Sony is Minus 3 BILLION in the Hole!

[MA-Caver]

Now I don't know about you but trying to sell something cheaper than it cost to make it isn't good economics. You think one of the largest manufacturers of electronics in the world would know that? Apparently not.

Sony has lost over $3 billion on the PS3
Mario and Master Chief seen hi-fiving.
http://videogames.yahoo.com/feature/sony-has-lost-over-3-billion-on-the-ps3/1223467
By Ben Silverman
Think you paid too much for your Playstation 3? Don't expect any sympathy from Sony.

In the company's fiscal 2008 annual report, Sony revealed that they've now lost roughly $3.3 billion (that's billion with a B) on the Playstation 3 since its launch. That breaks down to $2.16 billion in 2007, followed by a notably smaller but equally daunting $1.16 billion loss in 2008.

The reason? Pricing the console below its production cost. That's right - that hefty $599 you paid for the PS3 back when it first launched was significantly cheaper than the cost of producing it in the first place, and while the retail price has come down some, the losses keep piling up.

Way I think they screwed up was hoping that they'd sell enough PS3's to make up for production cost losses. But not too many people wanted to pay for a $600 game console ... even after it got cheaper.

Who's idea was this? Someone on the board of directors is trying to explain this no doubt... or seeing how they're Japanese is committing seppuku in front of the whole company... mainly because I would imagine Sony is about to facilitate the largest lay off in the history of the company. Hmm, lessee $3 billion & that equals to about how many employee salaries and wages??
Wonders what they got in store to try and recover from that?

 

[Sukerkin]

The major problem that Sony has suffered with the PS3 has been that the fiscal plan would have been to recover the money lost on the console via the software and they haven't had the games to sell.

I think Micro$oft threw a spanner in the works because they released the XBox before it was really ready and idiot consumers (sorry for those of you who bought one) took the bait, despite the fact that some huge percentage of the output failed (sometimes repeatedly). Micro$oft absorbed the cost of free repairs and flooded out games - it was a dubious business practice to sell something you know was flawed but it's crippled Sony.

 

[terryl965]

Sony PS3 was just plain dumb and I for one am glad they lost thee *** with it.

 

[Sukerkin]

Oooh! A bit harsh there, Terry .

I for one shall be getting a PS3 once the price drops enough but I am a customer that's a Sony nightmare as the only game I shall buy is Gran Turismo 5 (just like I bought only GT1 & 2 with the PS1 and GT3 & 4 with the PS2).

 

[terryl965]

Oooh! A bit harsh there, Terry D.

I for one shall be getting a PS3 once the price drops enough but I am a customer that's a Sony nightmare as the only game I shall buy is Gran Turismo 5 (just like I bought only GT1 & 2 with the PS1 and GT3 & 4 with the PS2).

I, well my son's have the Sony 1 and 2 and I will buy the Sony 3 because they want it has the price goes down as well. I just hate that these company put such a high price tag on this crap, just like that stupid WII game. But then again I am not really a gamer some I am bias as a father who has to spend money on all of them. I just like the casino here and I am alwaus broke from that as well, damm Bob.

 

[Sukerkin]

Ah. Yes. I can understand the financial stress that must come with having kids :faints:. We just about get by without any extra humans feasting on the paypackets .

 

[Big Don]

Price fixing is supposed to be illegal, isn't it? Sony's PS2 is, at any store in the US, $129.99 no less, no more, just as their PS3 is 399 at every store and Nintendo's Wii is $249. Where are the calls for congressional investigations?
Edited to add, they cannot honestly claim that their costs to manufacture and sell the PS3 exceed $399 per unit, it is just a computer in a shiny case, it does not cost that much.

 

[Kreth]

Edited to add, they cannot honestly claim that their costs to manufacture and sell the PS3 exceed $399 per unit, it is just a computer in a shiny case, it does not cost that much.

A computer with new (at the time) processor technology and high-end graphics...
They took a hit (although not as big) on the release of the PS2 as well, for the same reason.

 

[Bob Hubbard]

It costs less than a buck to make a Dual-Xeon-Quad Core CPU.
Still costs a grand for it though.

Sony, I could care less about. Still on my boycott list since their DRM crap a few years back.

 

[crushing]

It costs less than a buck to make a Dual-Xeon-Quad Core CPU.
Still costs a grand for it though.

Sony, I could care less about. Still on my boycott list since their DRM crap a few years back.

Same here, but I think you mean root-kit spyware incident. What they did went way beyond DRM.

 

[tellner]

Price fixing is supposed to be illegal, isn't it?

Not any more. A combination of Federal laws and court decisions have given companies the power to establish retail price floors below which their goods can not be sold.

 

[cdunn]

Companies such as Sony are very perfectly allowed to give a Manufacturer's Suggested Retail Price. Distributors are allowed to follow this as they see fit.

This is the per-component price breakdown, not including the controllers. It is extremely comparable to an ultra-high end gaming rig. The closest comparable desktop PCs start at $1500-$1700... and aren't really optimized the way the Cell processor is for gaming.

I hate to be a Sony defender, but, gentlemen, this is the Standard Business Model in the video game industry. Sony makes its profit on the $10-$15 it makes on every singe game sold for the system. It's called a 'loss leader', and it is a very common business strategy. Anything on sale this week at the supermarket? It's a loss leader. Gasoline at the place with the attached convience store? For the store, the gas is a loss leader. Your safety razor with the detachable blades? The handle was the loss leader, your blades are the profit source.

Sony is taking a soaking because they have no product to sell - They've basically been selling Blu-Ray players that might play games at a later date. (And getting a buck or two on every Blu-Ray movie that gets sold to go with it.) Relief may be coming soon, if it's not too late. Metal Gear Solid 4 is the first 'blockbuster' game for the system, and new installments of games like Final Fantasy and Soul Calibur will push it as well.

 

[Zeno]

Expect to see Sony make a comeback. In some way, somehow, at some time, they will make the comeback. I don't think they totally weren't expecting something like this to happen. They've got back up plans for everything. Rest assured of that. Sony didn't make it to where they are now without at least SOME common sense of the industry.

All I know is that Metal Gear Solid 4 makes my PS3 my best friend.

 

[Phadrus00]

Companies such as Sony are very perfectly allowed to give a Manufacturer's Suggested Retail Price. Distributors are allowed to follow this as they see fit.

This is the per-component price breakdown, not including the controllers. It is extremely comparable to an ultra-high end gaming rig. The closest comparable desktop PCs start at $1500-$1700... and aren't really optimized the way the Cell processor is for gaming.

I hate to be a Sony defender, but, gentlemen, this is the Standard Business Model in the video game industry. Sony makes its profit on the $10-$15 it makes on every singe game sold for the system. It's called a 'loss leader', and it is a very common business strategy. Anything on sale this week at the supermarket? It's a loss leader. Gasoline at the place with the attached convience store? For the store, the gas is a loss leader. Your safety razor with the detachable blades? The handle was the loss leader, your blades are the profit source.

Sony is taking a soaking because they have no product to sell - They've basically been selling Blu-Ray players that might play games at a later date. (And getting a buck or two on every Blu-Ray movie that gets sold to go with it.) Relief may be coming soon, if it's not too late. Metal Gear Solid 4 is the first 'blockbuster' game for the system, and new installments of games like Final Fantasy and Soul Calibur will push it as well.

cdunn has nailed it. Almost all Video Game consoles sell as loss leaders with the games generating the profit. Microsoft is way ahead because of it's game selection AND it's new business models of using XBox live to seel addon and downloads which is brilliant. Sony is hoping to do something similar with it's on-line presence but is currently behind the power curve.

The real battle here is much larger in scale. The TV is considered the next great bastion of connectivity to the consumer. Beyond Games, XBox and PS3 want to be your entertainment portal for movies, tv et all. They will be able to rpofile who you are, what you watch, what products you respond to, etc. The profit margins on those Services are enourmous but it requires a foothold in the living room which is why they are willing to take a soaking on console sales.

The other interesting play here is the High Def DVD market. Sony won by buying out all the Movie Studios and is banking on making it all up with unit sales now that they are the sole player in town. But Unit sales have actually declined because they are so expensive while PS3 sales are up because it's the chealest (and in many cases most feature filled) Blue Ray player on the Market. Here is the kicker though.. Some people are saying that Digital Downloads are goin gto kill DVDs. Why get an expensive player and store all those DVDs when you can just download what you want and store it locally on your Terabyte array on the network?

Interesting Times...Says the guy who bought an HD-DVD player last November..

Rob

 

[Big Don]

Not any more. A combination of Federal laws and court decisions have given companies the power to establish retail price floors below which their goods can not be sold.

Well, that is less than good news...
Yes, companies should be able to sell their wares (always liked that term) for whatever price the market will bear, and, of course they should be allowed to profit. However, price fixing, to the high or low side is dishonest.