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

[Carl B]

VideoScan released numbers for January of 07 showing that HD DVD was outsold around 2:1. At that time, there were approximately 1 million PS3s sold and only 175k HD DVD players. Counting standalone players, that put the BluRay camp at around 1.1 million. So, assume HD DVD sold x units the first two weeks of 07. That means that BluRay sold 2x units. So the equivalency rates would be defined as the number of players divided by the discs sold. The ratio is then (1100/2x)/(175/x) which is approximately 3:1.

Note that this is a factor of 7 below the 10:1 number. Now throughout the year, BluRay consistently outsold HD DVD by between 2:1 and 3:1. Without knowing the exact number of players sold in the HD DVD camp and Blu Ray camp, it is impossible to calculate the exact equivalency rate. However, we can do a rough estimate. Assume no more HD DVD players were sold and all BluRay players were PS3s. Then for a 10:1 ratio you would need (y/2x)/(175/x)=10/1 or y=3,500. So assuming no more HD DVD players were sold it would not have been until June or so that you actually got the 10:1 ratio.

Like Zaphod pointed out though, I don't think we're isolating the PS3 in this unless we remove from the pool HD DVD standalones vs BD standalones on a 1:1 basis, leaving the remaining HD DVD players and PS3's for the calculations. It was March 2007 when BD sold their one-millionth Blu-ray disc, a time when PS3 had a N American install base of ~1.25 million and over 100,000 standalones.

There were plenty of numbers and data points for both sides to toss around back then, and I agree with you that a lot of the true factors that went into it exist outside the hardware entirely. The advent of "buy days" for example and the willingness of some to turn the success of their adopted format into some sort of holy mission.

But at the end of the day, whatever the factor or ratio, certainly the PS3 equaled a fraction in equivalency of a standalone back then. This discussion at play here isn't so much anything to do with pinning down what stats we agree on as simply exploring what Sony's other options might have been in November/December of '06 towards securing the war.

 

[standing ovation]

That explains why Microsoft's hardware had problems.

That your newest product line will be mauled by Murphy's Law ought to be a law in and of itself. Woes are universal, and Sony can certainly identify with that. PlayStation is not perfect.

A significant weight to the console price is the BOM cost. No one can ignore the hardware logistics and the investment to get them right.

Sure, getting a concept from the drawing board to retail must be a major headache. But content is what moves consoles, and this is a resource drain Sony should have considered before getting up to their eyeballs in hardware debt.

Software and services are on-going cost. They will earn their share per-title or per-month. It's just different math, but they are all important
(Hardware needs to be rev'ed too).

Once hardware has taped out, you can put most of your staff and equipment on other projects; it doesn't take as many resources to manage/append an existing technology as it does to make a new one.

Content creation is just the opposite: it becomes more resource-intensive with time. And this makes it a significant line item -- weighty enough to alter hardware specs in design and assembly arrangements in manufacturing.

 

[Mintmaster]

Did i read it correct, you said they should subsidize all players instead of just their own?

Absolutely. It all depends on Sony's goals.

You said that if Sony only subsidizes their own players, then it kills the market. Well, I'm just telling you that Sony has options. They're losing $200-300 per unit sold in my scheme, so it doesn't matter if they give that same $200 to another manufacturer (directly or indirectly through cheap OPUs) as long as a BR standalone gets out there. The only disadvantage is, well, less Sony players out there.

You can't have it both ways. You either prefer market domination or like seeing many manufacturers in the fray. The costs are identical regardless of which point in the spectrum you choose, and the effect on winning the war is the same.

 

[Mintmaster]

VideoScan released numbers for January of 07 showing that HD DVD was outsold around 2:1. At that time, there were approximately 1 million PS3s sold and only 175k HD DVD players. Counting standalone players, that put the BluRay camp at around 1.1 million. So, assume HD DVD sold x units the first two weeks of 07. That means that BluRay sold 2x units. So the equivalency rates would be defined as the number of players divided by the discs sold. The ratio is then (1100/2x)/(175/x) which is approximately 3:1.

You're not undertanding the argument. 10:1 only applies to PS3s, and it's natural that right near the launch of PS3 we'd have a larger attach rate as is true for any hardware.

1M PS3 + 100k BR standalone sold twice as many movies as 175k HD-DVD. That means 1M PS3 acted like 250k standalones. Fast forward to the Euro launch, and we're looking at 3M PS3s + ~200k BR standalones selling twice as many movies as ~300k HD-DVD (I think). Now 3M PS3's are acting like 400k standalones. At the end of 2007, it's 9M PS3s + 600k BR standalones vs. 700K HD-DVD (according to Carl B). Thus 2:1 movie sales means 9M PS3s act like 900k standalones.

The 10:1 ratio is pretty reasonable. You could even make it 5:1, and it still makes tons more sense to subsize BR standalones than to include it in a subsidized PS3, at least for the purpose of winning the format war.

For the purpose of winning the console war (or at least doing as well as possible), again it makes sense to have a plan where you launch earlier without BR and rob MS of that early sales lead. IMO 360 doesn't get even 1/2rd of PS3 sales in this case.

I guess I just don't think it really isn't fair to say that HD-DVD was a factor of ten ahead of BD.

That isn't the claim, though. We're saying BR standalone is a factor of 5-10 ahead of a BR PS3 in movie sales.

 

[Mintmaster]

Adding to the discussion merits to the PS3 BRD inclusion, there's probably another benefit to the PS3 BRD inclusion which goes right back to before PS3 had a hardware configuration and price-tag and Sony were courting partners.

I still think you are underestimating Sony's influence here. I mean really, Toshiba vs. Sony?

Sony just has to contractually promise the following:
- they'll keep standalones within $100 of HD-DVD
- they'll have a higher model PS3 with a BR drive
- they'll print discs at a fixed cost

The inclusion of BRD only really looked like a dumb idea when we saw the price tag. Prior to that many of us were aying BRD's success was a forgone conclusion with loads of BRD-equipped PS3's out there. In hindsight there's a good reason to think a standalone and cheaper PS3 would have been more successful for Sony, but some years earlier, without any pricepoints, are the same arguments anything like as strong?

If we had realistic estimates on the cost impact and timelines, yeah, it would look stupid back then. I'm pretty sure Sony had a good idea of when 360 would launch, too.

Would Sony even have considered making a standalone player based on the Cell chip and a BR drive if the Console was meant to be DVD based?

It doesn't matter. The Cell based player I'm suggesting is an upper bound on the cost to make a good (actually, the best) player, and that bound is hundreds less than the PS3.

If Sony had planned that the PS3 shouldn´t come with a BR drive would it have helped significantly on the launch date?

Yup, and that would have helped tremendously with sales and keeping XBox down.

Would an earlier launch have meant anything if there wasnt software to support it (the game development didnt seem to be slowed by the BR drive).
Wouldnt a console without any special extras and a weak gaming catalogue have made Sony look worse?

Of course it would help software, because back in '04 Sony would have planned for a launch closer to 360. Software planning would have moved up. It's silly to thing that BR "delayed" the PS3 launch. They were planning on late '06 from the beginning.

The 360 would still be cheaper thanks to it´s "no hd needed" aproach.

Sure, but the base 360 wasn't very important in the first year. A 20GB PS3 in early 2006 for $400 would have taken away a lot of sales from 360.

The weird thing is, if Sony had sold alot more PS3´s wouldnt they have lost even more money?

Not when you're talking about BR-less PS3s selling in a market where they don't have a big 360 lead to chip away at.

 

[patsu]

That your newest product line will be mauled by Murphy's Law ought to be a law in and of itself. Woes are universal, and Sony can certainly identify with that. PlayStation is not perfect.

It was hinted as a 360 design problem (http://www.reghardware.co.uk/2008/06/11/ms_xbox_gp/). Please spare the blame on Murphy.

Sure, getting a concept from the drawing board to retail must be a major headache. But content is what moves consoles, and this is a resource drain Sony should have considered before getting up to their eyeballs in hardware debt.

You missed Sony's heavy investments in first party game development. They also explore non-games like Home, Dress and Life. Even then, hardware is still a major R&D, logistic, inventory and support cost.

Once hardware has taped out, you can put most of your staff and equipment on other projects; it doesn't take as many resources to manage/append an existing technology as it does to make a new one.

Content creation is just the opposite: it becomes more resource-intensive with time. And this makes it a significant line item -- weighty enough to alter hardware specs in design and assembly arrangements in manufacturing.

You only counted hardware R&D cost. Hardware business is (much) more than that. In general, hardware has longer lifecycle, and its entry price *is* important in drawing consumers in.

 

[Xalion]

You're not undertanding the argument. 10:1 only applies to PS3s, and it's natural that right near the launch of PS3 we'd have a larger attach rate as is true for any hardware.

Actually, I think it might be the other way around.

My argument was simply that you are dealing with an area where trends are dominated by 2 things:

1) Low statistics
2) Specialized demographics

Now, as anyone can tell you, trying to make an assertion like the 10:1 argument in this type of situation is at best a bit short sighted. The fact that a BluRay player was a PS3 had less to do with what sold than what titles were being released, what market was buying titles, and even what time of the year you are looking at.

You are trying to extract a trend from background noise, and then base an argument on that trend. I really don't believe that is wise. Any argument that depends on this 10:1 number is critically flawed from the very beginning. The 10:1 number may be right, it may be entirely wrong - and that is my point. That number comes entirely from the assumptions you are making. Those assumptions are at best highly debatable. So I don't think it a wise choice on your part unless you can come up with some real evidence to show that the signal exists regardless of assumptions.

 

[Mintmaster]

The only uncertainty in my argument is that we don't know if the BR movies sold to PS3 owners are mostly to movie watchers that bought a PS3 as their player or gamers that occasionally bought a movie. If there was none of the former, then I'd agree that including BR in PS3 was the only way to do it. That's really doesn't seem to be the case, though, and I think plenty of people (i.e. 5-10%) bought the PS3 as a movie player, and thus would have been just as likely to purchase an equally good, lower-priced BR standalone instead if BR wasn't in the PS3.

I'm not extrapolating anything. The assumption that BR standalone owners would buy as many movies as (or more than) HD-DVD owners is very sound. The fact is that just before Warner's move, BR had sold only slightly fewer standalones than HD-DVD, and had a movie sales ratio of ~2:1. The only explanation is that the 9M PS3's sold in 2006 and 2007 were only selling as many movies as the BR players sold up to that point (600k-1M, I'm not sure). As pathetic as that attach ratio is, it was enough to win the war.

In an environment where HD-DVD loses its price advantage and Sony makes a BR player as good as the PS3 but much cheaper, it is extremely hard to make the case that HD-DVD would be any better off.

 

[Panajev2001a]

The only uncertainty in my argument is that we don't know if the BR movies sold to PS3 owners are mostly to movie watchers that bought a PS3 as their player or gamers that occasionally bought a movie. If there was none of the former, then I'd agree that including BR in PS3 was the only way to do it. That's really doesn't seem to be the case, though, and I think plenty of people (i.e. 5-10%) bought the PS3 as a movie player, and thus would have been just as likely to purchase an equally good, lower-priced BR standalone instead if BR wasn't in the PS3.

I am one of the second group of people... bought the PS3 as a gaming machine without the primary intention of getting a Blu-Ray disc player first and foremost and my friends got the PS3 as a gaming machine too and got a few Blu-Ray movies afterward.

I do not think we are alone .

 

[Mintmaster]

I am one of the second group of people... bought the PS3 as a gaming machine without the primary intention of getting a Blu-Ray disc player first and foremost and my friends got the PS3 as a gaming machine too and got a few Blu-Ray movies afterward.

I do not think we are alone .

You don't have to be alone. Like I said, you only need 5-10% of PS3 owners to have bought it primarily for movies to substantiate my claims. Also, remember that I have a high-end PS3 model with BR in my strategy. IMO it probably would have sold quite well, particularly to the prospective PS3 owners with an HDTV who are most likely to buy BR.

The question is where did the BR sales attributable to PS3 come from? People like you, or people like joker454 with 62 BR movies?

---------------------------------------------------------------------------------------------------------------

To clarify, this is, IMO, how Sony should have approached their situation:
- Launch PS3 in early 2006 without BR for $400. Higher model is optional.
- Launch a top-notch BR player ASAP (mid 2006?), subsidizing it to stay within $50-$100 of HD-DVD. Helping other manufacturers out is optional. This player would cost Sony at most as much as the existing BR PS3 minus $200-$300 (as explained above).
- Launch a high-end PS3 model in late 2006 with BR for $600.

For all the reasons I mentioned before, this strategy increases sales of PS3, reduces sales of 360, blows HD-DVD out of the water, and results in lower hardware losses. The only question mark is what effect this has in the mid-term battle against DVD, i.e. before BR standalones get below $100.

The reasoning behind this strategy is simple: Because BR is so expensive early on, you only subsidize it to those that make the most impact in winning the format war. I think Sony chose their strategy because they believed that BR would make PS3 far more attractive than 360, and underestimated what devs can do with DVD when all else is about equal.

 

[-tkf-]

and underestimated what devs can do with DVD when all else is about equal.

When all else is equal? What do you mean?

About the "what devs can do" well they can do what ever the space allows them to and not more?

 

[Xalion]

The only uncertainty in my argument is that we don't know if the BR movies sold to PS3 owners are mostly to movie watchers that bought a PS3 as their player or gamers that occasionally bought a movie.

This really isn't true.

For example, can you prove that the majority of BluRays sold were not sold to PS3 owners?

Or can you cite the relative number of those sales that were part of free give aways or special offers - especially the 5 free BluRays given to new PS3 owners?

I could go on, but can illustrate the problem with just these two. In order for your 10:1 number to work, you must assume that there is a 1:1 correspondence between number of BluRays sold and number of standalone BluRay players. In other words, you first subtract the number of standalone players from the number of BluRay disks sold and then assume what was left over was sold to the PS3. This is different from the actual assumption you say you make later, but related in a sort of roundabout way.

On the other hand, it is just as likely that for any given title the majority of disks were sold to PS3 owners and that the standalone owners bought few movies - meaning that the majority of the disk sales should be counted against the PS3 and your "subtract the stand alones" method is invalid.

It could be equally postulated that the majority of BluRay sales were really the special offers included with PS3s for several of these months. Basically, you could use this data to set upper and lower limits, but you will find that these limits fluctuate between your 10:1 number at one extreme and my 1.35:1 number at the other. The real value can lie anywhere between.

The assumption that BR standalone owners would buy as many movies as (or more than) HD-DVD owners is very sound.

I do not think this is a good assumption. Movie sales were driven by sales and releases. If you go back and review the weekly numbers, you will find that a BOGO at Best Buy could push one format over the other very easily. In any given week, a new release could push one format over the other by a large margin. Packaged deals like the offer I mentioned for the PS3 also heavily influenced these numbers.

In other words, the statistics at this point were dominated by demographics and fluctuation. After a long time, this type of thing gets averaged out statistically. However, that takes very large samples. This is actually one method that the PS3 helped BluRay. It's much larger install base helped "smooth" the random fluctuations towards the end such that it won on a consistent basis regardless of BOGOs or release title. Studios could say to themselves "Hey, even if it wont sell 10 movies per console, it is obviously selling movies. We can make a profit here." It gives them a reason to commit to the format.

Once you include the advantages HD DVD had early on in their lifetime vs. BluRay I think you would have seen a far different landscape if Sony had tried to compete based on standalones - even heavily subsidized ones. One of the major advantages was the relatively painless modification of existing DVD production lines to HD DVD vs. the relatively costly BluRay upgrade. See #2 below for a more complete explanation.

The PS3 has several aspects that make it very appealing to CEs and movie studios that a standalone will never have.

1) Not only movie buyers will buy one.

Generally, the hardest part of getting a new format off the ground is early adoption. Now, a subsidized player is going to be purchased solely for the purpose of playing movies. That means someone who is "happy" with DVDs will not buy one. Think about that for a minute.

Even if a person who purchased the PS3 just as a game machine only buys 1 or 2 movies, they still buy 1 or 2 movies. It gets players in homes and helps break the initial early adoption barrier. It gives you a new market to sell your product too. Both are huge in the eyes of companies trying to figure out how they are going to profit from a new technology.

2) There is predictable future growth associated with the console.

Look at this from the perspective of a major studio. It takes money to invest in a new production line. They want reasonable assurance that they will get a return on that investment. Even if BluRay had failed horribly, the PS3 is currently following a growth curve similar to the PS2. Basically, you are guaranteed a niche market for your product, even if you miss the mainstream market you had aimed for. All Sony had to do was sell enough PS3s to guarantee a return on the investment for movie companies.

Without this predictable growth, Studios would have had to choose based on maximizing profits. HD DVD was actually a much cheaper conversion for production lines. It would have been a far safer bet to go with them over BluRay. I seriously doubt the studio support would have been like it was had Sony not been able to give this type of assurance for return on investment.

3) "Fellow" CEs do not have to compete with your subsidies.

This is probably the largest single factor in what killed HD DVD. Toshiba could afford to heavily subsidize their players. Companies like Oppo could not. You will note that Oppo and others quickly dropped from the HD DVD hardware manufacturing circle because they could not produce a product that could compete at the prices Toshiba was subsidizing their players too.

On the other hand, Sony's fellow BluRay members did not have to do this. There is a market for standalone players even when good alternatives exist. Not everyone is going to buy a PS3 or a HTPC to play a movie. So instead of having your standalone at $500 vs a heavily subsidized $100 Toshiba player sitting side by side in the HD DVD section, you have your standalone at $500 vs. Sony's standalone at $500 sitting side by side.

Sure, an informed customer might take the heavily subsidized PS3 over your standalone - but CE companies were actually finding ways to make money on their standalones with BluRay. They really weren't with HD DVD.

At the end of the day, the PS3 gave the studios and Sony a way to commit to the format with very little risk to themselves. More than anything, that was a huge advantage in the format war.

 

[Mintmaster]

This really isn't true.

For example, can you prove that the majority of BluRays sold were not sold to PS3 owners?

Or can you cite the relative number of those sales that were part of free give aways or special offers - especially the 5 free BluRays given to new PS3 owners?

I could go on, but can illustrate the problem with just these two. In order for your 10:1 number to work, you must assume that there is a 1:1 correspondence between number of BluRays sold and number of standalone BluRay players. In other words, you first subtract the number of standalone players from the number of BluRay disks sold and then assume what was left over was sold to the PS3. This is different from the actual assumption you say you make later, but related in a sort of roundabout way.

I have no idea what you're talking about. I'm not doing anything of the sort.

The only assumption I made was that HD-DVD standalone owners bought movies at the same rate as BR standalone owners.

I do not think this is a good assumption. Movie sales were driven by sales and releases.

What makes you think that BR and HD-DVD would differ so much here? HD-DVD and BR both had exclusives and ther were many releases in both formats. If anything, BR had the better movie selection and releases, and BR standalone owners definately had more disposable income.

I don't know anyone who has debated this point before except you. Disc purchase rate per standalone owner is not going to differ by much, and if it does I bet it has a greater likelihood of favouring BR.

Once you include the advantages HD DVD had early on in their lifetime vs. BluRay I think you would have seen a far different landscape if Sony had tried to compete based on standalones - even heavily subsidized ones. One of the major advantages was the relatively painless modification of existing DVD production lines to HD DVD vs. the relatively costly BluRay upgrade.

It doesn't matter. Volume was so low at the beginning that Sony could do all the replication themselves if this was a factor. By the end of 2007 there were what, 5M BRD sales? There were probably 40M BR games printed in that time.

Generally, the hardest part of getting a new format off the ground is early adoption. Now, a subsidized player is going to be purchased solely for the purpose of playing movies. That means someone who is "happy" with DVDs will not buy one. Think about that for a minute.

If someone is happy with DVDs, why would they buy the more expensive BR version even if they have a PS3? The DVD will play on all devices in the household, too. BR purchases are made by people who aren't satisfied with DVD.

A large percentage of PS3 owners don't even have a HDTV, so they won't buy 1 or 2 movies. You're also forgetting that in the plan I outlined above there is a PS3 with BR anyway. It's just not in the affordable base model.

I seriously doubt the studio support would have been like it was had Sony not been able to give this type of assurance for return on investment.

Earlier, I already mentioned many assurances that Sony could give.

3) "Fellow" CEs do not have to compete with your subsidies.

I already mentioned a solution to that, and you ignored it. It's up to Sony how they want to subsidize. Whether they give $300 to a competitor to sell a cheaper standalone or underprice their own player by $300 makes no difference in terms of winning the war. Not in terms of cost, and not in terms of impact.

 

[Carl B]

This really isn't true.

For example, can you prove that the majority of BluRays sold were not sold to PS3 owners?

Or can you cite the relative number of those sales that were part of free give aways or special offers - especially the 5 free BluRays given to new PS3 owners?

I could go on, but can illustrate the problem with just these two. In order for your 10:1 number to work, you must assume that there is a 1:1 correspondence between number of BluRays sold and number of standalone BluRay players. In other words, you first subtract the number of standalone players from the number of BluRay disks sold and then assume what was left over was sold to the PS3. This is different from the actual assumption you say you make later, but related in a sort of roundabout way.

On the other hand, it is just as likely that for any given title the majority of disks were sold to PS3 owners and that the standalone owners bought few movies - meaning that the majority of the disk sales should be counted against the PS3 and your "subtract the stand alones" method is invalid.

It could be equally postulated that the majority of BluRay sales were really the special offers included with PS3s for several of these months. Basically, you could use this data to set upper and lower limits, but you will find that these limits fluctuate between your 10:1 number at one extreme and my 1.35:1 number at the other. The real value can lie anywhere between.

To me, the discussion on ratios is completely secondary to the core topic of discussion, which is essentially the points Mintmaster bulleted in post #191. The thread discussion is one that centers around cost models and resource utilization; if the ratio discussion has become a distraction, we should abandon that angle completely rather than try to come to consensus on a topic that even when used was used only as a casual supporting point.

What I would assert though, with great confidence, are the following:

1) The media sales that went to standalone players represent at least a one-to-one ratio in the aggregate, and as such the Playstation contribution should be seen through the prism of the remainder.

2) The majority of BD sales on the Playstation were to a minority of owners. People like Joker with his ~65 BD's or myself with ~35 greatly skew the averages for all of those that bought none.

3) Among those 'heavy usage' owners, a substantial percentage bought the console solely for its abilities as the finest BD player available. If a less expensive, comparably-equipped, and more 'conventional' BD player had been available (or was even available today, which it isn't), many would have gone that route with no negative net effect to the BD media sales; it simply would have been one more standalone sale and one less PS3 sale.

 

[dobwal]

You don't have to be alone. Like I said, you only need 5-10% of PS3 owners to have bought it primarily for movies to substantiate my claims. Also, remember that I have a high-end PS3 model with BR in my strategy. IMO it probably would have sold quite well, particularly to the prospective PS3 owners with an HDTV who are most likely to buy BR.

The question is where did the BR sales attributable to PS3 come from? People like you, or people like joker454 with 62 BR movies?

---------------------------------------------------------------------------------------------------------------

To clarify, this is, IMO, how Sony should have approached their situation:
- Launch PS3 in early 2006 without BR for $400. Higher model is optional.
- Launch a top-notch BR player ASAP (mid 2006?), subsidizing it to stay within $50-$100 of HD-DVD. Helping other manufacturers out is optional. This player would cost Sony at most as much as the existing BR PS3 minus $200-$300 (as explained above).
- Launch a high-end PS3 model in late 2006 with BR for $600.

For all the reasons I mentioned before, this strategy increases sales of PS3, reduces sales of 360, blows HD-DVD out of the water, and results in lower hardware losses. The only question mark is what effect this has in the mid-term battle against DVD, i.e. before BR standalones get below $100.

The reasoning behind this strategy is simple: Because BR is so expensive early on, you only subsidize it to those that make the most impact in winning the format war. I think Sony chose their strategy because they believed that BR would make PS3 far more attractive than 360, and underestimated what devs can do with DVD when all else is about equal.

PSX.

Thats what Sony probably thought of when considering this strategy. I agree a BluRay less PS3 would have fared alot better than the PS3 has so far but a BluRay highend sku would have done little in sales. Offering a BluRay addon might of worked much better as its potential is much bigger and uptake much higher as its open to the whole PS3 market including early adopters and $400.00 now and $200 later is a lot easier to swallow then all $600 up front ($1000 for early adopters).

 

[Carl B]

PSX.

PSX is what they actually delivered though. It's like having a PS2/PSX strategy without the PS2 component to it!

 

[Xalion]

I have no idea what you're talking about. I'm not doing anything of the sort.

The only assumption I made was that HD-DVD standalone owners bought movies at the same rate as BR standalone owners.

Incorrect. If you did this, the ratio only falls at about 5:1 - still far from your 10:1 ratio that you claim.

To get 10:1, you have to subtract the TOTAL number of standalone BluRay players from the number of BluRays sold and then calculate the ratio using the remaining sales and total number of PS3s.

What makes you think that BR and HD-DVD would differ so much here? HD-DVD and BR both had exclusives and ther were many releases in both formats. If anything, BR had the better movie selection and releases, and BR standalone owners definately had more disposable income.

Once again, the problem is small sample sizes.

Tell me, which of the following sequences of numbers is random:

2 4

4 8

It should be easy to see. There are two sequences of numbers. You should be able to make some sort of assumption right? Yet one of those I used an RNG to spit out and the other I used a formula.

At the point you are talking about in sales, there is insufficient data to eliminate fluctuations in the data caused by other factors. Think of it as trying to hear soft music in a noisy room. No matter how closely you listen, noise will always dominate what you hear. So trying to identify the song becomes guess work at best. That brings us back to the problem at hand. You are trying to claim a 10:1 number based on your extrapolation from early data. I never claimed HD DVD and BluRay are different. What I claimed is that you cannot pull any sort of signal from the background noise at the time. Note that the same noise exists for BluRay. So you cannot pull that number from BluRay sales either.

Too much noise, too little data. Your "result" ends up being 100% the product of your assumptions, and as such is not a decent starting point for any sort of discussion. All I have to do to change your result is change the assumptions.

Volume was so low at the beginning that Sony could do all the replication themselves if this was a factor. By the end of 2007 there were what, 5M BRD sales? There were probably 40M BR games printed in that time.

So?

The point is studios want to make money not just now, but in the future.

In other words, they have to invest in the process somewhere. While you may not want to admit it, that investment requires that they have some expectation of recovering a profit. To an individual movie company, it is far less important that Sony can press all the disks now than the expectation that they can expect a growing market in the future. More importantly, they will not want to be forced to publish through one publisher. There must be some expectation that either they can build their own production lines or that their current publisher can build production lines to produce the product.

HD DVD had a far lower investment vs risk factor for production lines. So it most certainly matters to a company trying to decide its future format.

If someone is happy with DVDs, why would they buy the more expensive BR version even if they have a PS3? The DVD will play on all devices in the household, too. BR purchases are made by people who aren't satisfied with DVD.

This is at best your own opinion. However, there is plenty of anecdotal evidence that says you are wrong. I have a brother who recently bought a PS3 to play games. He buys about 50% of his movies on BluRay now - even though he is perfectly happy with DVDs. It has nothing to do with whether or not he is satisfied with DVDs. It is because he can.

100% of people who cannot play BluRays will not purchase BluRays for movies they want to see. The same cannot be said of those who play DVDs.

A large percentage of PS3 owners don't even have a HDTV, so they won't buy 1 or 2 movies. You're also forgetting that in the plan I outlined above there is a PS3 with BR anyway. It's just not in the affordable base model.

Numbers say you are wrong. Sony has released numbers saying over 87% of PS3 owners have watched BluRays on their PS3s and 84% plan on continuing to do so. Even if you assume some sort of company spin there, that still indicates that the majority of PS3 owners will buy 1 or 2 movies.

I already mentioned a solution to that, and you ignored it. It's up to Sony how they want to subsidize. Whether they give $300 to a competitor to sell a cheaper standalone or underprice their own player by $300 makes no difference in terms of winning the war. Not in terms of cost, and not in terms of impact.

Once again, Toshiba tried what you are suggesting and it didn't work. They tried subsidizing other manufacturers and even allowing other manufacturers to just rebrand their own model.

When we have ample evidence it wont work, why should we assume it will?

 

[Mintmaster]

Thats what Sony probably thought of when considering this strategy. I agree a BluRay less PS3 would have fared alot better than the PS3 has so far but a BluRay highend sku would have done little in sales. Offering a BluRay addon might of worked much better as its potential is much bigger and uptake much higher as its open to the whole PS3 market including early adopters and $400.00 now and $200 later is a lot easier to swallow then all $600 up front ($1000 for early adopters).

True, that's another option. I'm just trying to match the situation we have today, where high spending gamers looking for the ultimate console get a BR player automatically. There's still some of the "trojan horse" effect, but Sony isn't wasting money subsidizing BR drives on the gamers that are least likely to buy BR movies.

It doesn't really need high sales, as even 20% is plenty. The point of the model is both for image and to nab the gamers most likely to help in the format war. I'm sure the HT enthusiast crowd would enjoy it as an all-in-one media device, too.

The addon can still be introduced as well if it looks like there's potential.

 

[dobwal]

PSX is what they actually delivered though. It's like having a PS2/PSX strategy without the PS2 component to it!

True, but if Sony would of release only the PSX back in 2000 for $600.00 the era of the PS2 would have been still borned. Sony got the strategy right the first time around and was forced by BluRay to pursue the wrong strategy the second time around.

 

[Mintmaster]

Incorrect. If you did this, the ratio only falls at about 5:1 - still far from your 10:1 ratio that you claim.

I already said a BR standalone sells as many PS3's as 5-10 PS3's. Even 5:1 is more than enough to justify my strategy. Would you rather subsidize 5x$200 on BR-equipped PS3's or $200-300 on a BR standalone to get the same sales during the period that HD-DVD is still alive?

To get 10:1, you have to subtract the TOTAL number of standalone BluRay players from the number of BluRays sold and then calculate the ratio using the remaining sales and total number of PS3s.

Why the heck are you subtracting hardware from discs? Your math makes no sense.

We're not calculating attach ratio. We're talking about PS3:standalone equivalency ratio for equal BR movie sales.

Once again, the problem is small sample sizes.

Tell me, which of the following sequences of numbers is random:

2 4

4 8

I think 1M players, >5M discs, and hundreds of titles is a pretty good sample size. Titles available in both formats, like 300, sold in the same 2:1 ratio.

You have no reason to think BR standalone owners buy fewer movies than HD-DVD owners, and every reason to think otherwise. You are the only person I know of on the planet who has that opinion.

So?

The point is studios want to make money not just now, but in the future.

Then why did they choose BR now when they knew HD-DVD would cost less to print? Because it didn't matter nearly as much as which format wins. HD-DVD would lose faster in the scenario I described.

Don't lecture me with platitudes about profit. The only scary part of BR disc cost is initial production cost, where investment into production lines and early yield is risky. Sony takes that risk away by producing early discs, and after they win the war, the studios can upgrade their own plants.

This is at best your own opinion. However, there is plenty of anecdotal evidence that says you are wrong.

It doesn't matter what your statements or Sony's projections say will happen. We have the facts on the past two years of what did happen, and it is clear that standalones have sold 5-10 times more movies per unit than PS3s have. That's all I need to know about BR winning the war with the proposed strategy.

As for future sales, cheap standalones are the only way to beat DVD.

Once again, Toshiba tried what you are suggesting and it didn't work. They tried subsidizing other manufacturers and even allowing other manufacturers to just rebrand their own model.

How do you know the terms of Toshiba's offer? Rebranding their own model is in no way the same thing.

This argument is pointless. The other manufacturers are not going to run to Toshiba where the margins are even less. There is no advantage to HD-DVD here even if Sony's subsidization impedes involvement from others.