Sony's PS3 Plan: Lose $300 On Each Unit, But Make It Up In Volume

from the backwards-math dept

Thu, Nov 16th 2006 11:31am — Carlo Longino

Much has been made of Sony's ongoing supposed turnaround, and the Playstation 3 was supposed to play a significant role. But between the Sony battery fiasco and the multiple delays of the PS3 launch, the company's still treading water. Now, just as the PS3 is (finally) going on sale, an analyst report says Sony will lose between $240 and $310 on each unit it sells, even with its high starting prices of $500 and $600. It's common for game consoles to be sold at a loss at first, until economies of scale come into play and bring manufacturing costs down -- for instance, the same analysts say a year after its launch, Xbox 360 unit sales now likely generate a small profit for Microsoft. This means that companies have to make up the difference with game sales, and the huge loss on each PS3 means that it needs to get an "attach rate" -- the average number of games a consumer buys along with the system -- of 6. Analysts consider 4 to be high, and 3 to be the average rate, so Sony's got quite a challenge on their hands, particularly when you consider the high cost of the system, and the growing cost of games. Games for new systems are getting more expensive, and they continue to be developed for and marketed to the core gamer demographic, focusing on technological achievement over everything else. But is this an increasingly niche market? Nintendo's gone the other way, attracting a wider audience to gaming by keeping prices low and focusing on less flashy games with a lot of attention on the gameplay itself. Of course, its next-generation console, the Wii, is also out soon, setting the stage for an interesting tussle between the two strategies. One final footnote about the PS3: its second most expensive component, at $125 -- and apparently the one also responsible for many of the delays -- was that oh-so-awesome Blu-ray optical disc drive. All in all, the PS3 sounds like a masterstroke: delay the launch for an expensive component that nobody really wants anyway, and kill your margins even more in the process. Looks like we'll still be waiting a while for that Sony turnaround.

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37 Comments

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Anonymous Coward, 16 Nov 2006 @ 11:43am

Now, is $125 Sony's cost of manufacturing its own Blu-ray, or the cost that it officially charges itself internally? Because if it's the latter, then one should consider the profit Sony makes on blu-ray drives it sells itself, which in real dollars would defray from this loss.
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Anonymous Coward, 16 Nov 2006 @ 12:00pm

no
the 125$ is the amount of money they pay per device to BUY the blu-ray components from a 3rd party manufacture.

Sony does not make or sell blu-ray components. (they do however, package them and sell blu-ray devices)
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- Anonymous Coward, 16 Nov 2006 @ 1:23pm
  
  Re: no
  Wrong, Sony manufactures the blu-ray components.
  It says it in the article.
  
  "This means Sony must rely on sales of accessories and other gear in the hopes of breaking even, for a release that has already been constrained by supply shortages of critical equipment, such as -- ironically -- the blue-laser diodes Sony itself manufactures for PS3's built-in Blu-ray Disc player."
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PhysicsGuy, 16 Nov 2006 @ 12:04pm

bleh to sony
!!!nintendo all the way... i have my computer for beautiful graphics... the ps3's video card doesn't touch new high end pc graphics cards ... wow, they have a cell processor; it can handle ai and physics computations better than my computer can... big deal... what it all comes down to is games... nintendo is known for overall excellent gameplay... i still play zelda for snes because it's an incredibly fun game to play... not to mention the playstation's motion sensing controller is going to suck compared to nintendo's ... from what i hear it's lag all the way for the ps controller.
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Petréa Mitchell, 16 Nov 2006 @ 12:16pm

Cut out the middleman
Considering how many PS3s were snapped up just to be resold on eBay, Sony could've fixed this profit problem by going to eBay and selling the consoles directly there.
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Simon, 16 Nov 2006 @ 12:18pm

To add to their woes...
...they seem to be trumpeting the PS3's ability to run Linux and run homebrew software. If the homebrew software becomes popular, then Sony may find themselves selling millions of PS3's with a attach rate of zero.
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DittoBox, 16 Nov 2006 @ 12:20pm

Hehe...Bill Cosby
Bill Cosby in talking to Noah, with his God-like voice says...

"How long, can you tread water? Ha ha ha ha."

"RIGHT!"
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thecaptain, 16 Nov 2006 @ 12:30pm

What volume?
What volume? Most stores are only getting 2 or 3 units?

(I am convinced this was done on purpose to create hype, doesn't matter to me, I'm going for a Wii instead)
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- Anonymous Coward, 16 Nov 2006 @ 12:53pm
  
  Re: What volume?
  Anyone who wants a PS3 this early... has made up their mind. This "hype" does very little if anything for them.
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hoeppner, 16 Nov 2006 @ 1:01pm

two very different systems vs. one system.... well theres your answer.
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Anonymous Coward, 16 Nov 2006 @ 1:04pm

Backwards Compatability
I want a PS3 for the new features, and so I don't have to eat my 30 or so PS2 games I already have.
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- dances with thoughts, 16 Nov 2006 @ 2:09pm
  
  Re: Backwards Compatability
  But that's what we're saying. If people are buying these for their old games, and the FREE new features, Sony may never make a comeback.
  
  P.S. What's the matter with using your PS2 for your PS2 games?
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spoon, 16 Nov 2006 @ 1:08pm

Yet I still make a killing holding people's places in lines for the PS3 for money. Never underestimate the power of obsessed fanboys in swarms...
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RonDo, 16 Nov 2006 @ 1:12pm

Ironic. They lose up to $310 per console, however people make hundreds/thousands of profit on Ebay.
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Kevin, 16 Nov 2006 @ 1:18pm

An attach rate of 4 is high? Well, maybe if the attach rate is the number of games purchased with the console, in which case 2 or 3 would be much more common. But what's the difference between someone who buys a PS3 today and buys 15 games to go with it, versus someone who buys a PS3 today and 3 games, then buys another dozen over the next year? OK, the games might be a tad cheaper a year after release, and the revenue gets booked in a different quarter, but all that means is that instead of selling 4 games at $60 each with the console, they need to sell 6 games at $40-$45 over the next year.
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- Anonymous Coward, 16 Nov 2006 @ 1:28pm
  
  Re:
  It's called the Time Value of Money ...
  
  http://en.wikipedia.org/wiki/Time_value_of_money
  
  Essentially, money in your pocket today is worth more than money a year from now. Also interesting to think about that and how it realtes to pre-orders.
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theMouse, 16 Nov 2006 @ 1:52pm

Sony
genuflecting the Mighty Obelisk...
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DJ Hiphop, 16 Nov 2006 @ 2:02pm

Missed Something
That attach rate might make sense if the thing only played games, but what about the fact that it is very likely to make Blu Ray the dominant format? That's gotta be worth something. You can argue all you want about which format is going to be popular in the United States with Softie selling their Hd-dvd add ons, but Blu Ray has already won in Japan. Also there's all those online games and stuff that they sell at a huge profit because there all they have to do is port an old game and then deliver it via broadband. I bet they make a bigger profit on blast factor than they do on any of the games sold in the store. These brilliant "analysts" didn't seem to consider any of this. I also question their figure of an average of 3 games per console. Is that like the amount people buy the day of release or what? Most of the guys I know buy more than three copies of Madden through the life of the console. Sony is going to make a fortune off this console unless they start exploding.
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gmr, 16 Nov 2006 @ 2:03pm

Lets see how many of those 30 PS2 games work 100%. If the sell millions, thus making PS3s Linux a target for viruses and spyware/adware/malware
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Tyshaun, 16 Nov 2006 @ 2:08pm

So glad I'm not a *gamer*...
As I sit around and play frogger on my Atari 2600 I wonder why anyone would want to pay $600.00 for something that is going to be like $200.00 in a couple of years anyway. I remember when the PS2 came out and it was like $600.00 on eBay, now they practically give them away.

Patience is a virtue that more of us need to learn...
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- Afronator, 17 Dec 2006 @ 8:18am
  
  Re: So glad I'm not a *gamer*...
  yea but when the PS2's came out ps1 were old same with the ps2 and ps3 who the hell wants to wait like 3 years? people will be bored of thiere old games (as in like a year or so sony wont be making PS2 console games)and to todays standards if you think about what is going into the PS3 $600 is not alot to pay for the system who cares if Sony is losing money, they want thier customer to be happy.
  
  The stupidest part of sony tho is having a limited amount being sold at select stores. That gave the Xbox 360 a chance to make its money as all the kids are getting 360's as opposed to a PS3 where they are impossible to find
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Rick, 16 Nov 2006 @ 2:26pm

Doesn't Sony get a cut of every Blu-Ray disc sold as well? I assume they are considering the new PS3 owners will buy at least 5-10 of those in the first year as well.
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aaa, 16 Nov 2006 @ 2:31pm

they wont sell a thing everybody is to impresied with the microsofts 360 and most gamers already have that and the media is to focused on mircosofts new zune right now to give it any attention
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aaa, 16 Nov 2006 @ 2:32pm

they wont sell a thing everybody is to impresied with the microsofts 360 and most gamers already have that and the media is to focused on mircosofts new zune right now to give it any attention
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Peabody, 16 Nov 2006 @ 2:58pm

One way SONY can make it pay
is to port their MMORPG (Everquest) to the PS3, thereby generating a monthly income stream, and freeing up MY PC's for other use...
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Soul, 16 Nov 2006 @ 3:05pm

Re: aaa
The XBox 360 is considered by most to be the XBox 1.5 and nothing more then a stopgap. And the Zune is getting some of the worst reviews I have ever seen. Not sure what media you are watching, but mainstream media is a battle between PS3 and the Wii. Personally Im going with the Wii...
gameplay>graphics
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Soul, 16 Nov 2006 @ 3:05pm

Re: aaa
The XBox 360 is considered by most to be the XBox 1.5 and nothing more then a stopgap. And the Zune is getting some of the worst reviews I have ever seen. Not sure what media you are watching, but mainstream media is a battle between PS3 and the Wii. Personally Im going with the Wii...
gameplay>graphics
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- Andy, 21 Dec 2006 @ 1:40pm
  
  Shut up about the Xbox 1.5
  I'm sick of people saying the 360 is xbox 1.5. It is true that there are features from the first xbox, such as ethernet support, an included hard drive (pro system), a unified on-line game service, and a few others to name a few. And it is also true that the Play Station 3 is including these features even through the playstation 2 didn't. When the sony exec coined the term xbox "1.5" he didn't account for the fact that it didnt have to be completely redesigned becuase the previous version had so many great features. Other than the built in wi-fi sony has copied every new feature from other companies (except possibly the idea for wireless controllers). As for being able to play Blue Ray movies in 1080p, i who cares. Very few people have the TV to support it, we aren't sure which technology will win out, and finally, microsoft chose not to drive up the cost of their console by addinf a feature VERY FEW people need at this point. If the playstation 2 had been as good as the xbox to start with then the playstation 3 would be only the playstation 2.5
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  - lolyouarestupid, 25 Jan 2007 @ 8:03pm
    
    Re: Shut up about the Xbox 1.5
    the ps2 was better then the xbox, go check total sales to date, ps2 outsold its competitors by a huge margin
    
    sony has proven that "graphics anything out there"
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Grimmreaper74, 16 Nov 2006 @ 3:46pm

Just wait...
Well I have invested in buying 2 PS3's and 6 random games 3 with each system in total $2000 and right now both systems are on ebay for $1500+ each. Then I'll wait a couple of weeks and or even a month and just get one...Who cares, did the same with the 360...Sold the bad systems and bought one in time that all bugs were fixed by Dec 30 when I got one on circuit city's website. And still have it today, with 15 games. Sony and Nintendo will make enough money trust in this.
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Stan Marsh & Kyle Brovlovski, 16 Nov 2006 @ 4:14pm

We're sticking with our Okama Game Sphere!!!
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marklar, 16 Nov 2006 @ 4:54pm

Marklar!
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Donald Duck, 16 Nov 2006 @ 11:53pm

They'll make money LOL
Sony makes the Sony BDP-S1 Blu-ray Disc High-definition player for $1,000 bucks. The PS3 well play SONY blue ray movies it should make them a few bucks. A coupon for movies would get a good response from all the teens and you know the family would purchase their movies along with their new play station.

They are going to allow people to purchases images, music and games off their FREE net browser. They hope that the free net browser would get more buyers of their unit because of how well Microsoft has done with their paid net service.

I waited a long time to purchase my Xbox I thought the prices in the United States was way to much compare to the prices in Europe or Asia. Since there is some post about economics on this site how about the economics of wasting money. I purchased an Xbox to save my computer from crashing no matter what some of these games just crash your system and that bothered me. Just seems to not be as fun as computer games.

Now which makes more economic sense? Purchase a play station 3 or use that on a computer or upgrade your computer. PDA, cell phone, mp3 player, bigger monitor. $600 with that amount of money you could purchase a nice TV set any major appliance. Freaking remodel a room in your home like a new fireplace? I already read that the play station 3 was having problems in Japan and it doesn't play all the old games correctly they are having sound problems. Sony is making the most out of this economics of scarcity with prices that high and only a few game consoles at the local wal mart.
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Jason, 17 Nov 2006 @ 7:08am

Attach rate
That's how many games they need to sell. There's little doubt they will sell that many, just possibly not at the very first. However, it does other things, too, like make people who don't have one want a HD TV (which Sony sells), or buy movies on Blu-ray (which Sony sells), or buy old games online (which Sony sells). If they make a better remote to play DVD/Blu-ray's with, people could come to use the PS3 as their main movie player. It doesn't matter that much that they lose $300 per PS3, they make it up on the back end. I'm guessing that Sony will make a profit overall, on just PS3 related affairs, in 2007 just based on the amount they DO sell it for, combined with related sales (ie games, TV's, movies).
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some random guy, 17 Nov 2006 @ 9:52am

the
idk wat to talk about im bored
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Averre, 16 Oct 2007 @ 11:08am

Re: lolyouarestupid....is a dumbass.
And now the tables have turned and the 360 is outselling the PS3.

Sort of blows a big gaping hole into your 'graphics anything out there'

Oh, yeah...and the 360 can play sports titles 30 FPS FASTER than the PS3...good job Sony.

The PS3 is a failure, you can say what you want...you can bitch all you want...the bottom line is that Sony is losing money hand over fist while Nintendo and Microsoft are making a profit...if people were into the PS3 like the Sony fanboy's say the price drop would've made a difference....it hasn't.
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ribanac, 27 Apr 2009 @ 10:28am

sony sucks
it worked 11 month(WOW),they sad it was dirty,and it worked 25 days,paid 125 euros after 30 days I have same problem,well done
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