Playstation May Play Too Much

[Carl B]

Like others I expect a hard drive via a PSP-like bundle pack, but not one actually inherent to the system. It's just too big a drag on costs down the line...

 

[ROG27]

I would imagine he means Steve Jobs, otherwise it would have been "jobs are to..."

I think your sarcasm detector needs a new set of batteries

 

[DemoCoder]

Blu-Ray offers the concept of "local storage", and BD-J interactivity takes advantage of it. Sony has built the PS3 as a media-center machine, with I/O ports out the wazoo. If they don't include an HD, they will not only hurt games that need it, but they will cut-down Blu-Ray functionality, and eliminate a whole bunch of media uses: DVR, downloadable movies and content to sync to PSP, music playback/iTunes competitor, etc etc

XBox360 has the strategy that your *PC* is the media center. Sony's strategy is that the PS3 right there in your living room is the media center.

 

[Nicked]

Blu-Ray offers the concept of "local storage", and BD-J interactivity takes advantage of it. Sony has built the PS3 as a media-center machine, with I/O ports out the wazoo. If they don't include an HD, they will not only hurt games that need it, but they will cut-down Blu-Ray functionality, and eliminate a whole bunch of media uses: DVR, downloadable movies and content to sync to PSP, music playback/iTunes competitor, etc etc

XBox360 has the strategy that your *PC* is the media center. Sony's strategy is that the PS3 right there in your living room is the media center.

And how do you propose Sony pay for this? A $500+ machine?
As you said, they already have dozens of I/O interfaces, add expensive BRD and the most expensive chipset of the consoles, and how the hell can they put a HDD in? They can sell it seperately like MS has.

Expectations are sky-high for PS3 atm, totally unrealistic IMO.

 

[DemoCoder]

Sony is betting on digital convergence. They are betting on making money from every PS3 game sold, every Blu-Ray disc sold, Sony pictures/MGM library, and sales of movies and music for portables (PSP, etc)

Ask yourself how DirectTV can afford to give $500 worth of equipment, or how major mobile operators can subsidize $400 off the cost of a PDA phone. For DTV and Mobile, they see it returned in higher ARPU.

 

[speng]

And how do you propose Sony pay for this? A $500+ machine?
As you said, they already have dozens of I/O interfaces, add expensive BRD and the most expensive chipset of the consoles, and how the hell can they put a HDD in? They can sell it seperately like MS has.

Expectations are sky-high for PS3 atm, totally unrealistic IMO.

It's basically the same reason why Tivo and other "service" companies give away hardware. To get your money on subscriptions or other buying services.

If the PS3 having a hard drive and these features enable Sony to upsell other parts of their business expand their market reach and potential consumers it will be more than worth it to lose $200 or more than expected on each hardware unit.

If 30% of the people who buy PS3 also buy downloadable content from Sony Music(Connect), Movies and buy other Location-Free hardware to interface, it increases Sony's overall revenue in the long run.

If they are marketing PS3 as the center of home entertainment and games, then they will have other products and services to get more revenue and profits.

If Sony were to offer back catalog of PS2 first party games as downloaded content for $10, I wonder how much they'd get for folks who skipped over some of the very good games.

I think this generation you cannot really look at the hardware and games as the sole revenue and profit means or even the strategic motivation of pure profits. It's a much bigger game and it's all about home entertainment and broadband services.

PS3 + EyeToy + VOIP + HeadSet = Instant Video conference with friends and family for a small fee. Or tie in with Vonage or another VOIP company.

It's more than just games this generation, although that is the main feature.

Speng.

 

[randycat99]

Wow, you just blew my mind there, speng! The Tivo analogy never occurred to me, but it makes a damn lot of sense. Tivo + service allows them to put $100-200 dvr's on the market, where similar CE-style devices (typically hdd dvr + dvdr) are only able to break $300 on the low end and easily extend across the range on the high end- $500, $700, sometimes $1k. It makes a lot of sense that a pay-service structure further allows hardware at lower than expected prices (for what you would expect for a similar configuration that stands alone w/o a service).

I predict PS3 will retail a'da'bout...$3.50! (yes, three dollars and fiddy cents- as in an obscure South Park reference)

 

[Danalys]

i don't know why you can't go a two bundle route but with them both having hard disks. the standard PS3 could have a small hard disk just big enough for game use. saves and media could then be on a seperate harddisk or pro duo or even done over network.

 

[DemoCoder]

I predict PS3 will retail a'da'bout...$3.50! (yes, three dollars and fiddy cents- as in an obscure South Park reference)

For satellite and cable, you're usually talking about a minimum 1 year service agreement (sometimes 2 years), that works out to about $30/mo, so they stand to gain $360-720 from subscriptions per unit. I will note that my $999 HD TIVO unit was subsidized by DirectTV down to $399, so they took a $600 hit max, and most likely a $400 hit, because I had to agree to 2 years service, their profit will be about $320.

Let's hypothetically say that a PS3 cost $800 to make, and they sell it for $400, taking a $400 hit. To make a similar profit, they'd need to sell $720 worth of video games, movies, and music over a time span of the lifetime of the unit, say 5 years. That works out to $144 worth of purchases a year for 5 years. Not in the realm of impossibility. That's 4 games, or 2 games + 3 BluRay movies. This assumes no cost reductions in PS3 production over 5 years, which is obviously wrong.

If they sell 50 million PS3 with similar ARPUs, their total profit will be $16 billion over 5 years. Not bad. Plus, they will have successfully fought off Microsoft for control of the living room.

The only downside is having enough cash and credit to soak up the losses until software revenues start rolling in. Microsoft has tens of billions in cash, I'm not sure of Sony's reserves.

 

[Nicked]

PlayStation3 isn't going to come with a subscription service (ok, maybe online, but that would be optional). Sony have no way of knowing if they will make back $100 in subsidies, pushing more than that is doubtful for both MS and Sony (regardless of what analysts predict). Or if its the most effecient method.

Not in the realm of impossibility. That's 4 games, or 2 games + 3 BluRay movies. This assumes no cost reductions in PS3 production over 5 years, which is obviously wrong.

What? Where to begin.
You assume:
-Marketing/distribution costs = 0.
-Full retail price for games/movies.
-Those movies would not have been bought on a standalone player.
-Games are made by Sony.
-The development/marketing costs have already being recouped.
-The tie-ratio for PS3 could even BE 20 (no!) - again, all 1st-party.
-No cost reduction in the price of the console itself.

Its simply not the best method to swallow huge losses on a console. Tie-ratio is traditionally ~10 (or less). Which is what, $70 in royalties or best-case scenario, $400 if its all 1st-party games at full price. Accessories are not really the massive profit-takers many assume either (unless you're "Ima-rape-my-customers-and-they'll-still-pretend-to-themselves-we'll-pay-out-the-ass-to-beat-Sony" MS).

Better points to consider:
-CONNECT! (sidenote: MS and Nintendo are going to make huge profit with their services)
-Potential positive impact on PSP sales
-Potential impact on other CE products

I hope Sony can deliver a HDD standard. But MS didn't, why would Sony.
Sony is delivering like $300+-* more worth of goods over the X360 core, and the price might only be $100 more. Thats more than enough as far as I'm concerned.

* Wi-Fi - MS is charging $100, Blu-ray - You can expect at least $100 for the HD-DVD add-on for 360 (I'm betting $200), more expensive chipset, better output capabilities, more/better I/O.
^Seriously that represents the best-value-for-money console ever. So what if I have to buy a $100 HDD thats several times larger than the same-priced competition?

 

[DemoCoder]

-Marketing/distribution costs = 0.
-Full retail price for games/movies.

Since I don't know the margin structure of DTV, nor their marketing costs, all I can work with are prices.

-Those movies would not have been bought on a standalone player.

I could argue that since DTV is likely to make just as much money on a non-PVR el-cheap player, so what's the argument for subsidy there? In fact, with a subscription service like DTV, it's worse, the DVR functionality costs DTV alot more money to subsidize, but they only make $5 more in subscription fees. It is unlikely that DirectTivo really generated many extra subscribers. Prior to DTivo, people were using standalone tivo on DTV and Cable.

-No cost reduction in the price of the console itself.

I already covered that point.

I hope Sony can deliver a HDD standard. But MS didn't, why would Sony.

That's not a good argument. MS didn't deliver HD-DVD as standard, why would Sony? Well, clearly Sony *is*. The cost of the HDD is not really the issue. A 20gb HD would be $20 or less. The real problem is an engineering one IMHO, whether the HDD will fit inside the unit with adequate cooling. I mean the X360 has less heat-mongering chips, but they still made the PowerBrick external, yet the PS3 appears not to have a huge powerbrick. How the hell they gonna cool this sucker and not burn down your house?

Perhaps Sony could ship a USB-enclosure HDD as a standard bundle.

 

[weaksauce]

If PS3 games will do fine without harddrive, I think it would be quite good with two versions.
One for confused gamers and one for the ones who want all the features.

 

[sumdumyunguy]

--SNIPP.

I predict PS3 will retail a'da'bout...$3.50! (yes, three dollars and fiddy cents- as in an obscure South Park reference)

Not as obscure as you think!! Now Tim, where's that Loch Ness Monster!

OT: IMHO I just don't thik the average PS3 user is going to care about the media part all that much. It is going to offer a killer gaming experience. I just don't see it being the device that (finally) makes the so-called convergence dream come true.

 

[Nicked]

Since I don't know the margin structure of DTV, nor their marketing costs, all I can work with are prices.

Sure, but you can assume they are making a profit that they can bank on just from the subscription service.

I could argue that since DTV is likely to make just as much money on a non-PVR el-cheap player, so what's the argument for subsidy there? In fact, with a subscription service like DTV, it's worse, the DVR functionality costs DTV alot more money to subsidize, but they only make $5 more in subscription fees. It is unlikely that DirectTivo really generated many extra subscribers. Prior to DTivo, people were using standalone tivo on DTV and Cable.

I think it would be likely actually that it spurred sales more significantly.

I already covered that point.

You covered costs to manufacture the PS3 coming down meaning Sony doesn't have to subsidise as much, not the MSRP of the console coming down to increase competitiveness.

That's not a good argument. MS didn't deliver HD-DVD as standard, why would Sony? Well, clearly Sony *is*. The cost of the HDD is not really the issue. A 20gb HD would be $20 or less. The real problem is an engineering one IMHO, whether the HDD will fit inside the unit with adequate cooling.

PS3 has an internal HDD slot. A PS3 HDD is likely to run slow and cool, like the 360s.

Sony have a clear interest in delivering BRD standard for PS3 (it bought them support from major companies; its already paid off big). If PS3 succeeds, its 95% likely it will take Blu-ray along for the ride.

As for a HDD, at $20, thats $2B+ in costs over PS3s lifetime. How in fucks name is that a good investment? Will they make $2B in profits they otherwise wouldn't have? Because not only do they have to rely on extra connect/online subscriptions (service/MMO) online sales of $2B, they need make a profit on that equal to or more than they would've made on standalone HDDs and online sales. I think thats quite impossible. And thats assuming a HDD only costs them $20.

 

[DemoCoder]

As for a HDD, at $20, thats $2B+ in costs over PS3s lifetime. How in fucks name is that a good investment? Will they make $2B in profits they otherwise wouldn't have? Because not only do they have to rely on extra connect/online subscriptions (service/MMO) online sales of $2B, they need make a profit on that equal to or more than they would've made on standalone HDDs and online sales. I think thats quite impossible. And thats assuming a HDD only costs them $20.

You can play the same game with any of the components. Is HDMI 2.0 really needed? How about Bluetooth and WiFi? Do they really need built-in slots for SD, CF, and MS, when a USB port with purchasable adapter would suffice? Obviously, each one of these additions in aggregate will cost them hundreds of millions to billions, and it is not at all clear if they are adding to the bottom line. I think Ken is looking at the PS3 from the point of view of establishing a platform and the network effects from doing that. It certainly is a risky bet.

$20 HDD for 20gb is an upper bound. I can purchase that, today, with retail margins. Besides, you assume Sony can't charge more for the PS3. Given the amount of functionality packed in, I wouldn't be surprised if they could get $499 for it easily. Most of the XB360s are selling out like hotcakes are $399+ bundles, easily $500 per gamer. They could always lower the price later when costs go down, since the first couple of million of PS3s are guaranteed to sell out.