The Shrine

http://www.1up.com/do/newsStory?cId=3150012

With Blu-ray players arriving this year priced at $1,000 -- a tag that would be considered absurd for a 'competitive' videogame machine -- many (including 1UP) have wondered what Sony would do to cut costs and avoid a massive financial fallout with PlayStation 3. As it turns out, it appears they're going to bite the bullet.

Reuters reports Sony announced today in Japan they expect their game division to suffer a $877 million USD (the equivalent of $100 billion yen) loss due to start up costs associated with PS3 over the next year. Clearly the worldwide launch later this year must be playing a factor. How the company expects to recover, however, is unclear.

Production costs on the CELL and Blu-ray technologies will obviously come down over the years, but Sony doesn't have much wiggle room in pricing PS3 if they want to remain competitive with Xbox 360, especially considering Microsoft may very likely institute a price drop around PS3's launch in November.

Sony stock holders must be sweating bullets.

Sony isn't releasing a videogame machine, Ken Kutaragi specified this himself. With the cell technology, hardrive, and Blu-Ray player, and other system capabilities, how much are these things going to come to? $1600, maybe the $1200 price point was correct.

$877 million isn't a huge amount for Sony, their losses for last quarter alone were $560 million.

No way i can drop that much on a game system, even if it isnt a game system...

Wiiiiiiiiiiiiiiiiiiii here i come?

I'll still shell out for it if it's that much, assuming I can afford to...but I probably wouldn't be able to, truthfully. More than a grand is a lot of cash...

Sony will eat it and release it at $400 IMO. They know that it's dead before it starts if it's released at more than that

Zeus wrote:Sony will eat it and release it at $400 IMO. They know that it's dead before it starts if it's released at more than that

It depends on the production price. If Sony plans to move 6 million consoles this fiscal year, and the price of production is $1600 - 400 = 1200 loss per console: Or 7.2 billion dollars lost total.

Assuming 17.5M development and marketing costs average (I am not sure on the number) for first party titles, and an average of 10% penetration: 600K units on average per first party title for $70 USD. That's a profit of 24.5M per title. Sony would need to develop 293 First party titles, and that would translate to Sony requiring every PS3 owner to own about 30 first party titles on average; that is to break even. I am not sure what sort of royalties that Sony gets per software unit from third parties, but it won't be nearly as high as profit from first party titles.

How realistic would the goal be? The average PS2 game to system penetration was 10 games per system (103.6M Hardware, and 1.04B software units sold), these are mostly third party products. Games rarely cost $70 for PS2; I personally do not recall ever buying one at that price (and that's Canadian dollars).

Though you need to remember Sony stands to profit greatly from Blu Ray (and movies enjoy far greater sales numbers than most games). And I highly doubt Sony would lose more than a few hundred per system at $400-450.

That said, I think including BR in the PS3 has been a mistake. I don't want a (1st gen) BR player - so having to pay Sony to pad their format numbers doesn't sit well with me.

Part of me suspects Sony may consider releasing two flavors, in order to keep costs down. One with a HDD/etc, one without. Guess we'll see at E3.

That would be the logical thing to do if they even want a shot at the Japanese market. Blu-Ray isn't their only mistake. The Cell Processor was a bad idea as well. They came out with promises of it being this big huge powerful processor, similar to what they did with the emotion engine. In both cases it seems they fall short. It's not that it is not as powerful, but that it's more expensive than what any other hardware company uses.

Sony expects to have a 10 year lifespan on the system. Though I do not think this will happen.

I don't really get Blu Ray. It's a serious gamble for Sony to be betting on it, IMO.

kali o wrote:Though you need to remember Sony stands to profit greatly from Blu Ray...

True, if it takes off. Sony's love of proprietary formats has always bugged me, though :\.

Sony expects to have a 10 year lifespan on the system. Though I do not think this will happen.

I could actually see this happening, if

1. Blu Ray takes off
2. Microsoft leaves the market

I'm not sure that either of those things will happen, though, and particularly the latter. Microsoft is really hungry, they're doing a lot of stuff right, and given the super-early release of the 360 I'd be surprised if we didn't see a new system from them within 5 years.

Interesting times, no doubt.