What is the impact of no PS3 price drop?

[catisfit]

If PS3 was to catch 360, they would have had to be steadily gaining at this point, PS3 is not the new kid on the block anymore. They were gaining, but to suddenly suffer this setback..

Run the numbers on the USA, and it's grim for PS3.

I kind of agree with your point Rangers as it relates to the US. You can look at it different ways. I doubt at the start of this year Sony would have expected the 360 to need a price cut to ensure they finished the year ahead in the US. At the same time it's a second year that the PS3 hasn't made any inroads into the 360 install base advantage.

Even worldwide, where once due to Japan if nothing else one would have had to assume PS3 would eventually top 360, is now firmly in doubt due to 360's current surge.

The 360 surge in Japan was clearly newsworthy but it seems to be reiterated as some kind of sea change. But it's very much back to status quo (Media Create this week: 34.8k vs 11.4k, YTD: 831.5k v 274.4k). I wouldn't classify a few weeks of phenomenal 360 numbers coupled with people holding off for the 80Gb PS3 release, as putting Japan firmly in doubt though.

@catisfit: I'm not sure how Microsoft could force Sony to cut the price in *any* circumstance. Being outsold 20:1? Well, they still don't need to cut the price.

I would argue that they would have needed to, on the basis that the PS3 continuing to lose market share at a significant rate would be damaging to the long term prospects of the PS3 business itself. Both in terms of reduced profit from software sales, and heading towards a point where if it is widely considered to be the "last place" console, even price cuts at a later date may not be enough to turn its fortunes around... and so disappears any chance of making back a decent chunk of what they've lost so far, by the end of the generation.

However, it's open to opinion I guess, whether such a 360 sales advantage would have been risky enough for them to take even larger short term losses to avoid losing out on long term gains.

And certainly it's not about Sony being able to have 'maintained' price all year - that's the thing they've been 'forced' to do! I'm sure they'd love nothing more than to slash that price right on down; and as soon as it is economically viable for them to do so, that's what we'll see happen. But not before that, and not based on any other external factors at this point.

I agree that ideally they would have wanted to price cut, but their situation has forced them to avoid that course of action. I think we disagree on the external factors part, for the reason I outlined above, and when I said they were "able" to maintain price, I meant they were able to carry out their preferred course of action as there was no external factor (read: significantly higher 360 sales). If you disagree about any external factor having an influence, then yes, "able" does not come into it.

I think we'll see something in 2009 though, so hopefully soon we have a thread discussing an actual cut vs another in a long line of many asking when a cut is coming.

That would be nice

 

[DuckThor Evil]

I kind of agree with your point Rangers as it relates to the US. You can look at it different ways. I doubt at the start of this year Sony would have expected the 360 to need a price cut to ensure they finished the year ahead in the US.

You can't say for the certain that the price cut was needed to achieve that, it helped, might have even been the major part of it, but there were lot's of content released for the X360 aswell. Now the price cut surely propels X360 to not only catch up in US, but now they go way ahead and they might have caught up with just the content. Who knows.

The 360 surge in Japan was clearly newsworthy but it seems to be reiterated as some kind of sea change. But it's very much back to status quo (Media Create this week: 34.8k vs 11.4k, YTD: 831.5k v 274.4k). I wouldn't classify a few weeks of phenomenal 360 numbers coupled with people holding off for the 80Gb PS3 release, as putting Japan firmly in doubt though.

He was talking worldwide... And calling 35k as a status quo for the PS3 is a little premature.

 

[Carl B]

I would argue that they would have needed to, on the basis that the PS3 continuing to lose market share at a significant rate would be damaging to the long term prospects of the PS3 business itself. Both in terms of reduced profit from software sales, and heading towards a point where if it is widely considered to be the "last place" console, even price cuts at a later date may not be enough to turn its fortunes around... and so disappears any chance of making back a decent chunk of what they've lost so far, by the end of the generation.

It's those very 'business prospects' to which I'm referring though. How does market share benefit your business when to attain it you are driving yourself financially into the ground? When the cure is worse than the disease, don't take the cure. PS3 is not going to make money this gen, and probably won't ever get close to covering its own costs either. I think Sony is being prudent it trying to run it as a business operating 'in the now' at present rather than taking further losses in hope of it paying dividends at some abstracted point in the future.

Normalized to the US, every $100 price cut equates to roughly $1B in red ink on every 10M consoles sold. So for it to make sense for Sony, they need to feel confident that the *greater* volumes generated (because remember we're talking about the amount above and beyond what would have been sold without the price cut; essentially additional console sales driving additional software sales) in software royalties will at least cover and/or exceed the hit taken on the additional cost spread.

I just don't think a PS3 price cut in the present environment would generate that additional $12B in software sales (assuming a general $5/title share; this number is admittedly low as an average of titles sold considering 1st/2nd party). And so whether the 360 is tripling, quadrupling, or just running away with the numbers, if internally the alternative is even more painful, Sony's got to deal with it in the short term.

Exchange rates. Their effect here can't be overstated; they've put Sony's back against a wall, across all their divisions.

For PS4, I see a lot of the PS3 'infrastructure' being leveraged towards greatly reducing the expense structure of that system, so Sony will have plenty of opportunity to hit their stride again later on. I'm a huge fan of the PS3 - it's the only next gen console I own - so long as the titles that I like show up, I'm perfectly thrilled with my ownership, and the Internet noise about who's outselling who is just that - noise. But I mean, from the business standpoint, anything other than acknowledgment that the 360 is "beating" the PS3 right now in the market is pure delusion.

 

[wco81]

I wonder now if Sony isn't benefitting as much as it used to from sales to HT enthusiasts, now that there are other BD-Live players which cost less.

I haven't really followed them but it sounds like the PQ of some of these players have finally surpassed the PS3 so there's little incentive to buy the PS3 for those consumers primarily interested in Blu Ray.

 

[Shifty Geezer]

It is however happening as we speak and most likely the price cut for the PS3 is only few months away, because of it.

Why? Why do Sony care if XB360 is outselling them? As long as they have a large enough install base that it isn't ignored, the fact they're being outsold isn't as important as turning a profit. Case in point, both companies are being trounced by Wii, but neither really cares. They aren't rushing to cut prices to compete with Wii. Losing hundreds of millions to gain sale parity wtih XB360 isn't worth it, if selling less will mean a long-term profit.

This isn't a race. It never really was. It's companies trying to turn a substantial profit and balancing prices with profits with sales to hit the sweet spot.

 

[obonicus]

They aren't rushing to cut prices to compete with Wii. Losing hundreds of millions to gain sale parity wtih XB360 isn't worth it, if selling less will mean a long-term profit.

Isn't MS doing this? The arcade is cheaper than the Wii. Or are they competing with the PS2? They were already cheaper than the PS3, did they need such a huge price cut to push them ahead?

 

[catisfit]

@Carl B: I agree with your reasoning. There's clearly a balance between the potential hit they would have been prepared to take in the short term (most likely not a particularly large one, as you say), against the potential loss of future revenue had they not taken it (which itself is difficult to judge). I think we may disagree with where that balance point may have been, but as we're talking about a hypothetical situation which didn't happen, we will never know

My original point was simply that, I think they will have been relatively pleased that they weren't put in a position where this balance had to be assessed, as either option left open to them (losing significant ground in install base, or cutting price) would have been worse for them than the current situation (tracking closely across the year whilst maintaining price).

He was talking worldwide... And calling 35k as a status quo for the PS3 is a little premature.

Well so's 11k for 360. The status quo I mean is 3:1 sales in PS3 favour, over an average week or YTD.

Europe is difficult because the numbers are scarce. We have this picture:



...and very little beyond that. Microsoft have just released a statement about sales gains over PS3, but with no figures, ratios, timespans or independent reports, it's very difficult to assess exactly how the last 8 weeks have affected the end of the graph.

This isn't a race. It never really was. It's companies trying to turn a substantial profit and balancing prices with profits with sales to hit the sweet spot.

That's possibly the most sensible thing I've read in any sales/price thread ever :smile:

 

[Butta]

This isn't a race. It never really was. It's companies trying to turn a substantial profit and balancing prices with profits with sales to hit the sweet spot.

Not so true when other companies are no selling their software at the quantity they expected and they end up ditching any Sony exclusives... given how much more copies are sold on 360 compared to PS3 for just about any game this simply means - more subpar PS3 ports and more 360 exclusives as the PS3 is just not selling the softs

 

[DuckThor Evil]

Why? Why do Sony care if XB360 is outselling them? As long as they have a large enough install base that it isn't ignored, the fact they're being outsold isn't as important as turning a profit. Case in point, both companies are being trounced by Wii, but neither really cares. They aren't rushing to cut prices to compete with Wii. Losing hundreds of millions to gain sale parity wtih XB360 isn't worth it, if selling less will mean a long-term profit.

This isn't a race. It never really was. It's companies trying to turn a substantial profit and balancing prices with profits with sales to hit the sweet spot.

They care. Sony is not in this game to be a little niche player letting others call the shots and settling for the left overs, atleast that wasn't their strategy when this gen started. You should care if most customers choose the product of your direct competitor rather than yours, no matter the business you are in. Wii however is not a direct competitor to PS3.

Having a large install base helps you in this business, it gives the manufacturer leveradge over developers and publishers, it helps you in the next round, it helps you move software, it helps you create those profits everybody is after etc., so yeah Sony cares about the installed base and not only their own. Making more units also brings down the cost of the single unit. Of course running after installed base crown no matter the costs is not a very good desicion, because then turning profit might not be possible.

At the moment the price structure of PS3 is such that it doesn't make sense for Sony to gain sales parity with X360, but that's not just a fact it's also a problem for Sony, a problem they are working hard to solve as we speak.

 

[Butta]

Who here thinks that a price drop to match the release of KillZone2 would be a brilliant move... especially with a good marketing blitz. Wasn't there talk not so long ago about a potential PS3 price drop before Sony's fiscal year end?

 

[Shifty Geezer]

Isn't MS doing this? The arcade is cheaper than the Wii. Or are they competing with the PS2? They were already cheaper than the PS3, did they need such a huge price cut to push them ahead?

Because MS see the increased sales leading to increased profits, regardless of Wii's position. That is, they may be chasing Wii's market, but they weren't dropping prices JUST to outsell Wii. They dropped them having decided that a low pricepoint would lead to more buyers and more long-term profits from content sales than if they kept the price higher and made more profit per unit but selling less of them. Or putting it another way, why didn't MS launch at $200 and undercut Wii? Why didn't PS3 launch at $200 to sell the most and easily win the 'best seller' race?

Not so true when other companies are no selling their software at the quantity they expected and they end up ditching any Sony exclusives...

Thats true, as is what others have said. The point is, how much is Sony selling less than MS going to result in developers ditching their platform? Is it a case that Sony have to sell more PS3's than XB360s or else they'll lose 50+% of their games? Is underselling XB360 a guaranteed road to fiscal death? Or is it a case that tracing XB360 at even a half the amount still provides developers with a market large enough that they can't afford to ignore it?

Yes, Sony want to sell consoles, make game sales revenues, not be a niche player, etc. But these considerations are independent of being 'first' in a race of two for second place. If Sony were to beat XB360 in sales and lose $1 billion in the process, the Sony execs won't be jumping for joy trumpetting their success. Whereas if they sell less units and make $1 billion profit, they will be happier. Outselling your rival isn't the goal - being a successful business is. Sony aren't making their choices with a view to catching XB360 sales. This isn't a black-and-white situation 'whoever outsells the other wins and the loser dies a paupers death' yet much emthasis is given on forums to the race for 'first' (read second) place.

 

[Butta]

Because MS see the increased sales leading to increased profits, regardless of Wii's position. That is, they may be chasing Wii's market, but they weren't dropping prices JUST to outsell Wii. They dropped them having decided that a low pricepoint would lead to more buyers and more long-term profits from content sales than if they kept the price higher and made more profit per unit but selling less of them. Or putting it another way, why didn't MS launch at $200 and undercut Wii? Why didn't PS3 launch at $200 to sell the most and easily win the 'best seller' race?

Thats true, as is what others have said. The point is, how much is Sony selling less than MS going to result in developers ditching their platform? Is it a case that Sony have to sell more PS3's than XB360s or else they'll lose 50+% of their games? Is underselling XB360 a guaranteed road to fiscal death? Or is it a case that tracing XB360 at even a half the amount still provides developers with a market large enough that they can't afford to ignore it?

Yes, Sony want to sell consoles, make game sales revenues, not be a niche player, etc. But these considerations are independent of being 'first' in a race of two for second place. If Sony were to beat XB360 in sales and lose $1 billion in the process, the Sony execs won't be jumping for joy trumpetting their success. Whereas if they sell less units and make $1 billion profit, they will be happier. Outselling your rival isn't the goal - being a successful business is. Sony aren't making their choices with a view to catching XB360 sales. This isn't a black-and-white situation 'whoever outsells the other wins and the loser dies a paupers death' yet much emthasis is given on forums to the race for 'first' (read second) place.

Why not apply the excellent point you just made about MS to Sony:

They dropped them having decided that a low pricepoint would lead to more buyers and more long-term profits from content sales than if they kept the price higher and made more profit per unit but selling less of them

Why should Sony not also drop their price because a low pricepoint would lead to more buyers and more long-term profits, let alone the better publisher and developper support. This is the point I have been trying to make all along.

 

[eastmen]

Blu-ray drive price reduction benefits Sony more than MS; for Sony it means a key expense of their system is coming down rapidly, whereas for MS it would mean adding expense. Plus we have reason to believe that the MS 360 team just might not want to deal with BD support (from the software side) at all.

As for chip combination, bigger or smaller it doesn't matter; a slightly larger chip is going to be able to be combined at 32nm just as the slightly smaller chip would be, because they're both 'small' at that point. That said, I don't know that we should ever expect either console to have a unified CPU/GPU, simply due to the IP involved with each chip. EE+GS was a special case because it was Sony/Toshiba right down the line.



It's important to note though that 360 is still a money loser for the gen. We'll have to tally up the totals when it's all said and done to see if it ate away at some of the originals losses, or whether it simply mitigated its own.

It can benfit both. I don't see a point in the future where the ps3 sans bluray is cheaper to make than the xbox 360. The 360 is less complex all around. Your right that the bluray drive will continue to drive prices down for sony, but they announced in march I believe that they were breaking even at 400. MS by this point is surely lower than them. We haven't heard much for a while but many believe that they are under $300 for the cost of the system. At some point if bluray reaches a price parity with dvd drives ms can simply move over or when the loss is acceptable ms can eat it.

As for the 360 , it may still be a money looser , but right now looking at software sales and hardware sales the 360 can be the easier of the two to recoup. Its hard to get ms's numbers right as many other things exist with it for its reports.

 

[DrJay24]

As for the 360 , it may still be a money looser , but right now looking at software sales and hardware sales the 360 can be the easier of the two to recoup. Its hard to get ms's numbers right as many other things exist with it for its reports.

I think you would have to consider Blu-ray revenue for Sony in the long run, they didn't put BD in the PS3 just to make it more expensive.

 

[Butta]

One thing that I hadn't considered in Sony's no price drop stand is that perhaps the sudden increase in sales is more due to Gears 2 and non-gamers (parents and such) picking up the cheapest HD gaming system off the shelf during the x-mas rush. If I remember correctly when the 360 price initially happened, the sales between PS3 and 360 were pretty much at parity... after that the x-mas rush happened and Gears and... needless to say perhaps MS's momentum will not continue and Sony is aware of this. It is possible that sales will soon return to parity and Sony's 2009 lineup may work in Sony's favour regardless of price difference. I am certain that a price drop will occur for Sony in 2009 but would not be surprised to see it happen later in the year, hopefully with a new slimed-down SKU (that would make Japan happy - I don't think the size of the current system appeals to them). Perhaps Sony is wise to sit on the current price. Especially when sales were more or less at parity even after the price drop.

 

[ban25]

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.

Profitability for Sony is one thing, profitability for developers is another. If major 2nd party exclusives fail to sell on the PS3, we will see those developers split off from Sony.

 

[Shifty Geezer]

Why should Sony not also drop their price because a low pricepoint would lead to more buyers and more long-term profits, let alone the better publisher and developper support. This is the point I have been trying to make all along.

Because that would result in more losses! If PS3 breaks even at $400 and you sell 10 million with $100 profit from license fees for each unit for games sold over its lifetime, that'd be $1 billion profit. If you sell a $400-to-make PS3 at $300, incuring a $100 loss per box, and sell 50 million thanks to the lower price point, you'd make $5 billion in game sales, but lose $5 billion in hardware losses, netting you $0 profit. More sale does not always lead to better earnings. This is why any product is positioned pricewise not always at the cheapest, mass-market end, but where the producer feels they'll get the best return overall (assuming they know what they're doing!).

Sony have to balance their losses per unit with expected gains per unit, and set a pricepoint accordingly, while staying competitive and not pricing themselves completely outside of the market (as with the other console compnaies too). At the moment they feel the earnings from less sales at a higher pricepoint are worth more to them than more units sold at greater loss per unit.

 

[tongue_of_colicab]

What is the impact of no PS3 price drop?

That they dont lose even more money on their PS3 business. Its simple, if Sony really though that lowering the ps3 price would sell them that much more software that it would make up for the extra loss on hardware they would have done it already. But it seems as they think it wont.

 

[wco81]

There's got to be some optimal point where a lower price returns more software licensing revenues to offset the HW losses.

Maybe they think they're at that point or they're holding off to see if sales do fall off a cliff as the price gap increases.

 

[thatdude90210]

Gaffers who work retail have been saying that the 360 Arcade pack seems to be MS' best seller this holiday season by a large margin. In many cases, it's been sold out while Elite's & pro's are still sitting on the shelves.

So maybe making the harddrive optional wasn't such a bad decision after all. It got them to the $199 price point faster than otherwise, and give them a long term price advantage over the PS3.