NPD January 2009

[Carl B]

whos to say. The 360 could be around for a long time and there is still plenty of cost cutting left. 45nm and intergrating the cpu and gpu together. It will most likely see a revision ala the pstwo and psone.

The 360 has cost MS billions, and is making profits today in the low hundreds of millions when it has a strong performance. If you assume that future cost-reductions will be more or less passed on to the consumer, then the profitability of the hardware would not be such that yearly profits would trend where they need to in order to make the gen overall profitable. It of course does depend on how long the 360 is around for, but, well really just trying to highlight how difficult it is to claw back into the black when the upfront costs for *anything* have been billions. The 'Red Ring' costs alone IMO would probably have seriously impacted the potential for profitability across a typical generation, let alone the upfront losses they took in the launch period. Now there's a disc-scratching class action floating around as well - if that thing gains traction, it could be a further big hit above and beyond.

 

[eastmen]

The 360 has cost MS billions, and is making profits today in the low hundreds of millions when it has a strong performance. If you assume that future cost-reductions will be more or less passed on to the consumer, then the profitability of the hardware would not be such that yearly profits would trend where they need to in order to make the gen overall profitable. It of course does depend on how long the 360 is around for, but, well really just trying to highlight how difficult it is to claw back into the black when the upfront costs for *anything* have been billions. The 'Red Ring' costs alone IMO would probably have seriously impacted the potential for profitability across a typical generation, let alone the upfront losses they took in the launch period. Now there's a disc-scratching class action floating around as well - if that thing gains traction, it could be a further big hit above and beyond.

i'm sorry but do you have numbers ? All the numbers i've ever seen are for the whole division and do not break down the numbers per brand. So zune losses are right in there with xbox 360 losses.

Also do you have the numbers to back up the billions of dollars its lost. We all know the RROD problem but even that isn't a full 1.1b as half of that was for future problems and might not all get used.

The fact is none of us know how much the 360 has cost ms and how much it has so far made back.

 

[Carl B]

Eastmen, search the old threads, you'll find the break-outs. Listen to the conference calls. Read the financials for the last several years. Yes, Zune is wrapped in there as well... but what can you do? The RROD $1.1B was a charge above and beyond what had already been paid out as well, I think you really need to grasp the full implications of what that problem cost MS.

 

[eastmen]

Carl you need to reread some infromation. The 1.1B charge was split in half , one to cover the existing cost of the RROD and one to cover future costs associated with the costs of increasing the warrenty to 3 years.


I have yet to see anyone able to put an exact number on how much the 360 has cost ms this generation. last gen we got some pretty solid numbers on that , but not this gen

 

[Carl B]

Carl you need to reread some infromation. The 1.1B charge was split in half , one to cover the existing cost of the RROD and one to cover future costs associated with the costs of increasing the warrenty to 3 years.

I have yet to see anyone able to put an exact number on how much the 360 has cost ms this generation. last gen we got some pretty solid numbers on that , but not this gen

Here's an article I wrote on the matter back in the day (back when I used to write things regularly)...

http://beyond3d.com/content/news/331

What you're confused by, is that you think the initial "half" of that charge encompassed the entirety of the expense of the issue up until that point in time; it didn't. All the expense MS had incurred due to console replacement/repair up until that point was above and beyond what was under that umbrella, and was accounted for in the previous respective quarters as the costs accrued. Those costs were certainly in the hundreds of millions, as it was the entirety of the initial 1 1/2 year launch period when the issue was at its most rampant.

The first ~$500M of the $1.1B charge was related to refunds given to servicing costs, and inventory write-downs. The later half was a reserve fund set aside to deal with the costs of later servicing and thus liberate the later quarters from that burden in terms of their profitability.

 

[Silent_Buddha]

The 360 has cost MS billions, and is making profits today in the low hundreds of millions when it has a strong performance. If you assume that future cost-reductions will be more or less passed on to the consumer, then the profitability of the hardware would not be such that yearly profits would trend where they need to in order to make the gen overall profitable. It of course does depend on how long the 360 is around for, but, well really just trying to highlight how difficult it is to claw back into the black when the upfront costs for *anything* have been billions. The 'Red Ring' costs alone IMO would probably have seriously impacted the potential for profitability across a typical generation, let alone the upfront losses they took in the launch period. Now there's a disc-scratching class action floating around as well - if that thing gains traction, it could be a further big hit above and beyond.

Which when you consider all this makes it even less likely that PS3 will make a profit this generation. As it's more expensive to make, has a lower install base, and sells less software. Add to that the strong yen, and its prospects are currently far less than X360. Even when factoring in related costs to warranty repairs for RROD.

Prior to the current recession I was cautiously optimistic for both brands to make a fair profit during their lifetime. As it is now, I see a small prospect for X360 (with Live and online purchases playing a large part of this) and no prospect for PS3 (even if PSN attains the same popularity as Live) to make a fair profit.

Regards,
SB

 

[ban25]

http://i.gizmodo.com/5153587/sony-closing-san-francisco-metreon-playstation-store

First they sold the Metreon, now Sony is closing the Playstation Store. It's a symbolic loss, of course, but the Playstation brand is definitely fading. I wonder where they will launch future consoles and games...

 

[RancidLunchmeat]

Bahh...

I think the REAL meat of any of this NPD analysis is what strategies worked and what didn't and why did they or didn't they.

I see Carl talking about the losses that MS took on the RRoD problem and that is a legit discussion for the current situation but what does it tell us for the future?

Are we trying to explain the current situation or are we trying to use the current situation to forecast the future?

Isn't that what we all want to be? Prognosticators so that we can come back and say 'I told you so!' to those who care or are still around a few years from now?

So why don't we get down to what in business-speak we call 'Lessons Learned', shall we?

The 360 is a mediocre success, a large success in comparison to their previous model, and would have been a huge success had it not been for the RRoD manufacturing problem. (Which has interesting implications and discussion points.)

The Wii has been a huge success, but is it one that could ever be replicated by anybody else? They did develop a new input device which anybody could do, but they leveraged their old technology which wasn't fully maximized and turned a marketing deficit (kiddy games) into a positive, while retaining their core because of IP ownership.

The PS3 has been a failure and whether it is a minor failure or a catastrophic failure is really all that can be debated, especially if you take Blu-Ray and any un-yet realized future profits out of the equation.

There are lessons to be learned here, if we look at what happened, what is happening, and use those factors to objectively predict what could happen in the future.

The reality is that next generation, ANY of these console manufacturers could come out on top. Some need to find another 'hook' and decide strategy for the next generation (Nintendo). Some need to improve upon their existing strategy but hold true to it (Microsoft). Others need to decide whether they want to leverage their console space to sell other technologies or solidify their place in the console world (Sony).

The bottom line is that no matter how you look at it, or where your personal chips lay on the table, there is no question that both Nintendo and Microsoft are HUGE winners here. Nintendo came back from a 2nd place tie to not only wipe the field with everybody else but to do so while being profitable from the start. Microsoft, with that huge investment (fanboys refer to it as a loss) in the original Xbox and in Live! bought themselves into contention. In a very difficult market, especially for a nobody, in a market that even SEGA had to leave, MS bullied their way in.

Sony, is clearly the loser here. The PS3 will not be profitable, not even if all the R&D expense for Blu-Ray and Cell are absorbed by other divisions.. which we all know wasn't the original intent. The profits of the PS3 were supposed to recover that R&D. But don't count them out just yet. I sure don't.

Sony is finally now building up the infrastructure that MS built last generation. Sony had the chance to be first, the original PS2 launched with HDD and ethernet capability. They had the right idea, but by the time MS launched the Xbox to challenge, they decided to fight a price war instead of a technology war.

The profits and success of the PS2 seemed to show that was the smart hand to play. At this point in this generation, I'm no longer so sure.

What would have happened if they hadn't done the PS2 slim and instead of focusing on reduction in price/cost on features with the HDD and internet?

 

[Carl B]

Which when you consider all this makes it even less likely that PS3 will make a profit this generation.

PS3 profit this gen is a straight-up impossibility in my book. But, at least for both the worst is behind them.

 

[tha_con]

PS3 profit this gen is a straight-up impossibility in my book. But, at least for both the worst is behind them.

I agree, however, it's kind of difficult to measure where the PS3 profit stops. If Blu-Ray one day (which may be a while, who knows) becomes a defacto-standard among house hold movie goers, then the "profits" brought in (basically) by the PS3 begin to change.

Granted, this all depends on the likelyhood that Blu-Ray actually grows enough to live along side DVD (or replace it), so who knows what the future holds. While you can't necessarily tie Blu-Ray royalty fees directly to the PS3, you can tie it's victory as a format for High Definition dominance to the PS3. We've only got time to see what happens!

I'd also like to add one thing to the topic of discussion: Stop following top 10 numbers for Software sales as if it were the end of the road. Please. Too many of you seem to get caught up in the top 10, and seem to forget everything else. When something drops off the top 10, you rush to your keyboards to talk about failed software sales, etc, somehow coming to the conclusion that no more copies are being sold, or will be sold ever again.

A game could easily sell 25 to 50 thousand copies in a month, for half a year, in addition to the initial 300K, and most of you would still say it only sold 300K 6 months later. I think LittleBigPlanet is certainly evidence of this, as it has Sold / Shipped nearly 2 million copies world wide, which is a stark contrast to the rather silent impact it made upon it's release.

 

[catisfit]

Well then, in your opinion, what other franchises are aiming specificaly at the European audience?

Seriously?

Well let's start off with the obvious ones. You said FIFA and Gran Turismo. Add to that any other similarly targeted franchise. So that's the ISS/Pro Evo series, the Colin McRae series, the TOCA series, the numerous F1 series, the Championship and Football Manager series, the V-Rally series. All cricket games, rugby games.

How many best-selling videogame franchises is that already?

Then of course there are games which aim to appeal to an international audience, but have as their focus a very British or EU appeal to them, such as any James Bond or Lara Croft game. Other sports very popular in Europe, such as skiing. The SingStar series and LittleBigPlanet are both very European in appeal. The Harry Potter series of course. Europe is a great deal more casual in its gaming preferences than the US which gives rise to the predominance of games like the Buzz series, Lips, Scene It etc.

As for Wii titles...

You know the normal retail price for a game in the UK is about 40£ and now they sell Little Big Planet for 17£

That would probably carry more weight if it weren't for the fact that Prince of Persia, Far Cry 2, Dead Space, Quantum of Solace, BioShock (PS3), Tomb Raider, EndWar are all games I considered purchasing because they were all readily available for less than £20 in the UK. I bought 3 of them in the end, just couldn't resist - the UK for the past 3 months has been a very good time to be a gamer

 

[DuckThor Evil]

That would probably carry more weight if it weren't for the fact that Prince of Persia, Far Cry 2, Dead Space, Quantum of Solace, BioShock (PS3), Tomb Raider, EndWar are all games I considered purchasing because they were all readily available for less than £20 in the UK. I bought 3 of them in the end, just couldn't resist - the UK for the past 3 months has been a very good time to be a gamer

Well your post is a perfect example that the low price has actually helped Little Big Planet. You saw the low price games and went nuts and bought games that you otherwise probably wouldn't. Getting a good game for less than 20£ is hard to resist, but yeah UK has really cheap games now. In Finland all those games cost 60€ and up so importing from UK has been really good deal for a while now. Canada also has pretty cheap prices now with 1E = 1.6 CAD.

 

[Arwin]

PS3 profit this gen is a straight-up impossibility in my book. But, at least for both the worst is behind them.

Maybe. The big question is whether once the hardware reaches mainstream pricing levels and the Wii has been around for a few years, LCD tvs move into other areas than the main living room, the PS3 will have an impressive range of services, features, PSN software, big exclusives and multi-platform titles, peripherals and so on. The big question will be the state of the competition at that point. There could be a new device by then but it would have to have very unique properties and be very cheap and have a lot of software to compete directly.

Can we establish how much the PS3 needs to sell (hardware and software) before it becomes profitable?

 

[Carl B]

Can we establish how much the PS3 needs to sell (hardware and software) before it becomes profitable?

As an individual platform, PS3 would need to make profit on the order of over $4-5B before its EOL to be profitable across the gen. It's just too tall an order. The console will be profitable of course beginning soon and carrying forward, but the pain endured up until now was... painful!

 

[catisfit]

Well your post is a perfect example that the low price has actually helped Little Big Planet. You saw the low price games and went nuts and bought games that you otherwise probably wouldn't.

Well, I would have bought them anyway, just not at the same time. I've subsequently completed BioShock twice, got my Platinum trophy and sold it for 60p less than I paid (£17.99)

But yes, the low price point would have helped those games, even accounting for the fact that so many games at such a low price would still mean competition for sales.

 

[slider]

As an individual platform, PS3 would need to make profit on the order of over $4-5B before its EOL to be profitable across the gen. It's just too tall an order. The console will be profitable of course beginning soon and carrying forward, but the pain endured up until now was... painful!

Wow, that's a big ol' figure.

Firstly, in that figure are Cell R&D costs included? And if so, can you quantify? I hate to think about next gen but if, as it should be, a variation of the Cell is in PS4 that must negate some of this gen's costs. No way to answer that of course but I'm stream of consciousness-ing.

 

[Carl B]

Wow, that's a big ol' figure.

Firstly, in that figure are Cell R&D costs included? And if so, can you quantify? I hate to think about next gen but if, as it should be, a variation of the Cell is in PS4 that must negate some of this gen's costs. No way to answer that of course but I'm stream of consciousness-ing.

It's not including any one thing specifically; it's just quite simply the divisional losses for the past several years added together along with the additional estimated losses against PS2 and PSP profits, which act as a buffer.

I don't have it at hand right now, and I've got to attend to some work for the next few hours, but I've posted the breakdown several times before in various threads so it's around here in the interim.

As for Cell and other forward-looking R&D costs, I would just keep it as simple as possible and say that when PS4 hits serious development and up through launch, if its costs are "mild" in relation, that we just view it on its own terms as having mitigated large expenses through forward extension of existing R&D work.

 

[ShadowRunner]

How would inflation effect the view of PS3s losses having wiped out the previous profits of the playstation brand?
Say PS1s profits were 1bn, wouldnt 1bn 10 years ago be worth more than it is now?
As you can probably tell i have no idea when it comes to financial matters

 

[fearsomepirate]

The 360 is a mediocre success, a large success in comparison to their previous model, and would have been a huge success had it not been for the RRoD manufacturing problem. (Which has interesting implications and discussion points.)

Depends on how you define success. In the US, Microsoft's managed to get about 20% more customers than it did by the same point with Xbox. I don't think that's a "huge success."

The reality is that next generation, ANY of these console manufacturers could come out on top. Some need to find another 'hook' and decide strategy for the next generation (Nintendo). Some need to improve upon their existing strategy but hold true to it (Microsoft).

I don't know how much longer Microsoft's strategy can work. In NA, The HD pie is at this point about half the size that the last-gen pie was at roughly the same time frame. MS might be able to get more of next-gen's pie, especially if Sony drops out, but if the pie shrinks relative to today's HD pie, they're going to be in trouble down the road. The onus is on MS to get new customers. I don't think a simple power upgrade can do that. If it plays its cards right, it can skim off the top tier of Nintendo's current customers as they get bored with the Wii, especially if Wii 2 isn't appealing to them.

(fanboys refer to it as a loss)

Accountants are fanboys?

 

[slider]

It's not including any one thing specifically; it's just quite simply the divisional losses for the past several years added together along with the additional estimated losses against PS2 and PSP profits, which act as a buffer.

I don't have it at hand right now, and I've got to attend to some work for the next few hours, but I've posted the breakdown several times before in various threads so it's around here in the interim.

As for Cell and other forward-looking R&D costs, I would just keep it as simple as possible and say that when PS4 hits serious development and up through launch, if its costs are "mild" in relation, that we just view it on its own terms as having mitigated large expenses through forward extension of existing R&D work.

Cheers for the explanation. Makes sense.