Sony's PS3 losses may pay off
The PS3 Slim is part of the right strategy.
(Credit: Sony)With Sony's PlayStation 3 trailing so far behind Microsoft's Xbox 360 and Nintendo Wii, it was only a matter of time before the company that had offered the most expensive console on the market would reduce the price of its hardware.
But by doing so, Sony has ensured that going forward, it will take a loss on every console it sells. That was confirmed by Sony Computer Entertainment chief Kaz Hirai in a recent interview with the Times Online.
"If you're just talking about the hardware alone, the quick answer is yes," Hirai said in response to a question asking if Sony is losing money on each console sold. "That makes good headlines, but I don't actually know that that's the true nature of the business that we're all in, whether it's PlayStation, Xbox, or the Wii."
There's little debate that Sony's decision to cut the price of the PlayStation 3 to $299 and offer the PS3 Slim at the same price is surprising. The price cut will undoubtedly hurt profit margins. But it was a smart move.
The store shelf battle
Having a higher console price than the competition hurt Sony at retail. When consumers went to the store with enough cash to buy just one console, they needed to choose among the $250 Wii, the $300 Xbox 360 Pro, or the $400 PlayStation 3. They chose the cheaper alternatives.
Sony's console is no longer the most expensive console on the market; Microsoft's Xbox 360 Elite now holds that crown, with a $400 price tag, though even that could be slipping, with very nearly confirmed price cuts coming next week that could drop the price of the Elite to $299 and the Pro to $249.
Regardless, Sony should enjoy better sales, now that it's in that same pricing sweet spot. That will be especially true when consumers consider features the Xbox 360 doesn't have, like a Blu-ray player, free online multiplayer gaming, and built-in Wi-Fi.
And yet the PlayStation 3 is a victim of its feature set. All those extras add to the cost of its console. It's why at $400, the company couldn't profit off a single console. It's also why it's still facing losses with each sale of its cheaper hardware.
Microsoft and Nintendo force gamers to invest in accessories to achieve the same level of usability. Xbox 360 owners need to buy a $50-per-year subscription to Xbox Live just to play games online. Wii owners might be able to play online for free, but thanks to the uniqueness of its games, Nintendo has been able to sell a slew of add-ons, including a steering wheel for Mario Kart Wii, gun attachments for first-person shooters, and more. Neither console boasts a Blu-ray player.
The consumer wins, when we consider the PlayStation 3's value proposition. Sony loses, from a per-unit profit perspective. But in the long run, the price reduction might help Sony.
As ideal as it might have been to turn a profit on every sold console, Sony's decision to reduce the price of the PlayStation 3 and offer a new console version was smart. It makes the company's consoles more affordable. It ensures that it provides the best value proposition in the space. And as more consumers opt for the PlayStation 3 over its competitors, it could put Sony in a position to capture a larger share of the market, considering what it makes on royalties and licensing fees from third-party developers and hardware makers.
As bad as the losses may be, capturing more market share is Sony's goal for the foreseeable future. That wouldn't have been possible if the PS3 wasn't so affordable.
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Don Reisinger is a technology columnist who has written about everything from HDTVs to computers to Flowbee Haircut Systems. Don is a member of the CNET Blog Network, and posts at The Digital Home. He is not an employee of CNET. Disclosure.
The PS3 resizing and cost cutting are fantastic news for anybody who doesn't own both, because the Xbox has to come down in price now. We've reached a level of hardware that makes them both fantastic gaming computers for dirt cheap.
The Wii--well it's a neat toy. Can't imagine ever sitting in front of one for more than a half hour, or considering it a "real" game system. If its price stays the same sales will have to plateau because no matter how many kids and girls they sell to, the other two systems will be offering so much more for about the same price.
Of course, they could cut the Wii to $99 bucks and make it a hell of a bargain for a pretty nifty toy, but that has a much lower chance of happening than a big Xbox price cut.
Thank you and amen. Why is this news every time?
Old argument, no longer really applies...
Which is it? Are you an ellitist that thinks every pixel counts? You don't listen to CD's much less MP3's because the sound quality doesn't compare to vinyl? Or are you a fanboy still clining to the idea that normal people can tell the 360 has better graphics than the PS3 outside of a screen shot and then goes out and buys the cheapest BD player he can find at Walmart and connects it to his 37" Vizio? I vote fanboy.
There are plenty of reasons to love your Xbox. Pick one that actually makes sense and go with that.
Well, the price was always the #1 negative for the PS3. If all you wanted to do was play games then you were paying a lot more for features that you didn't want. Now that the price has been reduced to something more sensible and the console repackaged into a smaller form it is a much more attractive proposition. But make no bones about it, the PS3 was always hamstrung by the price and this shows in the sales figures.
This may help Sony pull through, but it just further confirms what a horrible spot the PS3 put them into. Had any other company - not the dominant player - launched a system priced that far out of the market clearing range, against competition on par (360) and niche product with an even broader range than hardcore gamers (Wii), then it would be another 3DO......they would already be out of the retail stores.
Sony survives this by sacrificing the lucrative brand - Playstation - for the sake of Blu-Ray bloat. They martyred their gaming business for a disk format that the vast majority could not possibly care less about. Microsoft owns or has a solid footing with (early adopting) hardcore gamers, and a userbase for its online service (that Sony was too slow to match). Nintendo has good footing again, even if the niche they created doesn't lend itself to the traditional 5 year cycle.
Many would disagree and cite bluray as a primary reason for the purchase of a PS3. That's the only reason I bought it.
What shocks me is how much Sony continues to pile up in losses. Yes, the consoles are always a loss in and of themselves, but 100s of millions of dollars in the hole each year for the Playstation division of sony... that's simply not sustainable.
At the time the cost of a Blu-Ray player was too high, and the price of the discs were double the price of DVD's.
Now some manufacturers have released stand alone Blu-Ray players for less than $200, so the PS3 still does not make sense.
They should have never sacrificed the gaming console to push the BR format. They could have kept the costs down, because they did not need the extra storage space for games. A dual layer DVD holds 8.5 GB, and almost every game is less than that size, unless the developers are lazy and inefficient.
It is not shocking that Sony continues to lose money quarter after quarter. The hubris of that company has caught up to them in all their product lines.
Define "many". I have absolutely no doubt that a % of PS3 owners bought the PS3 for access to Bluray but how many did not consider Bluray as a factor when making their decision to buy? Further, how many potential PS3 customers decided not to buy a PS3 due to its high price? I tend to agree with SalaciousPuck that Sony were betting big on Bluray but the format hasn't really caught on and the PS3 has paid the price for it. Had it not been for Bluray the console would have been released much sooner, at a lower price and would have prevented the 360 from running away with the market.
Personally, I'm still in the camp that considers DVDs to be absolutely fine.
I bought it the second HD DVD threw up the white flag. And I love all the BR options from netflix- far superior to the supposed 'HD' streaming on xbox.
I recently rented a DVD from netflix since there was no BR option, and it was absolutely disgusting quality (it was a recent movie, too). kelmon, you must have bad eyes or a bad TV set if you think "DVD is absolutely fine." It's not, not even with my Oppo upscaling DVD player (ie the best under $1500 on the market)
PS3 also is a great media client and I stream netflix, hulu, youtube, revision, and dozens of others as well as viewing photos and music from my NAS.
Games are an after-thought to me. While a I do enjoy a few of them (GTA, Burnout, LBP), I have no interest spending hours shooting at people in the same old regurgitated FPS junk that most "serious" gamers enjoy.
"A dual layer DVD holds 8.5 GB, and almost every game is less than that size, unless the developers are lazy and inefficient."
A statement like that is what shows many gamers that are in the 360 camp just don't get it. There are few games that use more space than that because most 3rd party games are designed for the 360 and ported over to the PS3 lol. The 360 is the reason why this is the case.
Don't believe me? Google Grand Theft Auto IV interviews with the dev team. The reason why there are not more cities in that game is because it wouldn't fit on a DVD. Had MS used a format with more storage capacity, there would most definitely be uses for that extra capacity.
I'm not saying that the 360 isn't a great system, but it drives me crazy when people give them kudos for sticking with the status quo of DVD without at least mentioning the fact that that decision also has yielded some pitfalls as well. The next time you complain about a game being only 8hrs long, maybe you won't be so thrilled with good ol' DVD.
As for razors and blades, this sort of falls apart if you are buying it as a Blu-ray player. The money Sony gets from licensing Blu-ray is much less than from its royalty from gaming sales so it will be much harder to make up the loss from the console if the consumer is just watching HD movies from netflix and not buying games.
Does anyone say that? There is a huge difference between the statements "Bluray looks better than DVD" and "I am happy with DVD". Better quality is only important to people if they are currently dissatisfied with what they already have. DVD had so many benefits over VHS that it was easy for people to adopt because it didn't suffer from the problems of VHS that drove people nuts, like having to rewind the tape, tapes degrading in quality, and the amount of space they physically take up. Bluray, on the other hand, just delivers better image and audio quality and that isn't compelling when DVD is considered "good enough".
The number of inaccuracies and fanboy commentary presented as facts are so overwhelming that there is just no place to start.
Nothing to see here move along... move along.
It's pedantic and obvious, sure, but this is one of the times that Don is just pretending to be an analyst.
Also the Wifi debate is a dumb one. Gaming on the internet via Wifi = lag, period. You get some fine games in but you are much more likely to get lag and have latency issues which can result in death when things are close. Anyone who wants to actually play and enjoy trouble free frag fests uses an wired connection. If Sony released a Wifi free version that was even only $20 cheaper I would get that instead. The only thing I would ever use Wifi for is locally to send content to it, but I already stream everything to my Xbox 360 with WMC so I don't even need that.
Even as a gamer, I used Wifi for the first couple of years with my PS3 because it just wasn't practical to do a wired connection. Now that I've moved into a new place, I was able to wire it up. Overall, it's not something I really notice.
How so? Are you using an 802.11b connection (11Mbps)? That's the only way I could see you experiencing lag, unless you have a weak signal. Almost all wireless equipment for the last few years has been 802.11g. If you use outdated hardware, then yeah, you'll probably have lag. The only lag you should experience is with your connection to your ISP. It's simple really. If your wifi connection to your router is 54Mbps and your ISP connection is arounb 10Mbps or even 15Mbps isn't it obvious where the bottleneck occurs?
54Mbps > 10Mbps
It's a bad analogy, but imagine driving on a twisting highway where everyone is driving at the same constant, high speed of around 100 mph without obstacles (100Mb wired connection or 1000 mph for 1000Mb/1Gb connections), versus driving on a straight highway where everyone is forced to slow down to avoid obstacles with a speed limit of 54 mph (802.11g wireless connection). Even though the straight highway is a shorter distance, you will probably arrive at your destination quicker if you had taken the twisting highway with its much higher average speed.
UPC/SKU scan tax data from all major game companies that have to filed quarterly to the IRS reports that the average Wii game sells a million while the average PS3 game can barely move. Wii owners buy the console once, while the PS3 is sold three to four times over to the same person because that person has a religion within Sony. When going to a video game store, it's Wii Wii Wii, while PS3 gets a good laugh from the staff.
If Sony wants to do this, and with the generation over in little over 18 months, and Nintendo's new machine readying 2011, go ahead. You'll see $149.99 Xbox 360s and $129.99 Wiis. And it will happen. You know, for the author, try working in the games industry instead of just listening to gaming friends from the GameSpot devision, hmm?
Huh? I'll have what this person is smoking please.
I believe you're thinking about XBox and its epic hardware failures. Most people I know are on at LEAST their 2nd system, some up to 4th or 5th (NOT including warranty returns- strictly repurchases)
Really, "barely move" is how the "IRS" reported Sony's "scan tax data," did they? Try not to speak too far above your grade level, and if you are going to make up things, at least use real world terminology. EPIC FAIL.
"the PS3 is sold three to four times over to the same person because that person has a religion within Sony"
Well, as others have pointed out, this isn't true. But what's odd is that if it were true, it completely undercuts your argument. What company wouldn't want consumers to buy its products multiple times and treat it like a religion? According to you, the PS3 must be a huge success!
They cannot EVER make that money back.
Story came out yesterday that Sony will spend $134 million in marketing this Christmas. Even if they sell 10 million consoles, that is $134 per console on marketing alone!
Howard Stringer has to go. He didn't want "blu-ray" written on his tombstone - instead it may read "Sony" on his tombstone.
Quick correction: Assuming they sold 10 million consoles, that would actually be $13.40 per console.
>>Sony lost $5+ BILLION DOLLARS on the PS3/blu-ray debacle
>>but I just wonder how long Sony will continue its massive losses and support the system
Loss on console itself but PS3 as a whole is PROFITABLE for Sony, a little sentence that came after the quote in the article that the author conveniently left out, the Blu Ray war costs will take time to recoop though... there is a difference
>>Sony needs to dump that thing.
PS3 was out selling the XBox overall world wide until XBox reduced price, PS3 will most likely out sell it again now that its price has dropped. People make it sound like PS3 has always done worse than XBox, not true.. most of the time since release it has been doing better in sales than Xbox world wide and that was despite the fact it cost so much more.
Not to mention the quality and features PS3 offers compared to the horrible failure rates and lack of features xbox provides.. which one would be better off dumped/scrapped and starting over?
>>PS3 doesn't have Netflix
Not really true, you can and many do enjoy Netflix on PS3 using streaming from their computer. So yes not built into PS3 but still possible on PS3.
WW III will be fought with joysticks and crumpled burger wrappers.
Wait a minute... so you're saying that a price cut will lead to higher sales?? Get out of town! Are you really telling me that, despite what I may have heard, this was actually a "smart" move by Sony? Wow! Such insight!
Aanon said: "Another publication from Don "I have never heard of Porter, Mintzberg, Kaplan, Norton, Lampel or Ahlstrand, but I have such great fun using my home-brewed business-strategy analysis methods" Reisinger."
God, tell me about it. It's one thing to be an armchair analyst, but can't he at least admit that he's not an expert before spouting "expert" opinions? Don's articles fall under two catagories, either "one piece of anecdotal evidence + preconceived opinion = fact" and "things we all fraking know already." What's worse is that he's so confidant and arrogant about it. I don't get what cnet sees in him.
The sad thing is that he's probably not a pompous blowhard or anything, he just doesn't know what he doesn't know.
Know what I mean?
I like the new design and for $300 there is no denying that is by far the top console out there right now hands down. This is coming from a Xbox 360 owner.
Obviously each gamer must determine for themselves the 'value' between a free PS3 online experience and the XBL $35 / year (seriously, only an idiot would pay the full $50 / year versus the multitude of online specials plus a few free trials ranging from 48 hrs to 1 month inside most games).
As for the BluRay, I already own one but am financially spent from upgrading VHS to DVD then original DVD to Special Edition / Director's Cut DVDs ... so I'm only buying NEW titles on BluRay and those are few and far between. Sadly my PHILIPS HDMI upconverter DVD screwed up my point-of-reference and I see minimal improvement from DVD at 720P to BluRay at 1080P. For now, i will continue to hold onto the BluRay for the fun 3D titles we're promised in the near future - including my 4th or 5th Star Wars collection. LOL
- by superdynamite August 26, 2009 12:29 PM PDT
- Don Reisinger,
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Showing 1 of 2 pages (55 Comments)Get your facts straight before writing articles.
Horrible research.