The new PS3 sales pitch: Better gaming, better technology, better value

[Kolgar]

As the simple truth, Sony woudn't be able to satisfy the massive demand if it's priced lower considering there are more PS2 owners now than PS1 owners at the PS2 launch and even the Xbox 360 which has less brand value and (arguably) less hardware value had the shortage. Since those who can buy a $500/600 console usually buy more games, it's reasonable to distribute hardwares to them first to reach better tie ratio and please launch games publishers.

Sure. But long-term, PS3's almost certain to remain the highest-priced hardware by a significant margin. Sony put everything but the kitchen sink in that system and it's one pricey mofo.

Microsoft will find it much easier to dictate price changes and keep the pressure on Sony, especially with a "core" 360 that doesn't have the fixed cost of a hard drive. And MS is in much better financial position than Sony - they can squeeze Sony hard and sit back and watch them bleed money.

Finally, again - it's going to be 2008 or later before the "core" PS3 even breaks $300, which in itself is still not a mass-market price. That's a long time. Market leaders are usually decided in less time.

 

[mckmas8808]

Sure. But long-term, PS3's almost certain to remain the highest-priced hardware by a significant margin. Sony put everything but the kitchen sink in that system and it's one pricey mofo.

Microsoft will find it much easier to dictate price changes and keep the pressure on Sony, especially with a "core" 360 that doesn't have the fixed cost of a hard drive. And MS is in much better financial position than Sony - they can squeeze Sony hard and sit back and watch them bleed money.

Finally, again - it's going to be 2008 or later before the "core" PS3 even breaks $300, which in itself is still not a mass-market price. That's a long time. Market leaders are usually decided in less time.

Again Kolgar you of all people know that being more expensive doesn't mean the PS3 will be in an automatic disadvantage.

 

[rounin]

Not to mention much of this assumes that the SKUs will remain the same over time (we've seen PS2s change configurations...). I think if the "core" eventually gets upgraded to HDMI (likely), the value will also increase.

Like mckmas said, money isn't everything.

 

[Kolgar]

exactly. All this doom and gloom is stupid, because we have no idea what Sony's pricing structure is. Historically they drop price by 1/3 ~1.5 years after launch. $500x.66= $330 by May, 2008. Not so bad, eh? And what if they are planning even more aggressive price cuts than previously? $299 by xmas 07? Could happen.

Not a chance. And anyway, that would be just wonderful for the early adopters. How do you think they'd feel about that? I'll tell you:

"Screw me once, Sony, shame on you. Screw me twice... #@*^!@#% you."

No, the cost of these components will ensure that PS3's price stays above X360 for the rest of the generation. And if not that, then the financial condition of the companies will ensure it. Microsoft is playing for keeps - you don't think they'd love to make Sony bleed?

Despite the official company line, MS WILL cut the price of 360 this holiday (or include a pack-in or other incentive) because this is a prime opportunity for them to increase their install base while Sony is supply-constricted. They're not stupid, they know they've got one shot at this, and Sony's helped them immensely with this improbable pricing strategy.

The "PlayStation" platform as we know it is no more. Sony has replaced it with an all-in-one game console/HD media player/computer at a price far outside the acceptable reaches of mass-market console success. If they succeed, major kudos to them. But I don't think we can be sure that there's a market for such a device yet, and if not, consumers will likely choose X360 as the "new PlayStation." It may not have all the Sony exclusives, but people adjust and move on. Price may not be the end-all and be-all, but it IS important (especially when the difference is $100 or more, and when 360 plays three of the biggest franchises today - GTA, Madden, and Halo) and right now, Sony's put the ball squarely in Microsoft's court.

edit: In the extremely ridiculous event that PS3 hits $299 by Christmas '07, I wouldn't be surprised to see the 360 core pack going for $149. But that's in Bizzaro World, so I don't think we'll have to worry about either scenario coming to fruition.

 

[mckmas8808]

Kolger your hyperbole is just off the chain today man. A $149 X360 by Xmas 2007? Tell me Kolger why didn't MS lower the price of the Xbox below what the PS2 was selling for to get a power and price advantage?

The Playstation brand is over? C'mon! Have you not seen the Naughty Dog jungle video? Honestly the PS3 has Sony and Playstation written all over it. And to be honest like Ken K. said they did raise the normal cost of consoles with the PS1.

Now hopefully it doesn't happen again, but it goes to show that just because you are paying a higher price doesn't mean it lost everything.

 

[goonergaz]

Well winning Japan (numbers wise) is important even without looking at the Japanese devs. Sony has about 20 million PS2s over there. That matters.

I'm not saying it's unimportant (as such) just that they will never dominate in Japan, but they need to get a foot-hold, as support from Japanese devs will equate to more than 20m extra sales ww and therefore *more* important than dominating in Japan.

 

[Acert93]

I agree with Kolgar about the MS price advantage all generation.

The 360 Core was specifically designed as the entry level model. MS sacrificed a standard HDD specifically for price flexibility. I was surprised Sony went with a HDD standard. As a consumer I like the move, and the necessity is clear due to the BRD speed, and I think microtransactions can offset some of the cost. BUT, as MS learned last generation, unless everyone is on board it will be under utilized. With cross platform games so vital to the industry, and MS having a relevant early market share, a standard HDD looks to be under utilized. Again.

Anyhow, many are proposing the, "What if Sony is artificially keeping prices high for launch and will cut them in mid-2007?" I don't agree (although the Q1 2007 process shrink will be a big help). Just one example of how we can determine that Sony is not artificially inflating the price of the PS3: no HDMI on the PS3-20GB. If Sony was inflating the price due to high demand and low volume, why cut out (a) a relatively cheap component that (b) you have been hyping for the last 12 months. Ditto the extra USB, WiFi, gigabit ethernet (and 3 total ethernet ports), etc.

The more condemning evidence comes from the silicon. There is no magic silicon in the industry. Sony own fabs and what not, but there is always a cost, and in the PS3's case there are a number of additional costs the Xbox 360 does not have.

* Processors. It seems that Cell is 235mm^2 whereas Xenon is 168mm^2, a 40% difference in die size. I could not find numbers for Xenos, but the parent die appears to be about the same size (give or take... maybe a tad smaller) as Xenon. G71 is 196mm^2. Xenos also has a daughter die which most likely puts its die size above G71, but has the benefit of 2 smaller dies which may increase yields (especially separating the more dense eDRAM). Xenos is costing more than RSX (unknown amount), but CELL is substantially larger than Xenon. With added size typically comes lower yields (less dies per waffer, more dies with defects).

* HDD standard. HDD's don't scale well in cost as MS learned last generation; it has been stated a number of times the HDD was one of the big reasons MS bleed so badly with the Xbox1, and in turn why there is a 360 Core without the HDD. I understand why Sony made the move they did, but the 20GB HDD in the low end PS3 SKU will always be a factor making the PS3 more expensive.

* Blu Ray Drive. The PS3 gets to cut cornes by using CELL to decode, and the PS3 is sold at a loss instead of a profit like commercial Blu Ray players. But the drives are expensive, they are new technology, and they are not mainstream yet. Prices will drop, but it wont be overnight and this will always be an additional cost for Sony. At the end of the generation in 5 years it may be a minor expense, but right now I don't doubt the rumors of the drives themselves costing more than $100 to produce.

* Memory. Sony is using XDR which has a premium and is not widely used. GDDR3 is used not only by both consoles, but also by GPUs. It may not cost substantially more, but there is an additional cost.

* Online Network. This is often overlooked, but it has a significant start up cost. And since Sony is offering it for free the cost of supporting the network comes out of hardware sales, software sales and royalties, online profits (DLC), and advertising. But intially the cost will be up front and Sony has to balance HW losses and the Network losses at the same time.

The PS3 pretty much users larger, more expensive components across the board (less GPU). CPU, Memory, Optical Media, HDD, Ports, etc. There is a logical reason, from a component perspective, why the PS3 is more expensive. Crudely we see:

Core Console = $299
Core Console + 20GB HDD = $399
Core Console + 20GB HDD + HD Optical Drive = $499
Core Console + 60GB HDD + HD Optical Drive = $599

When people say Sony can drop the PS3-20GB to $299 within 18-24 months, a whopping $200 drop, they are suggesting MS is not only making money on the 360 now (yet we know that is not true, they have projected like 900M in loses I think) but that the 360 Core could reach the $99-$149 price range in the same time period. Why? Because any price reductions Sony can do, MS is capable of reaping similar windfalls. But everything points the opposite direction.

Over a year ago I outlined MS's Price War strategy and the pricing difference (and my past reasonings for what I thought the PS3 would cost) have all been pretty close.

Which leads me to agree with Kolgar. The price difference between the Xbox 360 and PS3-20GB will shorten over time. But due to MS's and Sony's design decisions is pretty much a settled MS will have the more affordable console all generation, and in the case of the 360-Core a much cheaper console.

Sony has no choice but to convince consumers they want Blu Ray and that the PS3 has the best games and best gaming value because they wont be able to maintain their market share (i.e. 100M sales in 5 years) on price alone.

 

[Acert93]

Kolger your hyperbole is just off the chain today man. A $149 X360 by Xmas 2007?

You need to read why he wrote that, in context it was a response to Scoob

And what if they are planning even more aggressive price cuts than previously? $299 by xmas 07? Could happen.

Kolgar is applying the same principle I suggested: Price cuts Sony can make can be matched by MS to a certain degree as MS benefits from the same market factors (process changes, economy of scale, increased software royalties, etc).

If people are honestly suggesting $200 price drops on the PS3-20GB by Fall 2007, why would it not be sensible to believe the 360-Core could drop $150 in the same time frame? One big difference, actually, is the 360-Core will have been on the market 12 months longer. It seems odd that the PS3-20GB could drop $200 in 12 months but the 360-Core, with similar components, could not drop $150 in 24 months.

Anyhow, Kolgar qualified this tit-for-tat speculation:

But that's in Bizzaro World, so I don't think we'll have to worry about either scenario coming to fruition.

Tell me Kolger why didn't MS lower the price of the Xbox below what the PS2 was selling for to get a power and price advantage?

Because their console cost more due to a HDD standard and a bad NV contract. Sony is not burdened with a bad NV contract, but they do have a HDD standard.

MS would have loved to lower the price, but $3B+ in losses kind of undercut that idea And thus we see the 360: Controlled IPs, HDD not standard, a design that is effecient but made to scale (and steals many pages from Nintendo's GCN book), etc.

Now hopefully it doesn't happen again, but it goes to show that just because you are paying a higher price doesn't mean it lost everything.

Of course not, but price does factor into the market. I know I don't have $600 for a console. I don't even have $400. A lot of consoles are holiday and birthday gifts, and many gamers by 2 or 3 titles a year, no more. They just want their Madden, the newest GTA, and whatever other big game that year (MGS, Halo, FF, etc).

The price itself is not totally condemning. But the 1 year lead hurts. It spots MS 10M consoles. This in turn generates more developer support and cross platform titles. It gives MS a back library of quality games that reach the $20 bargin bin first. Possibly the biggest danger is Nintendo because Nintendo is gonna fight hard in Japan and has a significant world wide price advantage.

It is not all doom and gloom for Sony, but there are some very serious challenges ahead. The good news: if Sony lives up to their promise, they can rest assured of having 6M units by April 1st. If they produce 1M units a month, that means they can be at 15M installed units by the end of 2007. Maybe even more if they increase production (but that then increases losses, so keeping production low at first can be a cost effective move).

I think Kolgar's core message is this:

Sony is the market leader. They own the industry, their brand is currently synonymous with video games. They did not need to beat MS in tech. They just needed to show up at a competitive price with a competitive system.

Sony wins.

But Sony goes and extra year with the PS2, MS comes in a year early, and Sony then comes in expensive. A PS3 with Xbox360 like specs in 2005 (a bad year for sales anyhow... 6 years was too much) ensures Sony takes the market lead from day 1. Now Sony has to chip away at MS's lead while convincing consumers the extra cost is worth it.

Basically Sony made it a LOT harder than it needed to be. But hey, it sure is exciting!

 

[Titanio]

I haven't read the whole thread, but I thought I'd add this since it'd be relevant to the evaluation of Blu-ray's value to PS3 as a games machine.

Take with salt as appropriate, but word from a game developer on GAF is that one of the reasons Mercenaries 2 has only been announced so far for PS3 is..disc capacity.

If this is true it obviously should change some viewpoints on the positioning of Blu-ray as part of a games machine versus being 'just' an included HD movie player.

Regardless of that info, looking back on arguments we have, I think it's crazy how prematurely some have completely written off the contribution it could make as part of a games machine, and that could come back to haunt people later! We're barely 6 months into the new generation..we've barely seen anything yet as far as developer ambition and game sophistication is concerned.

 

[Moonblade]

Nice post, acert and I agree.
Logic thinking tells us that there's now way PS3 will ever be as cheap as X360. Because of their standard designs there will always be a price difference.
But it will be important for sony to shrink their system down as fast as possible to keep up with x360 pricedrops when needed (the price gap should become smaller, not bigger). I don't expect that will be a problem, otherwise sony never would have opted for such an ambitious multimedia device.

 

[Arwin]

Nice post, acert and I agree.
Logic thinking tells us that there's now way PS3 will ever be as cheap as X360. Because of their standard designs there will always be a price difference.

I would question even that. At the very least, the Cell processor has plenty of potential to become cheaper than Xbox's CPU, as the Cell processor will be used in many more devices, if only because it's more suitable for that kind of thing being relatively easy on power consumption.

Sure, potentially the 360 can stay cheaper, but at a certain price-point the console owner doesn't care anymore about the price - they just even out at what they're both comfortable with and can get away with. In the beginning the hardware is expensive, and with the high initial investments required they have to be a bit careful with their budgets, not to mention that they've typically sold way above their RRP anyway. But soon enough price becomes nearly irrelevant - just a matter of optimisation, just as with printers and coffee machines these days.

To a certain degree this also works for the consumer - which console, especially when they are in direct competition, plays the coolest games, and on which console are the cross platform games the coolest? Much more important is which one of the two will come out as the console to have once the two reach the point where they are directly aimed at each other. After the initial launch-phase is over where consoles are indeed priced out of range (and Ebayed), this is where the real battle will take place.

But it will be important for sony to shrink their system down as fast as possible to keep up with x360 pricedrops when needed (the price gap should become smaller, not bigger). I don't expect that will be a problem, otherwise sony never would have opted for such an ambitious multimedia device.

Not so much to keep up, as to make sure you run a healthy business. If you can sensibly cut costs somewhere, you ALWAYS have to do it. Even if it seems you don't need it, you might need the reserves later on.

 

[Sis]

Also, regarding the massive price tag, it should be mentioned again that it's not quite so massive a change for us europeans. I just calculated the launch price of PS2 around here in €, adjusted to infaltion. It launched at slightly above 475€ - given that you still had to buy a memory card with that, PS3 is actually cheaper

Except consoles, like computers, are inflation-proof. So accounting for inflation is only an academic exercise.

 

[Kolgar]

Acert, thanks for jumping in. You haven't lost a stride, man. In fact, you're so thorough, it's a shame you're not getting paid for this. Nice job.

 

[Mmmkay]

* HDD standard. HDD's don't scale well in cost as MS learned last generation; it has been stated a number of times the HDD was one of the big reasons MS bleed so badly with the Xbox1, and in turn why there is a 360 Core without the HDD. I understand why Sony made the move they did, but the 20GB HDD in the low end PS3 SKU will always be a factor making the PS3 more expensive.

You bring up some excellent points as usual Acert, but I'd just like to focus on this one for the moment. I think there is a slight difference between their respective implementations. For Microsoft, their system was incredibly inflexible. The serial number of the HDD was used for authentication, and there was no deviation from the allotted HDD size.

For Sony, by making the HDD interchangeable, they give themselves the opportunity to potentially substitute the technology down the line. In perhaps 3 or 4 years when the PSThree comes out, they could be using a quantity of solid state memory, which may work out cheaper for them. There is no designated minimum HDD space that we know of yet, so while the drives are [cost effective] price limited to 20GB, their system could possibly support a much lower amount of storage. This PSThree could be part of their cost reduction plan for the more price conscious consumer, featuring perhaps just 5GB of solid state storage.

There are of course performance related problems with substituting a technology, so it may not be so simple. It wouldn't surprise me though to think they have looked at Microsoft's situation with the Xbox and realised the burden a HDD has on price.

They may move to a different strategy, and increase the 'perceived value' while maintaining the price, increasing the HDD capacity. That kind of decision would likely be based on an evaluation of how well their online services are working and whether consumers are finding the extra space a necessity. If they go through with their online distribution of games plan, then HDD space may well become a desirable feature for some consumers.

 

[Kolgar]

Of course, most of this discussion is assuming Sony's focus is still on games, that PS3 is primarily competing with XBox 360 for the games market and not Toshiba for the HD movies market.

I think it's arguable that Sony's bigger agenda is winning the format war with Blu-Ray. Should that happen, the licensing monies they'd reap would be astronomical - well worth sacrificing the #1 spot in the games market.

Sucks for the traditional PlayStation audience who just wants an affordable next-gen game console, but that's the choice Sony has made.

 

[Arwin]

Except consoles, like computers, are inflation-proof. So accounting for inflation is only an academic exercise.

I'm sorry?

@Kolgar: it sucks for the 360 crowd that they had to forego a decent HD discformat in favor of an early launch, but that's the choice Microsoft has made.

 

[Titanio]

Sucks for the traditional PlayStation audience who just wants an affordable next-gen game console, but that's the choice Sony has made.

The choice you think they've made. I'm sure they'll be gunning to do both.

Blu-ray's inclusion in PS3 is as likely to be because - shock - Sony actually think the system needs it, as much as it's trojan-horsing a new movie format into the home. I'm not going to say the latter is not a priority, but I've no doubt Sony genuinely believes it's important for games. And they may be right.

 

[PeterT]

Except consoles, like computers, are inflation-proof. So accounting for inflation is only an academic exercise.

They are? How so? (I'm not an economist)
Well, even if that is the case, the PS2 launch price around here was still 440€, so 465€ with memory card. I just don't see the doom and gloom in a 35€ price jump.

 

[Kolgar]

I'm sorry?

@Kolgar: it sucks for the 360 crowd that they had to forego a decent HD discformat in favor of an early launch, but that's the choice Microsoft has made.

We haven't seen any proof yet that DVDs are insufficient for next-gen games. When it happens, then it may "suck." Until it happens and multiplatform releases on 360 become gimped because of it, there's no problem with the format.

In fact, it's what's allowing MS to make 360 the ONLY affordably priced next-gen game console of this generation.

 

[Kolgar]

The choice you think they've made. I'm sure they'll be gunning to do both.

Blu-ray's inclusion in PS3 is as likely to be because - shock - Sony actually think the system needs it, as much as it's trojan-horsing a new movie format into the home. I'm not going to say the latter is not a priority, but I've no doubt Sony genuinely believes it's important for games. And they may be right.

Yes, they may be right. In which case, kudos may be in order.

But if Blu-Ray's impact on games proves minimal and PS3's higher cost slows adoption rates to the point where Sony loses some of its third-party support and exclusives (timed or otherwise, see GTA4) - then the company's gambit to fight in two markets at once will have only diluted the strength of the PlayStation platform as we know it.

It's a dangerous game they're playing. They're either brilliant or foolish, but either way, they've got gigantic balls of steel.