The console losses discussion thread (or 'how companies blow billions on products')*

Without considering the blu-ray format, this is just sensationalism.

Yeah the company invested a lot of money in the tech, so what? They did that to make a lot of money out of it. Nothing new here.

So, on the price reduction, IMO no impact whatsoever.
 
My guess is none, because it's a sunk cost.

It does affect our predictions, though, because it gives us a better idea of the cost. It doesn't look like Sony's cost for the 40GB will go below $400 for a while.
 
It's a segment from SEC Filing (Annual and transition report of foreign private issuers, 2008-06-23)
http://www.sec.gov/Archives/edgar/data/313838/000114554908001104/k01608e20vf.htm
The large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered.

Within the Game segment, developing and providing products that maintain competitiveness over an extended life-cycle requires large-scale investment relating to research and development, particularly during the development and introductory period of a new platform. In the past, large-scale investment relating to capital expenditures and


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research and development for the manufacture of key components, including semiconductors supplied for PLAYSTATION®3 (“PS3”), was also recorded within the Electronics segment. Moreover, it is particularly important in the Game segment that these products are provided to consumers at competitive prices to ensure the favorable market penetration of the platform. Should the platform fail to achieve such favorable market penetration, there is a risk that this investment, or a part thereof, will not be recouped, resulting in a significant negative impact on Sony’s profitability. In addition, even if Sony is able to sufficiently recoup its investment, significant negative impact on Sony’s operating results could occur during the introductory period of the platform. Further, even if the platform is ultimately successful, it may take longer than expected to recoup the investment, resulting in a negative impact on Sony’s profitability.

An example of such a significant negative impact during the introductory period of a platform are PS3-related charges that resulted in losses of 232.3 billion yen and 124.5 billion yen within the Game segment for the fiscal years ended March 31, 2007 and 2008, respectively. These losses arose from the strategic pricing of PS3 hardware at points lower than its production cost. (Refer to “Electronics” section of “Trend Information” and “Game” section of “Operating Performance by Business Segment” at “Operating Results” in “Item 5. Operating and Financial Review and Prospects.”)
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and these figures are just recap from the FY07 earnings release, nothing new here that should be discussed again outside of older financial threads.

http://www.sony.net/SonyInfo/IR/financial/fr/viewer/07q4/
http://www.sony.net/SonyInfo/IR/financial/fr/viewer/07q4/slide/14_slide.html

14_image.jpg


And if you search further, the 2006 version of SEC Filing has the exact same warning text minus FY07 figures.
http://www.sec.gov/Archives/edgar/data/313838/000114554906001253/k01183e20vf.htm
Large-scale investment is required within the Game and Electronics segments, particularly during the development and launch period of a new gaming platform.
Within the Game segment, providing and developing products that maintain competitiveness over an extended life-cycle requires large-scale investment relating to research and development, particularly during the development and launch period of a new platform. In addition, large-scale investment relating to capital expenditures and research and development is also required within the Electronics segment for the fabrication and manufacture of key components, including semiconductors, used in products within the Game segment. Moreover, it is particularly important in the Game segment that these products be provided to consumers at competitive prices to ensure the favorable market penetration of the platform. Should the platform fail to achieve such favorable market penetration, there is a risk that part of, or the whole of, this investment will not be recouped, resulting in a significant negative impact on Sony’s mid-term profitability. In addition, even if Sony is able to sufficiently recoup its investment, it is probable that a significant negative impact on Sony’s operating results could occur during the launch period of the platform.
An example of this kind of large-scale investment is the new PLAYSTATION®3 (“PS3”) platform scheduled to be launched in November 2006, related charges for which are anticipated to result in a significant loss within the Game segment for the fiscal year ending March 31, 2007, reflecting primarily an expected negative margin as a result of strategic pricing on PS3 hardware sales. In connection with this, during the fiscal year ended March 31, 2006, a write-down of approximately 25.0 billion yen for semiconductor components for use in PS3 was recorded within the Game segment.
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It's actually a lot more than that. That is net loss of the videogame division, which also includes the highly profitable PS2 (and possibly profitable PSP) in that time.

There PS3 only losses overall so far surely rival Microsoft's on Xbox 1..
 
Rangers said:
It's actually a lot more than that. That is net loss of the videogame division, which also includes the highly profitable PS2 (and possibly profitable PSP) in that time.
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Plus R&D cost for PS2/PSP/PS3 games, Home, PS4, and PSN running cost too.
 
Any estimates on how much they stand to gain from blu-ray over the next few years? 3.1b sounds like a big number, but it may not be in the grand scheme of things.
 
one said:
Plus R&D cost for PS2/PSP/PS3 games, Home, PS4, and PSN running cost too.
Click to expand...

The PS2 and PSP costs are offset by the profit made by the games and hardware.

The PS3 has been a burden on those profits for some time and adds additional loss on top of that. The real burden of the PS3 will likely never be known other than a few select at Sony.
 
I know the figures are most likely accurate...but what/who are Kotaku's source? No link is given, no name from Sony...
 
Rangers said:
It's actually a lot more than that. That is net loss of the videogame division, which also includes the highly profitable PS2 (and possibly profitable PSP) in that time.

There PS3 only losses overall so far surely rival Microsoft's on Xbox 1..
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I thought it was over $5 billion in Xbox 1 losses.
 
joker454 said:
Any estimates on how much they stand to gain from blu-ray over the next few years? 3.1b sounds like a big number, but it may not be in the grand scheme of things.
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I think DVD royalties are around 20 cents per disc and $3 per player, so we're looking at $600M/year in the long term to be split among all BRA members, assuming BRD replaces DVD entirely and maintains the same volume in the face of competition from on-demand technologies. Not likely, IMO.

I still think Sony could have won without BR in the PS3. There are plenty of other strategies to get your product out there to millions of homes for, say, only $1B in losses.

Regardless of whether those royalites make up for the billions lost on the PS3, I don't think including BR was worth it.
 
Shifty Geezer said:
This is where Carl steps in and tells us how much they lost on PS2. Any minute now...

Carl?!
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:)

Well I've got the Sony financials scorecard I created year-to-year around here in a couple of posts, but without even searching it I think I recall that Sony was only lossy for one year after the PS2 introduction, and that loss was minimal.

So truly, the PS3 launch is in a league of its own in terms of expense, and it certainly has hurt. And the losses are clearly beyond ~$3 billion, as the PSP and PS2 operations are both profitable. Indeed listening to the last conference call, the PS2 seems to remain extremely so, even now.

All of that said though, this Kotaku story isn't a story at all. The discussion essentially originated here on this forum several quarters ago when I posted the same running gain/loss tally referred to above, and I guess Kotaku's just creating a fast and loose article around those concepts.

I think it's great that BD won the war, and did so relatively quickly, as that offers some redemption at least for Sony's decision. But the price was high... and really at the end of the day the fact is that the PS3 is a system that would have benefited from one more year in development. HD DVD and the 360 though weren't waiting around, and Sony was forced to act. So, it is what it is...

Since it's hard to predict what the next console cycle will be like - if even to think it will fit into the present paradigm at all - I'm not going to say that Sony will or will not stay away from this or that in the next go around, but for certain they must hope that they will not be in a position where the PS4 is pulled in different directions in terms of corporate goals.

EDIT: Ok here's the scorecard afterall - http://forum.beyond3d.com/showpost.php?p=1081426&postcount=17

PS - The 'effect on price cuts' is a moot discussion point, since we already know what the effect is: Sony has gone on record stating that price cuts will not be a priority this year, and instead they will be focusing on profitability and content with the current sales pace. Essentially this is simply old news.
 
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Mintmaster said:
I think DVD royalties are around 20 cents per disc and $3 per player, so we're looking at $600M/year in the long term to be split among all BRA members, assuming BRD replaces DVD entirely and maintains the same volume in the face of competition from on-demand technologies. Not likely, IMO.

I still think Sony could have won without BR in the PS3. There are plenty of other strategies to get your product out there to millions of homes for, say, only $1B in losses.

Regardless of whether those royalites make up for the billions lost on the PS3, I don't think including BR was worth it.
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I would take a wild guess and estimate the BD royalty to be slightly higher. Then there is the real money, like pressing the discs which i think Sony kind a got cornered since they have those fabrication lines now. Sonys movie studios will gain as well since they are just paying money to themselves when it comes to these expenses.

The problem with including BluRay has been discussed many times, even without the bluray the biggest problem for sony, being late, wouldnt have changed. I think late to market ended up being more expensive than including a bluray drive. Plus without the BluRay drive they would have lost all the above mentioned money since HD-DVD would have won.
 
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