-dvd and replaces DVD. Blue ray has costed them market share in the gaming industry and money on each ps3 produced so it better pay off.

I'm shrugging my shoulders at this, personally confident that Blu-ray will *win*, not as confident that it will ever reach DVD levels. But so what? The dice are cast. Five years from now putting those BD drives into PSThree won't cost hardly any more than putting a DVD drive in - of all the components *this* is the component that will drop in price the fastest and work towards a general price floor shared by all optical drives.

If the 360 becomes the default lead platform then the blue ray drive will be useless for gaming outside a few exclusives. Sure developers might become familier with the cell but that won't matter if the 360 is the lead platform. The cell/blue will go under utilized just like the xbox was under utilized because the PS2 was the default lead platform. Now and not 3 years from now matters.

I totally disagree with you there. Now matters, but tomorrow matters more.

Even for cross-platform titles, things that are easy to implement will be implemented. As time goes on, the class of objects that fall under that umbrella will expand. PS3 has an advantage in being 360's 'secondary' that XBox didn't have with PS2. The PS2 and XBox architectures were fundamentally different; with PS3 and 360 it's a PPC/DX9 world all around. Since the porting is more straightforward, there's also more time for tweaking when the tweaking is simple enough. I expect both Cell and Xenos to enjoy such tweaks on their respective multiplatform titles later on in the gen.

Every day the Wii and 360 stay in the lead is another day towards losing exclusive games. Sony has some good first party talent but not enough to hold a platform up like nintendo.

Frankly I think the Sony published offerings are some of the strongest in the business. I don't sell them short compared to Nintendo at all, it's simply that due to Nintendo's platforms (and the ease of development), they're able to crank out the hits/sequels on a monthly basis. But Sony's IPs are nothing to laugh at; think of which PS3 games you (or anyone) would be looking forward to, and think to yourself how many of those are Sony published. FFXIII, MGS4, DMC4... I mean those are the only ones I can think of right now that aren't!

If sony loses enough exclusives they are screwed. Why would anyone buy the PS3 when you can get the same games on the 360 for less money?

Well, I don't think they're 'screwed' if they lose 3rd party exclusives, so I think you and I are just going to have to disagree on a fundamental level. I'm one that would choose funneling cash into internal development every time over securing external exclusives through monetary means alone.

 

[iceberg187]

....

It's ok if 360 becomes the lead platfrom - IMO it already is anyway for multiplatform titles. But that doesn't mean that PS3 won't get the ports, or that 3rd party development will cease for it, because it certainly won't. Porting is a simple matter between these two consoles. As time goes on, Cell familiarity builds, and the codebase compounds, I have little doubt that PS3 games will game a unique feel to them even *if* the PS3 is still in a minoroty position - so, whatever.

I agree largely with what you say, but people need to buy these ports

 

[kia]

I pointed out 'how' in #323.

I quoted this:

Here's another confusing bit.

If you look at cumulative software sales from November - February, and cumulative hardware sales for November - February, you get:

      Hardware - Software

PS3 - 1,160,500 - 2,684,750
Wii - 2,107,500 - 7,866,250

That comes out to 2.3 and 3.73 for PS3 and Wii respectively, lifetime, vs the 2.3 and 2.8 for PS3 and Wii reported in those articles that kia says are lifetime figures, not monthly figures for February.

#s from vgcharts. In the cumulative charts, they use the NPD #s, which I checked for the past few months. They are accurate. So....

And said that these numbers (which are obviously taken from VGCharts.org) are not correct, then you quoted me and said those are in line with NPD and Famitsu and after that I said how.
Now you provide a link to another site with different numbers to show me how?
Of course most of the numbers at the site you are talking about are correct and in line with NPD (only a few errors such as GBA LTD sales which is not correct) but I and Natoma weren't talking about them.