What is the impact of no PS3 price drop?

[Butta]

Is it just me or looking at recent software sales of big PS3 titles (Resistance 2, LBP, Motorstorm, etc) they are not selling well at all (none of them have even broken a million units!!! A $100 price drop would garantee that these titles would get some better numbers. If they wait until next year to do the price drop all these titles will be overshadowed by the likes of Resident Evil 5, Killzone2, FFXIII, etc and all these key Playstation franchises will hardly even break 1 million, which is pretty sad condering that Motorstorm 1 and Resistance 1 both have sold over 3 million.

Is Sony's refusal to do a price drop going to kill these franchises? Or perhaps even force them to go multi-platform? If I were Media Molecule, Insomniac or Evolution Studios, I would certainly be looking Microsoft's way right about now. Those titles should have all sold much better than they did and will soon no longer be relevant. I really hope the same doesn't happen to Killzone

 

[Carl B]

Is Sony's refusal to do a price drop going to kill these franchises? Or perhaps even force them to go multi-platform? If I were Media Molecule, Insomniac or Evolution Studios, I would certainly be looking Microsoft's way right about now. Those titles should have all sold much better than they did and will soon no longer be relevant. I really hope the same doesn't happen to Killzone

Sony owns those IPs, so though the developers might go multiplatform, those titles won't. As for the impact on the PS3 of no price cut, I think honestly in Sony's opinion the 'impact' is to stem the further losses that would occur if there were a price cut.

People have a hard time coming to grips with that notion, not sure why, but the economic forces arrayed against SCE at the moment are monumentally challenging. Exchange rate fluctuations are making the PS3 more lossy than prior irrespective of any advances and cost cutting elsewhere... so you either take those savings and use them to mitigate the forex pressures, or you make a cut on top of that... and then what?

Sony is ultimately more interested in breaking even and selling sub-1M titles than in selling 1M+ in titles and losing $1B a year. People consider the GameCube a 'loser' last gen, but it made money whereas Xbox didn't for example - was it really a loser? That said, obviously they would have been hoping for massive sales on both R2 and LBP. LBP I think they botched the launch and expectation setting vs implementation, and R2 has been bogged down by a schism in its reception among prior R1 fans (as evidenced by the R2 thread). Both could have been (and probably will eventually be) strong sellers over all, but the marketing teams and the creative sides weren't in lockstep I'm afraid. And AAA title launches need momentum as much as anything else in order to 'reach orbit' as it were.

Anyway time to stop looking at victory/defeat in marketshare terms I think, and to start looking at it from profitability terms. The PS3 needs to tread water (unfortunately) until the environment is such that it catches a break and some breathing room to act. The end of 2008 is not that environment. Obviously SCE would prefer to cut the price, raise sales numbers, be profitable, and have those play into each other in a positive feedback loop as in the previous gens. But that's just not happening right now, it's simply not an option.

 

[obonicus]

We're taking a loss for each product we sell? No problem, we'll make it up in volume!

 

[Butta]

I agree with many of your points Carl... but looking down the road, if Sony looses all its exclusive developpers because its console / software wasn't selling well, when they do get to the point where market conditions allow them to do a price drop it will be too late. I bought Sony's system for the exclusives and if Media Molecule, Insomniac, Naughty Dog, Squenix, Evolution Studios, etc all go multi-platform with new franchises and dump the existing franchises that I care about (and other Sony fans care about of course). Then they have lost me as a customer.

I think that even a $50 reduction in price with a bundled game (LBP or something) would stimulate sales for Sony.

 

[patsu]

Sony is simply one year behind the h/w economics curve. They will drop to mainstream pricing level at some point in the future, and enjoy brisk sales (partly due to Blu-ray and partly due to games).

It seems that they want to lose h/w $$$ as little as they can at this stage.

 

[Butta]

Sony is simply one year behind the h/w economics curve. They will drop to mainstream pricing level at some point in the future, and enjoy brisk sales (partly due to Blu-ray and partly due to games).

It seems that they want to lose h/w $$$ as little as they can at this stage.

And what will happen to franchises and publishers that were so unlucky to release their multi-million dollar titles during this holiday season?

 

[Asher]

Sony is simply one year behind the h/w economics curve. They will drop to mainstream pricing level at some point in the future, and enjoy brisk sales (partly due to Blu-ray and partly due to games).

It seems that they want to lose h/w $$$ as little as they can at this stage.

They're far more than 1 year behind the curve, they're several years. When the console launched it was farther behind the curve when the 360 launched, and the 360 launched a while before...

 

[patsu]

And what will happen to franchises and publishers that were so unlucky to release their multi-million dollar titles during this holiday season?

They are already aware of Sony's pricing strategy beforehand. That's why Sony does not stop them from going multiplatform.

They're far more than 1 year behind the curve, they're several years. When the console launched it was farther behind the curve when the 360 launched, and the 360 launched a while before...

What curve are you referring to ? I am more refering to the h/w lifecycle.

As PS3 userbase grows, it should be more feasible (though less profitable if they keep to the same business model) to do an exclusive game.

 

[Carl B]

And what will happen to franchises and publishers that were so unlucky to release their multi-million dollar titles during this holiday season?

Naughty Dog is a Sony studio, as is Guerilla, etc... so you need not worry about ever seeing those guys leave.

The prominent 2nd party devs, who knows - if Sony is smart, they'll make sure they're massaging those relationships. Insomniac and Sony have had a great history for instance, and I'm sure Insomniac would prefer to stay exclusive given a decent economic situation for themselves... so I think you'll see Insomniac games continue to end up in PS3 bundles and such, basically a way of guaranteeing income/revenue for the guys at Insomniac.

As for luck and this year vs that year etc etc... well, honestly bad luck happens. If this year had been an economic mirror of 2006/2007 for example, when everyone felt rich and money was flying around, I'm sure the PS3 would have had a great season, in part due to its BD tie-ins, which is a whole subset of high-end discretionary spending. But the fact is that the world moves along in spite of anyone's plans or best efforts, and the environment the PS3 needed isn't the one it ended up with this season.

 

[rounin]

The brand goes up.

 

[Asher]

What curve are you referring to ? I am more refering to the h/w lifecycle.

As PS3 userbase grows, it should be more feasible (though less profitable if they keep to the same business model) to do an exclusive game.

I'm referring to the profitability curve more than anything else. The PS3 included much more expensive stuff at a much higher price than the 360.

A generic "lifecycle" curve serves no purpose, because the technology that drives the PS3 and 360 is identical: they're limited by the same manufacturing processes, with the addition of Bluray impacting PS3 production.

 

[Shifty Geezer]

And what will happen to franchises and publishers that were so unlucky to release their multi-million dollar titles during this holiday season?

They're normally cross-platform if they aren't first-party. Any 3rd party exclusive like Valkyria are just gonna have to face the economic results of the choices they made. It's hard, but business is, and there are no safeguards. After all, what happens if your game ends up against a top-selling rival, maybe Gears, that grabs all the attention? You make the products you think will sell, get them out there, and see what happens. Maybe you make money, maybe you don't, and you try again...

 

[patsu]

I'm referring to the profitability curve more than anything else. The PS3 included much more expensive stuff at a much higher price than the 360.

A generic "lifecycle" curve serves no purpose, because the technology that drives the PS3 and 360 is identical: they're limited by the same manufacturing processes, with the addition of Bluray impacting PS3 production.

The lifecycle is meaningful because Sony will reduce the component cost regardless of its sales this fall. It is an internal driven agenda since PS3 is a platform play. Now once that cost is reduced, and if Sony is interested to pass the saving to the consumers, then they will reduce the PS3 price further.

45nm Cell is due next year. Even as we speak, Blu-ray drives are dropping in price rapidly. 2009 is the year where the drives go into mainstream laptops and PC drives (instead of high end laptops). So I do expect the cost to plummet.

They probably don't want to drop to Arcade level, but it will be set and revised according to what the market is willing to pay. If Sony feels that the current run-rate is lower than they expect, they will find some way to solve the problem. ^_^

 

[wco81]

I don't know about the currency exchange rate impacting Sony.

The yen has ranged from 110 to the dollar to the highs of 93 lately. This is in the last 6 months, an indication of how volatile the dollar has been to other currencies.

Sony is discounting its other products, such as the Bravias, in this tough economic environment, in order to move them.

Maybe they have more margins on those other products, or a positive margin as opposed to a negative margin for the PS3.

Have they transitioned all of their silicon to 65 nm by now?

 

[Shifty Geezer]

The £ has dropped from about $1.90 to about $1.50. That means Sony are making >20% less money on each PS3 sold in the UK. That'll knock a 20% price reduction on the head.

 

[wco81]

Yeah but Sony would be converting the Pound Sterling to Yen, not dollars?

In the last 6 months, the BPS ranged from about 140 yen (now) to 215 yen (back in July). Average for the period is about 187 yen.

Yikes, that's bad. But I guess sales volume would be much higher in the US so the USD to yen rate would be more significant.

A lot of US companies don't repatriate overseas profits for years. Perhaps Sony does something similar? Or they've been doing some kind of currency hedging?

 

[DeanA]

If I were Media Molecule, Insomniac or Evolution Studios, I would certainly be looking Microsoft's way right about now.

I doubt Evolution would look Microsoft's way.. they're 1st party.

Dean

 

[expletive]

As for luck and this year vs that year etc etc... well, honestly bad luck happens. If this year had been an economic mirror of 2006/2007 for example, when everyone felt rich and money was flying around, I'm sure the PS3 would have had a great season, in part due to its BD tie-ins, which is a whole subset of high-end discretionary spending. But the fact is that the world moves along in spite of anyone's plans or best efforts, and the environment the PS3 needed isn't the one it ended up with this season.

To be fair though, building a console around a business model that requires economic prosperity to be successful isn't entirely bad luck, its also a bit of poor planning.

Agreed that Sony is probably suffering more than is warranted for their high cost floor, and MS will likely receive undeserved benefit from their low-cost model due to the economy. However, In the end I think everyone agrees that from day 1 the PS3 cost/pricing was at best, risky.

It was a risk they seemed willing to take due to their desire to establish BR, and in the end who knows if it will be worth it, but I think bad luck is maybe too generous a phrase.

 

[wco81]

Well BR sales are way up over 2007, despite the economic gloom:

http://www.hollywoodinhidef.com/blog_detail.php?id=249

CC was apparently selling some BR titles for 8.88 but they were long gone when I went to one of the stores over the weekend.

 

[patsu]

I think, though I may be wrong, sales went up for Black Friday and Cyber Monday, but as a whole, spending is down in November. We shall see.