What is the impact of no PS3 price drop?

[dobwal]

I still don't see how it matters if a smaller group of people were willing to spend a larger amount of money.

Although, I do sense car analogy potential!

It doesn't. If Toyota sold 1 million Camrys at $25,000 and Mercedes sold 250K CL600 for $100K then the revenue would be the same, which is all good.

But the primary generator of revenue and profit aren't hardware sales they are software sales so the number of units sold are far more important then the revenue generated by the sales of the consoles themselves. The revenue of hardware sales is important in that it alleviates the total subsidization of hardware costs through software sales.

If the Camrys (360) and CL600s (PS3) ran on fuel (games) only sold through their manufacturers and fuel cost per liter or gallon (MRSP) was the same then Toyota would have a major advantage with 4X as many Camrys on the road unless the CL600 were 4X more fuel hungry (attachment rate).

With the 360 you have an 8 million more units whose owners consumes ~3 more games on average than your typical PS3 owner.

Yes, the revenue from hardware sales is roughly the same between the 360 and PS3 but the 360's attachment rate and total consoles advantage allows MS to generate twice the amount of revenue from full retail games sales then Sony.

The more units you have the better, so when you see that you and your competitors have generated 8-11 billion in revenue from hardware sales but your competitors have generated between 8-27 million additional revenue streams you can hardly look at in a positive light especially considering the fact that your revenue streams on average produce no better or worse than your competitors.

 

[BadTB25]

Also, let's not forget LIVE as a revenue stream as well.

Both consoles are doing decently with digital distribution, at least according to MS and Sony.

This generation, the consoles have just so much more ways of making a profit than last gen. From premium themes, avatars, clothes, movie/tv rentals, subscription, game DLC, community games, etc.

It'll be really interesting to get a report of a breakdown of where the revenue is received.

 

[Cheezdoodles]

It certainly is more important than attach rate which is still being used by console warriors and PR people.

Attach rate says something about how many games the consumers buys on average on a specified platform. Considering that software sales is the main source of income for most console manufacturers, i cannot see how you can possibly make the claim that attachment rates are less important than how much the console itself generates in revenue.

Please tell me why this figure is impotant. I dont get it.

Lets say console X sales generated $2billion, console Y sales generated $1billion.

This doesn't really tell you anything useful, whats important to developers, gamers and the console manufacturers is how many consoles they sold and how much these owners spend on games\addons. Based on this they can figure out possible earnings etc.

The fact that your arguing for revenue generated by the console itself kind of amuses me. I can understand that people can argue that total amount of revenue generated by a console may be a useful statistic in some cases, but the console itself?

Who the hell cares about that? Not the console manufacturer (they care about selling the most consoles so they can sell as much software as possible, how much revenue this creates is irrelevant what you want is PROFITS), not the developer (they care about how many consoles are sold and how much owners spend on games -> how many games they can sell), and certainly not the gamer...


Eagerly awaiting your explanation of why revenue of console sales itself is of any importance...

 

[jonabbey]

Also, let's not forget LIVE as a revenue stream as well.

Both consoles are doing decently with digital distribution, at least according to MS and Sony.

This generation, the consoles have just so much more ways of making a profit than last gen. From premium themes, avatars, clothes, movie/tv rentals, subscription, game DLC, community games, etc.

Yes, this. This is exactly why Sony spent so much on the PS3's development, and why they are staying with it. It's also why Microsoft got into the business, to get access to these revenue streams, and to keep them from Sony, and why neither Sony nor Microsoft are as concerned with Nintendo as they are with each other.

Sony has talked about profitability this year, and these new revenue streams are the only way they could accomplish this.

Fortunately for the game industry, they can also tap into (some of) these revenue streams without having to front for a full on-disc game.

You can call me Captain Obvious on all of this, of course. But it's interesting to contemplate how much the business model for Microsoft and Sony is different this generation, and to see how that shapes the industry.

 

[TheD]

With PS3 development issues being largely overcome these days, the advantages 360 MP titles held over their PS3 counterparts will be eroded (take TR:UW for example).

Tell that to joker454.....

especially in tech savvy markets like Australia, where some retailer catalogues do not even list 360 consoles and games, only the Wii, PS3 and handhelds. The USA is seemingly the last bastion of the 360.

BS, Australia is not "tech savvy" at all and retailers do have the 360 in their catalogues all the time, the only catalog I see without the 360 in it is the target one (note that Aus target has nothing to do with US target, other than the bad name) and I very much doubt that target sells many high priced consoles (vs JB HI-FI, EB, GAME, Gametraders, BigW, Kmart (once again having nothing to do with the US brand), Dick Smith, Harvey Norman, Myer, David Jones ect). due to the fact that it is not much more than a clothing store for bogans.

 

[catisfit]

Also, let's not forget LIVE as a revenue stream as well.

Both consoles are doing decently with digital distribution, at least according to MS and Sony.

This generation, the consoles have just so much more ways of making a profit than last gen. From premium themes, avatars, clothes, movie/tv rentals, subscription, game DLC, community games, etc.

It'll be really interesting to get a report of a breakdown of where the revenue is received.

Total LIVE revenue since launch was reported as US$1.1bn a month or so ago. Obviously the vast majority of that comes from subscriptions.

How much of that is profit is anybody's guess.

In total revenue terms it ranks about the same as the cost of the RROD warranty extension, so actual profit from these services doesn't yet approach a scale where it has a significant impact on overall profitability.

 

[eastmen]

Total LIVE revenue since launch was reported as US$1.1bn a month or so ago. Obviously the vast majority of that comes from subscriptions.

How much of that is profit is anybody's guess.

In total revenue terms it ranks about the same as the cost of the RROD warranty extension, so actual profit from these services doesn't yet approach a scale where it has a significant impact on overall profitability.

but live still costs $30-$50 a year for the average live gamer in the usa. Even if it costs ms $20 to run the service they are still making money off it. Sony on the other hand charges 0 for the service they provide and surely it has to have comparitive costs.

 

[Cheezdoodles]

Total LIVE revenue since launch was reported as US$1.1bn a month or so ago. Obviously the vast majority of that comes from subscriptions.

How much of that is profit is anybody's guess.

In total revenue terms it ranks about the same as the cost of the RROD warranty extension, so actual profit from these services doesn't yet approach a scale where it has a significant impact on overall profitability.

Assuming that the vast majority of this revenue is from subscribtions there should be tremendous profits from this. The cost of running XBL is a fraction of the price you pay for a subscription, i wouldn't be suprised if the cost of XBL per user is much less than $1 per month.

Even if only 20-30% of this where profits, thats still allmost $100 mill per year in profits, which is quite significant if youve seen what kind of profits (or losses) the 360 takes over a year.

 

[catisfit]

Even if only 20-30% of this where profits, thats still allmost $100 mill per year in profits, which is quite significant if youve seen what kind of profits (or losses) the 360 takes over a year.

I guess we have different definitions of the word "significant". How much profit do you think videogame software generates in a year for Microsoft as a platform holder?

 

[eastmen]

I guess we have different definitions of the word "significant". How much profit do you think videogame software generates in a year for Microsoft as a platform holder?

A few hundred million at the most. How much do you think ms gets per 3rd party title ? 5 bucks ? and i'm sure its a sliding scale. So to make 500m they would need to sell a 100m software pieces. Thats alot of software. Even then i'd still say a $100m is signifigant compared to 500m

 

[BadTB25]

Total LIVE revenue since launch was reported as US$1.1bn a month or so ago. Obviously the vast majority of that comes from subscriptions.

How much of that is profit is anybody's guess.

In total revenue terms it ranks about the same as the cost of the RROD warranty extension, so actual profit from these services doesn't yet approach a scale where it has a significant impact on overall profitability.

My point is that there are multiple streams of revenue. Even if you think one revenue stream in isolation is not significant, added together it can be a really big deal and as you stated even overcome the cost of RROD. The revenue stream is only increasing as more and more customers jump in to the subscription.

As an example, say it cost you $100 to create a theme that takes 40 customers to buy to break even. After that first 40 customers, it is all profit for the creator. The service is there, at most it only cost MS additional servers (maybe) for every new customer that subscribes.

 

[catisfit]

A few hundred million at the most. How much do you think ms gets per 3rd party title ? 5 bucks ? and i'm sure its a sliding scale. So to make 500m they would need to sell a 100m software pieces. Thats alot of software. Even then i'd still say a $100m is signifigant compared to 500m

It's not that much software, Sony shipped 101.6m units of PS3 software in 2008. Unfortunately Microsoft software numbers are more difficult to come by, but US$500m is quite an underestimation.

My point is that there are multiple streams of revenue. Even if you think one revenue stream in isolation is not significant, added together it can be a really big deal and as you stated even overcome the cost of RROD. The revenue stream is only increasing as more and more customers jump in to the subscription.

As an example, say it cost you $100 to create a theme that takes 40 customers to buy to break even. After that first 40 customers, it is all profit for the creator. The service is there, at most it only cost MS additional servers (maybe) for every new customer that subscribes.

True what you say about multiple revenue streams. As for your final point there are other costs, like the NXE which are also involved.

 

[Cheezdoodles]

I guess we have different definitions of the word "significant". How much profit do you think videogame software generates in a year for Microsoft as a platform holder?

Lets be overly optimistic and say that software generates 1 billion in profit in profits per year, XBL profits would still be 10% of that at 100million a year (which is probably a more realistic number than the 1 billion in profit from software). I say if XBL generates 10% or more of the profits from software sale, its absolutely significant.

For 1 billion in profits, assuming a generous $10 profit per game sold would imply X360 revenue from software being 6 billion, which would imply that each Xbox 360 owner last year roughly bought 5 games.

 

[eastmen]

It's not that much software, Sony shipped 101.6m units of PS3 software in 2008. Unfortunately Microsoft software numbers are more difficult to come by, but US$500m is quite an underestimation.

how much do you think ms gets.

For a third party title The store gets a cut which is generaly $5-10 so a $60 game is now reduced to $50. Shipping, packaging and what have you is another $5-10 , your game is now down to $40 bucks in profit. Advertising takes a chunk out of that say $5 bucks ? Your at $35. Your developer takes a cut of that most likely $10-15 and your at $20 bucks. How much of that do you think ms takes ?

$5 bucks per copy is a bit much

 

[mrcorbo]

For 1 billion in profits, assuming a generous $10 profit per game sold would imply X360 revenue from software being 6 billion, which would imply that each Xbox 360 owner last year roughly bought 5 games.

Which seems likely, as near as I can figure.

 

[Shifty Geezer]

A few hundred million at the most. How much do you think ms gets per 3rd party title ? 5 bucks ? and i'm sure its a sliding scale.

More like $10 per disc pressed, not sold. This at least is how it was last gen. So a game could sell zero copies and yet MS (or other console company) could still make a couple of million from it if 200,000 copies of the game were made. Sales figures therefore don't tell the whole picture.

 

[RudeCurve]

It doesn't. If Toyota sold 1 million Camrys at $25,000 and Mercedes sold 250K CL600 for $100K then the revenue would be the same, which is all good.

But the primary generator of revenue and profit aren't hardware sales they are software sales so the number of units sold are far more important then the revenue generated by the sales of the consoles themselves. The revenue of hardware sales is important in that it alleviates the total subsidization of hardware costs through software sales.

If the Camrys (360) and CL600s (PS3) ran on fuel (games) only sold through their manufacturers and fuel cost per liter or gallon (MRSP) was the same then Toyota would have a major advantage with 4X as many Camrys on the road unless the CL600 were 4X more fuel hungry (attachment rate).

With the 360 you have an 8 million more units whose owners consumes ~3 more games on average than your typical PS3 owner.

Yes, the revenue from hardware sales is roughly the same between the 360 and PS3 but the 360's attachment rate and total consoles advantage allows MS to generate twice the amount of revenue from full retail games sales then Sony.

The more units you have the better, so when you see that you and your competitors have generated 8-11 billion in revenue from hardware sales but your competitors have generated between 8-27 million additional revenue streams you can hardly look at in a positive light especially considering the fact that your revenue streams on average produce no better or worse than your competitors.

You still have to factor in money lost on each console sold. The more sold the higher the loss even if it's just a one time loss per console.

 

[eastmen]

More like $10 per disc pressed, not sold. This at least is how it was last gen. So a game could sell zero copies and yet MS (or other console company) could still make a couple of million from it if 200,000 copies of the game were made. Sales figures therefore don't tell the whole picture.

I highly doubt that as its platinum sellers or whatever they are called would have 1/4th of its retail price going strait into ms's pockets. $20 games would have half their price going to ms.

It has to be a sliding scale based on the target price of the game .

I highly doubt epic is paying MS $10 for each gears of war 2 disc pressed.

 

[Shifty Geezer]

I highly doubt that as its platinum sellers or whatever they are called would have 1/4th of its retail price going strait into ms's pockets. $20 games would have half their price going to ms.

It has to be a sliding scale based on the target price of the game .

I highly doubt epic is paying MS $10 for each gears of war 2 disc pressed.

That is how it was, and AFAIK how it is. I was as surprised as the next guy to hear how the console royalty system was, but there you go. Clearly it'll be different for special prints like Platinum sellers.

 

[ban25]

Console manufacturers control disc replication and, apart from royalty fees, they also specify a minimum run. Typically this is somewhere between 50,000 and 100,000 discs for a current generation system.