Sony's loses on PS3

Discussion in 'Video Games and Technology' started by Omega Supreme-1, Nov 30, 2006.

  1. Omega Supreme-1

    Omega Supreme-1 Autobot Sentinel

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    http://www.betanews.com/article/PlayStation_3_Loses_as_Much_as_307_Per_Unit_Sold/1163688668

    PlayStation 3 Loses as Much as $307 Per Unit Sold
    By Scott M. Fulton, III, BetaNews
    November 16, 2006, 10:59 AM
    In its highly anticipated teardown analysis of the initial production run of Sony's PlayStation 3, being introduced this week in Japan and North America, technology analysis firm iSuppli confirms what many -- including financial analysts at Merrill Lynch and elsewhere -- had suspected as far back as last February: For each 60 GB PS3 model sold in the US for a retail price of $599, Sony loses an estimated $241.35; and for each 20 GB model sold for $499, the manufacturer loses $306.85 (assuming loss from the retail price).

    Keep in mind that these are retail prices we're mentioning. Although margins for video game consoles are believed to be razor-slim, Sony is actually earning less in revenue than $499 and $599.


    It's widely known that game console manufacturers, especially on the initial run, actually plan to lose money per unit sold as part of the price of building a customer base. Companies like Sony, Microsoft, and Nintendo know that they can make up that lost revenue from the sale of games, which in the optical disc era, are very cheap to produce. This supplemental revenue is called "software attach," and it's measured by the average number of games customers purchase along with the base unit.

    In recent analyses of Xbox 360 sales, the software attach rate has jumped to about 5 - which is considered high, with 4 usually being the industry's high water-mark. But when Xbox 360 premiered at this time last year, the software attach rate was believed to be closer to 3. The average sale price of a console video game in the US is generally assumed to be $50.

    Granted, the PS3 is just being released, but an up-to-the-minute tally of available games for all next-generation consoles, based on data supplied by Amazon, shows the one-year-old Xbox 360 with about 140 game titles currently available from Amazon.com, versus 33 for the PS3. For Sony to sell enough software alone to make up for what iSuppli projects it loses per 20 GB PS3 sold here, its software attach rate would have to be a nearly-impossible 6.

    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.

    According to iSuppli's data, the Blu-ray optical drive is the second most expensive single component in the PS3, at a cost of $125 per unit. Just ahead of that is nVidia's Reality Synthesizer GPU at $129. IBM's Cell BE CPU -- whose processing power has been likened to that of a supercomputer by standards set just a few years ago -- costs Sony a mere $89 per unit. Seagate supplies the SATA hard drive, costing Sony $43 for the 20 GB model and $54 for the 60 GB model.

    Why does Sony lose less on the more expensive PS3? Because it only costs Sony an additional $35.50 per unit to produce the 60 GB unit, though it sells for $100 more.

    ISuppli analyst Andrew Rassweiler credited Sony's beyond-state-of-the-art design and manufacturing for the PS3's high costs. "To give an example of how cutting-edge the design is," Rassweiler stated this morning, "in the entire history of the iSuppli Teardown Analysis team, we have seen only three semiconductors with 1,200 or more pins. The PlayStation 3 has three such semiconductors all by itself. There is nothing cheap about the PlayStation 3 design. This is not an adapted PC design. Even beyond the major chips in the PlayStation 3, the other components seem to also be expensive and somewhat exotic."

    When Microsoft premiered its Xbox 360 in November 2005, iSuppli estimated that company's bill of materials for the Premium unit at $525, though it sold for $399. The $126 difference could easily be made up with a software attach rate of 4 or higher. Today, iSuppli released an updated bill of materials estimate for Xbox 360s manufactured this year.

    With component costs having depreciated over one year's time, and the cost of factory retooling and improvements no longer a major factor, Microsoft spends only $323.30 per unit. After margins are accounted for, Microsoft likely earns a modest profit per unit sold today.
     
  2. Atomsplitter

    Atomsplitter Needs a new title.

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    Nothing suprizing.
     
  3. Rodimus Prime

    Rodimus Prime Sola Gratia, Sola Fide TFW2005 Supporter

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    Has there ever been a console that hasn't been sold at a loss?
     
  4. Enigma2K2

    Enigma2K2 Robot In Disguise TFW2005 Supporter

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    That's what they get for putting all that expensive shite in it in the first place...
     
  5. funkatron101

    funkatron101 TFW2005 Supporter

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    I believe many Nintendo consoles break even, or even make a small profit. The Wii may be taking a minor hit, but it is insignificant compared to Sony's loss. Hell they were originally aiming to make the Wii a sub $100 system.
     
  6. Blunticon

    Blunticon The Oddjob

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    Not many people can afford it.
     
  7. Zeta Otaku

    Zeta Otaku Who ya gonna call? TFW2005 Supporter

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    Yeah, most systems make the company take a hit, but they usually make up for that with the software sales.
     
  8. flamepanther

    flamepanther Interested, but not really

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    That's the plan. According to the article, every PS3 owner will have to buy about six games before Sony makes a profit. So far though, the PS3 has an attach rate of less than two. They'll probably make up the difference at some point, but I think it's going to take longer than usual.
     
  9. Seth Buzzard

    Seth Buzzard R.I.P. Buzzbeak Content Contributor

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    I’m guessing that attach rate thing doesn’t count buying used games right?

    Either way if 5 is good (what they said the 360 is doing) and 6 is amazing then I have done more then my share for the 360.
     
  10. misterd

    misterd Well-Known Member

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    Right now enough can afford it that the console is selling out. That's really all that matters to SONY for the time being. As soon as they start to clog shelves, they'll notch the price down. As it is, the people who are dishing out are, more often than not, people with oodles of disposable cash, and thus people likely to buy several games this holiday, and many more next year, which is where Sony will make it's profits.
     
  11. flamepanther

    flamepanther Interested, but not really

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    Right. Sony doesn't make money off of used sales (nor do the publishers or developers). PS3 owners have got to buy six new games for Sony to make any money. Sales of accessories and Blu-Ray movies might be able to bring that number down a little, but it's still probably going to be harder than it is for most consoles.
    :D 
     
  12. McBradders

    McBradders James Franco Club! Moderator

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    Yeah but the 360 is expanding it's userbase slower than the original X-Box. Also the pickup rates on the 360 are exeptionally high for a console at this stage of it's life.

    Great... you may think.

    Nuhuh. Bad. Not enough consoles shifting means less games are going to be sold overall, meaning publishers -could- start jumping ship within the next 18 months.

    Time for a pricedrop.
     
  13. misterd

    misterd Well-Known Member

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    They have to buy six games over the life of the machine. Odds are most people will cover that.
     
  14. Ops_was_a_truck

    Ops_was_a_truck JOOOLIE ANDREWWWWWS!!!!!!

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    So, sales and losses aside...

    ...the only thing I've walked away from that article thinking about is Seagate equipping Sony with their hard drives.

    I'm curious...in order to manually install a hard drive in a regular computer, you obviously need a BIOS that'll auto-detect the new hard drive specs (or you program them in yourself) and you need the know-how to physically insert the drive.

    The article doesn't make any mention of this, but do y'all think the Seagate drives are similar to any other regular hard drive? I mean, I'm wondering if it's possible to swap out your 60 Gig drive with something much larger.

    ...then again, I'm not even sure how necessary that is; what do you use 60 Gigs of long-term memory for on a game system anyway?
     
  15. misterd

    misterd Well-Known Member

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    But WHERE would they jump too? At this point both the PS3 and Wii have far smaller user bases, and, so long as prices remain fixed, there is no reason to believe that the PS3 will be able to overtake the 360 in the next 18 months.

    I would imagine the slow expansion is due to the fact that the PS2 and (to a much, much lesser extent) GCN were still on the market and still getting new games. In addition, manyof the 360 games were also available on those consoles, so the games were not exactly pushing the 360s limits.

    Now, with the PS3 and Wii on the market, the PS2/GCN releases should shrivel like testicles in cold water. This will have the effect of forcing more and more gamers to adopt the new systems, albiet reluctantly.

    If I were to make a mildly informed guess, I'd say that more of those gamers will choose the 360 over the PS3 because of the lower cost, larger library, and greater availability. Two of those factors helped push the PS2 over it's competition 4 years ago. What the 360 really needs now is a few hot titles, just as the PS2 had GTA3, DMC and Grand Tourismo when the XB was released, but barring that they should do a price drop - even just $50- to entice the fence sitters.
     
  16. McBradders

    McBradders James Franco Club! Moderator

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    Much like the PS1 and was still on the market when PS2 hit? That thing skyrocketed. Admittedly cross-platform was less prevailent back then, but there is no good signs to be had with new hardware moving that slowly. Especially when the platform is still so young.

    Price drop. Now. Yes.
     
  17. b_ack51

    b_ack51 I'm on the interweb!

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    Old news.
     
  18. b_ack51

    b_ack51 I'm on the interweb!

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    The gamecube was the only system out of Xbox PS2 and GC that made a profit on each system sold. PS2 and Xbox both lost money when a system was sold.
     
  19. McBradders

    McBradders James Franco Club! Moderator

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    PS2 has been sold at profit, however small, for the last 2 or so years.
     
  20. Fit For natalie

    Fit For natalie tfwiki nerd

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    IF the PS3 uses an off-the shelf SATA-based hard drive (either regular desktop or 2.5mm notebook style), its possible, but the BIOS of the PS3's motherboard would need to be able to recognise hard drives that are of a larger capacity than 60GB.

    But judging from the wholesale price Sony is paying, either that's a specialised hard drive design or its one of the high-speed 10,000RPM+ Cheetah models. EDIT: Seagate doesn't sell consumer-grade high-speed SATA drives at 20-60GB, so its a specialised drive.

    Eitherway, 60gigs is alot of space on a system that doesn't actually need to install its software. It would be nice if it could, since running a game off a hard drive is much faster than buffering it from the optical disc.
     

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