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

[JPT]

Another confusing comment is that they are selling PS3's faster than they are making them. Prior to launch they were talking about a million a month. If they've reigned that back in to match demand, and now demand has increased, why not just increase prodution capacity again...

Its not an overnight action to ramp it up again, is the production lines available? Can the suppliers increase the deliveries and what about none Sony owned production lines, is the contract still valid or must they negotiate new ones?

Also I like Stringers interviews, he seems straight forward and as honest/open as he possible can be. Not much smoke and mirrors, atleast not that I notice, he might just be very good at it

 

[obonicus]

Another confusing comment is that they are selling PS3's faster than they are making them. Prior to launch they were talking about a million a month. If they've reigned that back in to match demand, and now demand has increased, why not just increase prodution capacity again...

Did they ever reach 1 million a month, though, really? Right after launch they were also doing this.

 

[eastmen]

Stringer has commented on the PS3 situation -
It's actually a good Sony-wide CEO-view interview.

Its interesting to note that he doesn't say they are making back the money with ps3 only software sales. It looks like they are adding in psp and ps2 sales.

 

[JPT]

Its interesting to note that he doesn't say they are making back the money with ps3 only software sales. It looks like they are adding in psp and ps2 sales.

What? Come on, its a question about PS3 losses and he answers that they are now making more money on the software than the loss is on the hardware.
Yes, you are right he is not specifically saying its PS3 only software, but its a bit of a stretch to say that he includes the PSP and PS2 software in his statement.

 

[eastmen]

What? Come on, its a question about PS3 losses and he answers that they are now making more money on the software than the loss is on the hardware.
Yes, you are right he is not specifically saying its PS3 only software, but its a bit of a stretch to say that he includes the PSP and PS2 software in his statement.

You have to watch out with marketing speak. We know from past info that they were making money because of the psp and ps2 systems + software. We really don't know if the ps3 has made enough on software to now stem the losses on hardware. We will know when their next reports come out though.

 

[one]

You have to watch out with marketing speak. We know from past info that they were making money because of the psp and ps2 systems + software. We really don't know if the ps3 has made enough on software to now stem the losses on hardware. We will know when their next reports come out though.

OK so let's assume that insane Stringer referred to PS2/PSP sales nonchalantly as you suggest. What's wrong with it? Can MS/Nintendo earn money by selling Xbox1/GC in 2008 and future?

 

[eastmen]

OK so let's assume that insane Stringer referred to PS2/PSP sales nonchalantly as you suggest. What's wrong with it? Can MS/Nintendo earn money by selling Xbox1/GC in 2008 and future?

Can you point me to where I said it was wrong? Of course shouldn't all discusion about how much ms lost with the xbox 1 been thrown out hte window on the same end. Also how much its already lost on the xbox 360. Since after all they are making billions a quarter

 

[Shifty Geezer]

You have to watch out with marketing speak. We know from past info that they were making money because of the psp and ps2 systems + software. We really don't know if the ps3 has made enough on software to now stem the losses on hardware.

Hazarding a guess, look at the attach ratio, consider things like download titles, Sony are probably making up to $100 on software sales, which should be enough to cover hardware losses at this stage. Another reason to trust Stringer's comment as being PS3 software only is because for PSP andPS2, it's not just the software that's proiftable. Why would Stringer say 'we're covering PS3 hardware losses with software profits from PSP and PS2' and not 'we're covering PS3 losses with department-wide proifts' and include the profits from the hardware?

I think Stringer's comment was deliberate and PS3 is at a 'break even' point. With the cost reductions they've managed from launch and the improving software situation, the losses of PS3 hardware can't be that great that they aren't being recovered yet. Unless it truly was the most overengineered console of all time!

 

[patsu]

Actually, I find it more interesting that they are making money despite offering free network services for PS3 owners.

The big advances this generation is alternate revenue sources. Besides a variety of in-game advertising opportunities, the PSN services and Blu-ray seem to be coming along too. Can't wait to see how new services like Life and Home pan out.

In general, Playstation also enjoys some form of halo effects (cross-sell and up-sell). Some people like me went on to buy more Sony hardware as a result (PS2 was my only Sony product). It is said that PSP drives PS3 sales like how iPod drives Mac sales. I think if they continue to polish their software efforts, they should have a bright future ahead of them. The important thing is not only the software IP and unit sales, but the methodologies, organization, and economics behind integrated software + hardware businesses.

The only big hole right now is media integration. They are not as aggressive as I would like marrying media with Playstations so far (PS Store is a decent effort but not as inspiring given Sony's content heritage). User generated content is also unproven yet (Come on, LBP and Home !).

I like to read Stringer's interviews because they usually tell us what bothers him:

Stringer: CD sales will continue to decline. We are observing a fundamental transformation. Basically, the iPod has destroyed the album. It has created a singles industry in which artists are finding it much more difficult to create their own music catalogue. That's a shame for two reasons. First, there was a time when we made a lot of money with albums. Second, an album represents an artist's creativity, which is the sum of more than individual hits. We must therefore explore ways of giving musicians the same opportunity again.

I can understand their pain but am bemused with how they are going to solve the problem. The latest PS Home leak shows a shared music streaming service. Perhaps they are thinking of an online "full album" rock concert in PS Home ? If so, please hurry up !

 

[Nesh]

There is a clash of interests between consumers and those offering the product. Albums may contain the full creativity of the musician and reward him for that, but at the same time it forces consumers pay for tracks they dont like or arent interested in general about

This was the closest solution towards fighting pircay

 

[patsu]

There is a clash of interests between consumers and those offering the product. Albums may contain the full creativity of the musician and reward him for that, but at the same time it forces consumers pay for tracks they dont like or arent interested in general about

This was the closest solution towards fighting pircay

Yes, breaking up the album benefits the consumers the most.

From the artists' perspective, a game can be like an album too. See Everyday Shooter and some of the full-length game soundtracks. If you take them apart, they lose their collective identity and experience. Gaming may be a natural platform for them to explore "album art".

 

[-tkf-]

There is a clash of interests between consumers and those offering the product. Albums may contain the full creativity of the musician and reward him for that, but at the same time it forces consumers pay for tracks they dont like or arent interested in general about

This was the closest solution towards fighting pircay

The best and only solution to MP3 "piracy" was a license deal with the original napster, that was then and that chance was lost

The problem with Singles vs Albums is making albums a much much better deal. A full album should only cost the same as the "singles + 1 xtra track" then everyone would benefit. The artist would get his creativity across and the customer would gain alot more music that usually is alot better than the singles.

 

[Shifty Geezer]

Surely an album should cost less than the singles individual, like pretty much any other 'multibuy' purchase out there. Priced like that, people would be more willing to shout for the full album. Plus if artists didn't just pad albums out with B-grade filler... If all the songs were worth buying, people would buy them either as singles or albums. As a final point, the music biz is consumer-driven, not artist driven. Artists with an artistic vision can't expect the public to pander to it. The best they can hope for is to offer the artistic vision and the choice for the public to either buy into it, or at least buy part of the artist's efforts so the artist gets to pay the bills.

 

[patsu]

Well it's all spilled water now. I am surprised agenda like this go as high up as Stringer. Sony is a "weird" company from that stand point. I do think that music and Playstation have lotsa opportunties to mix together. Something like Buzz!'s Home "stage" has got to be coming for Rockband, Guitar Hero and SingStar. Otherwise, it's just "wrong".

 

[Pete]

Can MS/Nintendo earn money by selling Xbox1/GC in 2008 and future?

I'm not sure the Nintendo comparison is particularly apt. Wasn't GC profitable in and of itself? And isn't Wii GC compatible, making GC sales a bit redundant? As for the software side, c'mon, half of Nintendo's brilliance is reselling their games on successive platforms (SNES->DS and Virtual Console are the most recent, most explicit examples).

But I'm with the "Stringer's talking about PS3 SW" crowd.

 

[eastmen]

I'm not sure the Nintendo comparison is particularly apt. Wasn't GC profitable in and of itself? And isn't Wii GC compatible, making GC sales a bit redundant? As for the software side, c'mon, half of Nintendo's brilliance is reselling their games on successive platforms (SNES->DS and Virtual Console are the most recent, most explicit examples).

But I'm with the "Stringer's talking about PS3 SW" crowd.

MS is still selling the xbox 1 softwware. I can buy games online and i'm sure they are happy about the fact.


As for Stringer. I just don't trust people from any companythey have more reasons to lie than tell the truth most of the time

 

[Acert93]

Backwards Compatibility is a convenient way to, in complete honesty, include GC/PS2 software sales under the heading of Wii/PS3 sales if a PR rep chose to do so. PR comments are intended to put the best foot forward and without any substantial numbers it is straining at a gnat. As it stands the statement, "We are already making more money with the games than we are losing with the hardware" is ambiguous. A context of discussion isn't always the full context of which one had in mind when they make a statement.

 

[patsu]

When does Sony get its money ? When software gets into consumers' hands or when retailers bought it wholesale from Sony ?

 

[Shifty Geezer]

When publishers get them printed. They pay the license fee per disc printed regardless of whether the disc sells or not. If Game X is made, 200,000 copied printed, and yet never distributed to the store shelves, the publisher still needs to pony up about $2 million bucks to the console company.

 

[patsu]

I see. Then I think it's quite possible that the PS3 software alone can plug the PS3 hardware leak. I don't think they are making 1 million PS3 a month right now (The retailers are well-stocked). They were profitable last quarter. Remaining PS3, PSP and PS2 profit need to overcome other costs (e.g., R&D folks, PSN operation, building rentals, etc.) worldwide to achieve the positive number.

EDIT:
Incidentally, we have a new attach ratio for Blu-ray movies.
PS3: 2.5 (up from 1 in Dec 2007, 9 months ago)
For reference, standalone Blu-ray player attach ratio is 5.6

... from a Warner presentation in IFA.