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

[Johnny Awesome]

I think Sony has made a number of mistakes:

1. Not coming to an agreement with Toshiba so that there would not have been a format war.

2. The failure of Cell to work as a good graphics chip, so the need for RSX.

3. The overall design of the PS3. Not as good bang for the buck as X360.

 

[Carl B]

I'm still having a difficulty understanding why the development of Cell is different than the development of BR. If Cell is on the books as an asset, why isn't BR as well?

The IP related to BD development would be on the books as an asset - as would infrastructure related to it - but just not on SCE's books. Remember that we're assuming very little of the SCE loss stems from BD development, rather than BD component sourcing.

 

[Carl B]

2. The failure of Cell to work as a good graphics chip, so the need for RSX.

I have to point out once again that Cell was never going to be the graphics chip... so something that wasn't planned can hardly be a failure. Besides, what about RSX proved costly to Sony?

3. The overall design of the PS3. Not as good bang for the buck as X360.

That's a matter of personal opinion of course; personally I think the PS3 offers plenty of bang for the buck.

 

[joker454]

So are you suggesting that people who bought a PS3 primarily for movies wouldn't have bought a cheaper BR standalone in the absence of PS3?

I would not have bought my PS3's if there was a cheaper br standalone available, assuming the standalones worked correctly (which many of the current ones still don't). Most of the crew I hang with would likely have done the same, as we all bought PS3's as movie players.

However, Sony would then have lost any chance of potentially earning revenue from us in their other ventures that work on PS3. Take games, we don't buy many PS3 games now, but who knows maybe someday we will. Likewise, if they offered downloadable movies someday, or some other services, that's more money permanently lost from us since our standalones can't do that kind of stuff. In either case (standalone or PS3) the bluray related royalties earned is the same, but standalone hurts them in not being able to receive other sources of revenue from us.

So...if they have to choice subsidize something, don't you think it would be better if they subsidized PS3's instead of standalone players? Standalone players seem like a dead end to me. They serve a purpose, but they don't really advance Sony towards being the multi media device standard on peoples tv's, which is where the big bucks are at.

 

[Johnny Awesome]

I have to point out once again that Cell was never going to be the graphics chip... so something that wasn't planned can hardly be a failure. Besides, what about RSX proved costly to Sony?



That's a matter of personal opinion of course; personally I think the PS3 offers plenty of bang for the buck.

I don't believe this is true. RSX was a last minute replacement IMO. I also think that the unified shader architecture of the X360 is the big reason why it can still hold its own graphically against the PS3 despite having arrived on the market a year earlier. That's the very definition of better bang for the buck.

 

[-tkf-]

If I am not totally lost, then DVD launched about 3 years before the PS2. And the CEA numbers say that us sold DVD players where about 1.5M units after 2 years of on the market. And we just ruin everything even more, by even more guesstiamtes, if Asia and EU had the same numbers after 2 years, its about 5M after 2 years with DVD.

Then 12M PS3 in addition to what ever standalone BD sales, I think BD players looks to have built a nice foundation to grow the BD business on.
BD will have to out compete DVD, just like DVD had to "kill" VHS. Also online stuff will probably grab some marketshare, but a plus for BD is that the old DVD collection is not dead, if you upgrade from DVD to BD, in the same way it was with VHS to DVD.

If your up for it, here is "our" predictions and speculations from before PS3 and the 360 launched..

http://forum.beyond3d.com/showthread.php?t=12385

Lots of stuff turned out to be incredible naive, but there is a good DVD vs HD-DVD vs Blu-Ray discussion there incl "will the PS3 win the Blu-Ray ray"

 

[RancidLunchmeat]

The IP related to BD development would be on the books as an asset - as would infrastructure related to it - but just not on SCE's books. Remember that we're assuming very little of the SCE loss stems from BD development, rather than BD component sourcing.

Ahhh.. Now I have a REAL problem with focusing the loss on BD. If the R&D expense isn't on SCE's books and we're talking merely about component sourcing, I can't believe that it is significantly responsible for $4B loss.

I understand your previous comments about the only potential revenue stream to hope to recover that loss is BD licensing, but if that $4B loss is really simply a result of the COGS and not development, then there must be other significant expenditures that we should be looking for.

 

[Mintmaster]

So...if they have to choice subsidize something, don't you think it would be better if they subsidized PS3's instead of standalone players? Standalone players seem like a dead end to me. They serve a purpose, but they don't really advance Sony towards being the multi media device standard on peoples tv's, which is where the big bucks are at.

I suppose, but I think that if they planned from the beginning not to use BR in PS3, they could have launched it earlier and at a lower price point. The increased sales of PS3 and decreased sales of 360 would put them in a better position to get living room revenues, not worse.

I'm not saying that Sony should have avoided subsidization on the PS3 entirely. I'm just saying that $1B on BR players and $1B on a BR-less earlier-launched PS3 would have been much, much better for them and much worse for MS.

 

[Carl B]

I don't believe this is true. RSX was a last minute replacement IMO.

Post #93, after second quote box.

I also think that the unified shader architecture of the X360 is the big reason why it can still hold its own graphically against the PS3 despite having arrived on the market a year earlier. That's the very definition of better bang for the buck.

No one's talking 'bang for the buck' though, they're talking the expense of the ICs themselves. And frankly, it's hard for me to envision a GPU solution that would have been less expensive to Sony than the RSX.

As for Xenos' technical advantages over RSX, that has more to do with RSX being a year-outmoded upon launch than it does to any genius implementation on Microsoft/ATI's part. I've long lamented the seeming year-long stagnation that occurred with RSX as the console was pushed out, but when we're talking about costs and costs alone, RSX is sitting just fine.

 

[Mintmaster]

Sony got 12M PS3 sold worldwide, that means there are minimum of 12M BD players out there. And that is about 2 years after launch of BD?
Anybody know how many DVD players where sold worldwide, 2 years after the launch of DVD?

The CEA numbers only include stand-alone players. How many PS2s were sold in the US in the first two years, take that and then add that to this and you will get US numbers.

There were 10M DVD players out there before PS2 was even launched in the US or Europe. PS2 had nothing to do with DVD's success, especially when you take into account how few PS2 buyers used it as a DVD player.

Well i wouldnt have bought a Blu-Ray player as early as i did a PS3 they all sucked and were dead in the water featurewise and most that bought the PS3 knew all this.

They only sucked relative to the PS3. If the PS3 wasn't there, most early HD player buyers would have bought a cheaper standalone, just like joker454 said.

Sony probably would have put more effort into the standalones, too. It doesn't look like they cared much given that they had the PS3.

 

[Carl B]

Ahhh.. Now I have a REAL problem with focusing the loss on BD. If the R&D expense isn't on SCE's books and we're talking merely about component sourcing, I can't believe that it is significantly responsible for $4B loss.

BD is probably responsible for around ~$2 billion of direct component losses for the PS3. I'm not asking you or anyone to focus on BD as the key source of losses though... why does it keep coming back to that?

Just simply as the key point where Sony made a decision whose cost/benefits existed outside of the core gaming business itself.

I understand your previous comments about the only potential revenue stream to hope to recover that loss is BD licensing, but if that $4B loss is really simply a result of the COGS and not development, then there must be other significant expenditures that we should be looking for.

Of course, but those expenditures are going to be mainly COGS related themselves. It's just plain an expensive piece of hardware overall. I'm not saying development itself for the PS3 wouldn't have been very expensive, on the software/tools side as well, just that we can't know to what extent that R&D was expensed outright. For general PS3 R&D, yes that's going to be a big chunk of change. But for stuff like the Cell and BD IP, that would likely get accounted for as an asset with some amount of residual value from the initial outlay.

Also not just BD licensing remember; Sony have revenue driving opportunities across the entire vertical range of the BD ecosystem.

 

[Shifty Geezer]

I think Sony has made a number of mistakes:

1. Not coming to an agreement with Toshiba so that there would not have been a format war.

That was more Toshiba's fault I think

2. The failure of Cell to work as a good graphics chip, so the need for RSX.

Cell was never intended to be a graphics chip. That was one optional variation on the idea. Sony were going to need a GPU from somewhere, paying someone for it. I don't know if RSX is costing them a bundle or not.

3. The overall design of the PS3. Not as good bang for the buck as X360.

How much have MS lost on XB360 so far, including their billion dollar write-off for designing a system that breaks? At this point in time it's probably a wash - both have lost buckets of money. The mistakes Sony made IMO were not having the media revenue streams ready from the get go, taking an absolute age to get anything out the door; arrogant pre-launch talk; a lack of vision to capitalise on their existing products and to add considerable value to the PS3 experience, such as a lack of real uses of the motion abilities of sixaxis, and a dearth of quality PSEye titles and applications, thereby letting Wii win the 'fun, easy new experiences' crown uncontested. And we can add to that some truly lousy marketing over the past couple of years.

 

[-tkf-]

They only sucked relative to the PS3. If the PS3 wasn't there, most early HD player buyers would have bought a cheaper standalone, just like joker454 said.

Sony probably would have put more effort into the standalones, too. It doesn't look like they cared much given that they had the PS3.

As joker himself said "assuming the standalones worked correctly" which they to some extent didnt. HD-DVD made a fantastic start, just like the 360 they were quickly out of the gate and the BluRay camp was still fighting hard to get discs work (hello DL) players out and in general they looked so bad i think it was obvious that they were caught out by the Timely HD-DVD launch and they had to much on their hands.

This is not to say thay HD-DVD wasnt fighting, Toshiba released a PC with a HD-DVD drive and plenty of custom hardware as the first player (rebuild high end DVD player afaik. It must have cost them a gazillion for every one they sold. As with the PS3 i just dont think it was possible for the BluRay camp to have a better standalone on the market than the Samsung.

If the PS3 hadnt been there i seriously doubt there could have been a better standalone, and IF it was there, it would have been so costly.

 

[Mintmaster]

f the PS3 hadnt been there i seriously doubt there could have been a better standalone, and IF it was there, it would have been so costly.

Why? If Sony can make PS3 a good BR player, they can make a standalone good as well.

Hell, a current PS3 with no HDD, far less RAM, no wireless, no flash reader and no RSX already makes it a lot cheaper without any loss in BR functionality. Put a $300 subsidy on that it would be as cheap as any HD-DVD player at the PS3's launch (or whenever it was that you bought yours).

 

[Shifty Geezer]

HD-DVD sold 700k players worldwide since launching, almost half of which were XB360 addons. There just wasn't a big market for HD players of any sort. PS3 jump-started the HD market by providing people wanting a games machines with an HD player. I don't think any subsidized hardware would have established an HD player successfully, and the other device incentives were necessary.

 

[one]

Sony probably would have put more effort into the standalones, too. It doesn't look like they cared much given that they had the PS3.

You sound like there are no other companies than Sony that are selling Blu-ray players...

Why? If Sony can make PS3 a good BR player, they can make a standalone good as well.

Mass-production of Blu-laser diodes for PS3 contributed to economies of scale. In addition to hardware, pressing all PS3 software on BD keeps Sony's replication plant busy.

 

[patsu]

3. The overall design of the PS3. Not as good bang for the buck as X360.

The instability, overheating, noise and external power supply of 360 hardly compare to the build quality of PS3. Some also bought for Blu-ray playback. I don't think you can compare the two just using the price tag.

Yeah, this doesn't seem like a great way to go about it. Alternatively, Sony could make BRD production free and offer free encoding support.

Yes, the contribution would have to be in-kind (like right now). Even then, I believe the negativity will still strike (and play up by HD DVD PG). There are merits (and new complications) in that scenario. I can't say for sure it's the overall better, or worse, move, but I think the outcome may be different in a few important ways.

The logic behind my suggestion is that Sony would need far fewer standalones to have the same impact on BRD sales. Maybe 1/10th as many.

IMO subsidizing $300 on 3M BRD players impacts the format war several times more than $200 on 5M PS3s, and the latter only accounts for a third of what they did spend. If they wanted to keep other manufacturers in the fray, they could provide free optical assemblies during this period or have some other rebate scheme.

This is very true. Sony may be able to save some serious $$$ and yet still achieve the same level of movie sales initially. They need to be careful about pricing it too low though.

The current $3.1b investments are spent mostly on Sony itself (building up capacity, expertise, infrastructure, subsidizing Sony's customers). So they will someday contribute to Sony's future and brand. If you give out the money to BDA members to drive up demand in the short term, it's less worthwhile from Sony's view point. Note that Blu-ray is not the only thing Sony wants. It's also the ability to work together (e.g., on the PS3 platform) as a conglomerate, and its new software and services initiatives.

 

[one]

I think Sony has made a number of mistakes:

1. Not coming to an agreement with Toshiba so that there would not have been a format war.

2. The failure of Cell to work as a good graphics chip, so the need for RSX.

3. The overall design of the PS3. Not as good bang for the buck as X360.

As for an unreached agreement with Toshiba, there are positive sides too. For example, if they had compromised and unified them, it would have most likely adopted Microsoft HDi instead of rich BD-java, not to mention the smaller IP share for Sony. Unlike HD DVD, Blu-ray is designed with a long-term business in mind.

In reality, it was said it's Toshiba who declined format unification. Toshiba's engineers insisted the physical format of the 50GB Blu-ray disc was technically impossible to replicate with an enough yield. Today you see most BD movies come on a dual-layer disc. You should blame Toshiba for the mistake that cost them $1 billion exit loss.

As for 2 and 3, I think Xenos is a very costly choice for a manufacturer if you consider the long-term effects of its separate-die eDRAM design.

 

[quest55720]

I would not have bought my PS3's if there was a cheaper br standalone available, assuming the standalones worked correctly (which many of the current ones still don't). Most of the crew I hang with would likely have done the same, as we all bought PS3's as movie players.

However, Sony would then have lost any chance of potentially earning revenue from us in their other ventures that work on PS3. Take games, we don't buy many PS3 games now, but who knows maybe someday we will. Likewise, if they offered downloadable movies someday, or some other services, that's more money permanently lost from us since our standalones can't do that kind of stuff. In either case (standalone or PS3) the bluray related royalties earned is the same, but standalone hurts them in not being able to receive other sources of revenue from us.

So...if they have to choice subsidize something, don't you think it would be better if they subsidized PS3's instead of standalone players? Standalone players seem like a dead end to me. They serve a purpose, but they don't really advance Sony towards being the multi media device standard on peoples tv's, which is where the big bucks are at.

That is exactly my situation. I have 2 PS3s and 0 games. I use them to play movies and would of gladly would of purchased a standalone player instead but did not because of the terrible quality of stand alone blu players.

 

[RancidLunchmeat]

BD is probably responsible for around ~$2 billion of direct component losses for the PS3. I'm not asking you or anyone to focus on BD as the key source of losses though... why does it keep coming back to that?

I'm not saying that you have that narrow of a focus, your contributions have been balanced and big-picture. I'm merely making an observation based upon the majority of messages in this thread. (For example, see every message between your response and this reply.)

Perhaps BD is just more exciting to discuss.

I prefer to think that if BD only makes up half of the losses and we can agree that BD does result in profit streams outside of the PS3, then BD is really the least significant factor to be discussed.

I'd rather discuss the other $2B in losses that Sony incurred, what choices and components were responsible and if they were good decisions.

I said it earlier, and I'll say it again. I think the BD was a good idea. I think they made other poor decisions that resulted in the other $2B loss, one of which was launching earlier than they wanted to in an attempt to counter the 360.

They'd almost have been better off waiting another year, and launching a console that either used cheaper and more matured tech.. so their costs would have been lower to start, or a console that included more features such as a current-gen GPU instead of the RSX, or additional RAM, or started with larger HDD capacity, etc.. so that it would have been clearly superior to the 360.

It seems to me they split the baby in half with the PS3. If they wanted to rush to market, they still could have done so with BD, just scale down the rest of the feature set.