What is the impact of no PS3 price drop?

[BadTB25]

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.

This may be too early to be talking about this, but Sony should care that MS doesn't get too ahead of them this generation. When the next generation launches, assuming price, network, services and technology is comparable, I believe most consumers will go with the company they're used to.

When this generation started, there was a lot of my friends that wouldn't get a 360 because they weren't used to the controller for Madden. Most of them have converted to the 360, partly due to lower price and partly due to Live. I know I've heard it from Sony several times that the brand recognition would compel gamers to buy the PS3 despite its price simply because it's a Playstation.

Remember the "It would still sell even if no games were released at launch comment". Those converts will now have to be won back by Sony and it seems pretty evident from the investment that MS has put into the Xbox brand that it may be even a tougher fight for Sony the next round.

 

[Carl B]

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.

Again, MS isn't going to include BD simply because they probably don't want to hassle with the software. It's not that they couldn't at minimal expense (eventually), it's more like... why? By the time those drives do get super cheap - and no doubt they will - everyone will be thinking to the new launches. Maybe the 720 will have it, who knows. Sony would probably be pleased with that honestly, but I digress...

I feel we're going in circles in this thread somewhat, but again, if Sony was 'breaking even' at $400 before - which was just something from some analyst by the way and not anything I heard on any Sony conference call myself (their financials sure don't reflect it) - then again, the recent exchange rate fluctuations alone have put them back into (significant) losses.

As for MS' numbers, I'm taking the entire division as a whole; I simply think that before the next system launches, it is unlikely that MS will have recouped the entirety of the losses this gen. Things are going well now, but there's a couple of billion lost on the first two years, and billions are hard amounts to climb back against. For Sony the task is simply impossible, on the order of XBox 1, though of course they'll try their best to recoup as the gen goes on. Things like the exchange rate situation are 'acts of God' essentially though; they are situations you simply have to cope with - you can't plan or strategize your way out of those situations. It's like if an earthquake swallows your manufacturing plants, you're just simply screwed for a while. There's no effort that need be spent here analyzing Sony's "next brilliant move," they just simply have been struck by horrible luck. That same horrible luck has struck Toyota, Panasonic, Canon... any and every major Japanese exporting company. They can't overcome it, they can only hunker down and weather it.

 

[Carl B]

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.

The developer issue was dealt with in the first couple of posts in this thread though. There aren't many 2nd party devs these days in all honesty, most have either become first party, or have gone multi-platform already... so the install bases are sort of moot in that regard. Of the remaining ones, I think super prominent/important devs like Insomniac will be the recipients of attention from Sony above and beyond the retail sales of their games in order to keep them steady and on board. At least with Insomniac, the relationship goes beyond simply selling games on the platform - they are very involved in the Sony technology ecosystem. I would be very surprised if Sony 'neglected' that relationship.

 

[BadTB25]

If both companies are just losing too much money without ever having hopes of recouping or turning a profit, then why are they in the business in the first place. Year after year we keep hearing how records are being broken in the video game business, yet these companies are probably not going to break even.

MS and Sony are big companies that have to be expecting some kind of return for these massive investments. I've always thought these companies worked on the "razor blade" model concept. Lose money on the hardware, but make money back on the software.

True?

 

[Carl B]

If both companies are just losing too much money without ever having hopes of recouping or turning a profit, then why are they in the business in the first place. Year after year we keep hearing how records are being broken in the video game business, yet these companies are probably not going to break even.

MS and Sony are big companies that have to be expecting some kind of return for these massive investments. I've always thought these companies worked on the "razor blade" model concept. Lose money on the hardware, but make money back on the software.

True?

The razor blade model is BS to an extent - the idea that it's a straightjacket anyway - it's just one way to explain a situation that is making money. Nintendo makes money on both the hardware and the games - isn't that much better? PS2 and PSP make money as well, even if they originally were sold at a loss. Good thing for Sony right now, that's for sure.

Sony is in the business because it is/(was) a large money making business for them. If their first console effort had gone like PS3 is going, well they probably would have left that business one year in. Instead, this is a stumble in a historically strong space for them. It's a stumble that's going to wipe out a *ton* of the previous two systems profits by the way, but they should be back in the green with PS4 and the infrastructure improvements going on this gen will have real worth going forward.

For MS, they got in because they didn't want to cede the living room to Sony, essentially. Let's just say PS2 had a lot of unrealized hype behind it. (Where's my AOL and RealPlayer?) But MS was scared, and back in 2000 everyone had visions of living room computing and broadband connections. Hell, half of the .com companies were in some way associated with those visions. Check Sony's stock price back in 2000 to see how profound the PS2 was thought to be pre-launch, what with its Internet capabilities and all.

Yeah they lost a lot with XBox 1, and 360 is probably not going to be profitable ultimately in and of itself, but I think at the close of this gen MS will have built for itself a legitimately strong brand, and have achieved a lot of its living room computing/media tie-in goals. The losses for the franchise have stopped, and the profits begun, so hey... no reason to shut down now, the best times are still ahead (hopefully).

 

[BadTB25]

I understand that as well, but other than Nintendo it seem that the other 2 companies at least started selling there products at a loss. I believe even the PSP was sold at a loss at the beginning of its launch.

For MS at least, they seem to be making something from Live (VOD, arcade and community game downloads, Fee for monthly gold subscription and paid advertisement) in addition to selling software at an attach rate of near 8.1.

Does anyone know if they make anything of the Netflix deal?

Hopefully both companies find a way to continue staying in the biz.

 

[Tap In]

So maybe making the hard drive 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.

some of us have been saying that since 2005. of course it's a genius move, always was.

 

[catisfit]

If both companies are just losing too much money without ever having hopes of recouping or turning a profit, then why are they in the business in the first place. Year after year we keep hearing how records are being broken in the video game business, yet these companies are probably not going to break even.

MS and Sony are big companies that have to be expecting some kind of return for these massive investments. I've always thought these companies worked on the "razor blade" model concept. Lose money on the hardware, but make money back on the software.

True?

As Carl B said, the "razorblade" model isn't really something that console manufacturers deliberately follow. The fact is the hardware in these boxes has to last ~6 years until the successor is released, so they tend to overspec them (relative to price) at launch in order to achieve that kind of longevity. Over time the cost falls more dramatically than the price, so on balance across a generation they would ideally want these losses and gains to at least balance out if not make them an overall hardware profit.

Example: PS2. Launch $300, almost 9 years down the line it's $130. It still sells well and makes a profit per unit, 9 years ago it was making a loss per unit.

We are still early in this generation and so we are still talking about per unit losses. Also, things are a bit different this generation, as other factors have come into play. For example, the cost of blu-ray has been significant for Sony in the PS3 business, but that cost is offset against the benefit of winning the format war, which will be realised over the next ~decade. A decent proportion of the R&D costs will be directly applicable to the PS4 as well IMO, so they are not necessarily confined to this generation.

 

[catisfit]

Some interesting quotes from David Reeves about Sony's strategy emerged today:

No we are not going to go down in price; neither are we going to go down in price on PS3 in spring time either. Absolutely not, whatever you might have heard to the contrary.

Our strategy is very much value added. I am confident that in PAL territories our installed base is 300,000 units ahead of Xbox 360.

When we came into the industry we started at zero. And we had to have a model that offered price elasticity. As soon as we got the manufacturing price down on PSOne we lowered the price. Same with PS2. But we're not doing that on PS3 - that's not the model, even if people are expecting it.

We're relying on the fact that the industry will keep growing and while we might have a comparatively smaller share of the market we will have higher sales. PS3 is tracking where PS2 was at the same point in its life. The value added strategy will continue for some years to come.

We are in a solid position, and are not lackadaisical. Next year we are probably going to be a little bit more aggressive when we reach the break-even point.

 

[DuckThor Evil]

Some interesting quotes from David Reeves about Sony's strategy:

When was that said?

PS3 is tracking where PS2 was at the same point in its life.

Does this mean something else, than what I think it means?

Hmm... Oh, but David Reeves is the European boss of Sony, well in Europe PS3 has done pretty good and I've read somewhere that the regions can now make their own strategies. Sony might lower the price in NA, but not in Europe. I wouldn't expect the discrepancy between the territories to last very long though.

 

[catisfit]

When was that said?

Within the last 24 hours.

 

[DuckThor Evil]

Within the last 24 hours.

Do you have a link, although I think he speaks for Sony Europe and not the whole Sony, atleast what he said makes sense if that is so.

 

[catisfit]

Do you have a link, although I think he speaks for Sony Europe and not the whole Sony, atleast what he said makes sense if that is so.

Yes, David Reeves is president of SCEE.

http://www.mcvuk.com/news/32597/Sony-Were-ahead-of-Xbox-in-Europe
http://kotaku.com/5102103/sony-euro...ice-cut-says-its-still-beating-xbox-in-europe
http://ps3.qj.net/Sony-we-re-leading-in-Europe-no-price-cuts-next-Spring/pg/49/aid/127011
http://www.ps3news.com/General_OffTopic/scee-president-reeves-were-ahead-of-xbox-in-europe/
...

 

[BoardBonobo]

What's the impact of being a higher priced, but with more features, better build quality, and a pedigree that is over a decade old? What price cut?

This is a looooong haul game. Depends who's got the balls to take it. Or will they drop it like hot cakes and move to the next best thing? Like some players we aren't allowed to mention.

 

[Nesh]

Some interesting quotes from David Reeves about Sony's strategy:

I dont like their strategy personally. When you decrease price, you increase value for everyone. When you add features, you add value only for those interested in the features and in fluctuating levels.

MS reduces price and adds value as well. When this happens the added value from the extra features increases too. They include for example a headset in the 360, they increased the HDD from 20 to 60GB and made bundles. These are accompanied by a price drop.

 

[function]

Why invest billions more in a product when at best that product will return a small profit, or possibly only a loss?

It doesn't make sense, that money is better invested where it can make a healthy return. This is why MS got out of the original Xbox and put the money into the 360.

Sony have either decided to accept a much smaller share of the games market and are hoping to make the PS3 investment back over a very long period of time (I can't see this being their plan - they know what happens to little players as the next generation approaches) or they're planning to minimise PS3 losses while they prepare to get into the next generation (and fairly early).

The prospect of a $150 360 next Christmas means there's no light at the end of the (recession reinforced) tunnel for the PS3.

 

[function]

some of us have been saying that since 2005. of course it's a genius move, always was.

Yep, while MS were getting lambasted for dropping the standard HDD a few years ago, it's now clear that the only system with a HDD in it is once again the one struggling to find profitability. Of course, this isn't all down to the HDD, but it does once again highlight that if you're going to cough up hundreds of millions (if not billions) of dollars on hardware to put in your system, it needs to be hardware that will do you some good in the market place.

After the original Xbox made this black and white clear, I simply don't understand why Sony thought it would do them so much good. They didn't even have services in place to make significant sums of money back using a HDD, let alone anything that really necessitated them having a HDD in there as standard (unless BluRay couldn't have worked with flash memory - but then we're back onto the merits of BluRay).

 

[wco81]

They're not going to telegraph a price cut, in the biggest-selling weeks of the year.

They will deny it right until the moment they cut the price.

 

[Shifty Geezer]

(I can't see this being their plan - they know what happens to little players as the next generation approaches)

And what is that, exactly?! Hasn't this gen shown that every gen starts almost from scratch, and it's what you offer this gen that matters, regardless of last gen? MS and Nintendo were smaller than Sony last gen. Now they're bigger, vastly so in Nintendo's case, who were a 'little league' player last gen.

The right box with the right features at the right price with the right marketing, and you have a winner on your hands. Even if you give it a name everyone laughs at

 

[expletive]

And what is that, exactly?! Hasn't this gen shown that every gen starts almost from scratch, and it's what you offer this gen that matters, regardless of last gen? MS and Nintendo were smaller than Sony last gen. Now they're bigger, vastly so in Nintendo's case, who were a 'little league' player last gen.

The right box with the right features at the right price with the right marketing, and you have a winner on your hands. Even if you give it a name everyone laughs at

I think this gen is the first generation though where (two of the) console manufacturers are trying to incorporate services that people will latch on to in order to necessitate some added loyalty to the next version of a box.

For example, all the DLC someone buys on console X this gen will probably work on console X+1 but most assuredly wont work console Y+1. Its the itunes paradigm, why change from an ipod when youve got $1000 in ITunes DRM'd music already paid for? Same with having a slew of friends on a particular online service, which will also make it difficult to switch services as online gaming becomes more the norm than the relative minority.