Is this game over for Sony?

[J_Jay2000]

Ok, for my first post on here i'll throw my hat into what i'm sure will remain a passionate topic for all gamers (hardcore to casual and inbetween) for a long time to come. Most people raise very vaild points for all systems, with a bias in there that probably stems from their manufacturer/system of choice. Rightly so considering people invest their money and time inbuying and playing with their system of choice and so don't want to see it fail. So there is an element of subjectivity that cannot be avoided in this discussion. I too have my preferences, both past and present, but will try and discuss the issue from a different angle to attempt to remove subjectivity and make this objective. Currently the "who will win" and "is sony doomed" style questions and discussion focus on sales numbers as the sole indicator. This is important but not the whole story. To present my point i will take a different approach. Namely profit. To justify my approach i make a simple statement. Video game manufacturers (software, hardware and accesories) are in the market to take thier piece of the pie and make money. No company goes out with the intent of solely shipping or moving more consoles just to wave it in another companies face unless there is money to be made. The global market is capital driven, and in the end, Microsoft, Sony and Nintendo are responsible to their share holders to attempt to make money. So.... Firstly i do not claim to be anything more than an interested an avid enthusiast of the video game market. If people see things wrong in some of the points i present feel free to correct me,and more over, apply their knowledge to the approach i will propose. To me win or loss of any company is purely a profit based argument. If one system ships/sells more then this is irrelevant if their profit margins are small as their profits can match those generated by small sales of systems with higher profit margins. Based on the information i have read from any number of sources the current profit margins for each system can be assigned a number value or score of -5 to +5. So the systems as they stand would have a profit margin score of: XBox - 0 (current maufacturing cost, shipping etc breaks even with revenue from console sale to retailers) PS3 - -4 (Fairly widely known that on each PS3 sony suffers a significant loss on manufacture, shipping etc Vs revenue from sale to retail. This is deemed significant given the high cost of of the console on the shelves) Wii - +1 (Again fairly well established that nintendo is making a profit from the start with the Wii. However the profit margin is small given the lower pricing of the Wii.) The above numbers can change over time. XBox360 was initially running at a loss (and some will say it still is, i'm just trying to be conservative) so it would have been possibly a -3. However as time passes, better manufacturing processes are developed etc etc, the cost of manufacture and even shipping (after the establishment of fluid supply chains) lower so profit scores increase. whilst price drops on the consoles eat away at profit scores. By 2009 the profit scores may look more like the following: XBox - +3.5 (Max score, price point doesn't allow for huge profit margin growth after price cuts vs lower production cost) PS3 - +4.5 (Max score, but this is very dependant on the cutting edge technology having significant production improvements. However the higher starting price allows room for more profit margin growth) Wii - +2 (Started as a simple system, so very few efficiencies can probably be introduced at production, and profit margin growth can only be small given the low initial price point.) The above scores are relative to each other and are based on a console by console sales approach. A very similar mentality can be applied to accesories. Where all three companies have scope to make money from accesories. In the interests of brevity i will merely rank each companies possibility for profit from accesories. #1 - Wii (mutliplayer is a system strength requiring multiple Wiimotes at a fairly decent profit point, include other accessories such as WiFi dongles, classic controllers etc and Wii presents significant possibility for accessory profit overall and not generally third party "copied") #2 - PS3 (historically strong with accessories, although third party companies eat away at this market most often) #3 - XB (similarity to PC means third parties eat away significantly at possible accessory sales.) The same can be done for software profits as follows; #1 - Wii (nintendo franchise software normally performs very well) #2 - Xbox (microsoft has significant development horsepower of its own from PC side of the house. Although not having a significant number of franchises, it wholey makes the the profit) #3 - PS3 (sony often enter into joint deals on development and so need to profit share. Whilst having a number of strong franchises, this profit sharing can hurt the bottom dollar) The above rankings also take into account development cost AND most importantly the break even point and the likelihood of games reaching the break even point and becoming profitable. For example Wii lower development cost means lower sales numbers required to break even and then turn profit. The reverse is true for PS3 and XB, but more so for PS3. Finally third parties cannot be ignored in all this as so many of you have already pointed out. Keeping in mind that they too are in the business to make a profit. To this end 3rd party support can be seen to most likely follow the trends above. More people can afford to develop for Wii than PS3 or XB. The impact being that more risks can be taken with regards to wether or not a game will flop or sell well. The installed user base is important in this obviously as larger market for a game give it better chance to sell to profitable and above levels. This is an average and accounts for both the big hits and the also rans of the software race. Numbers of games available for a system also have a flow on effect back to long term sales of the console. PS2 being the ideal example. This closes the loop and allows us to make a rough "crystal ball" objctive decision on whether sony is doomed, XB will just be or Wii will go the way of the YoYo. Before i get to this culmination i would like to add one thing. That is long term corporate strategy. What you and me the average joe consumer see being a loss may be a win for a company. XB being the best exmple. The win would come in the form of market share, and for microsoft, entering and integrating into the modern digital household, such that 360 and other microsoft products become almost essential to households. Just look at the Windows monopoly, tie this with digital lifestyle through 360 and a long term corporat profit can be seen to appear. But that is a discussion for another thread. So, the winner, or more importantly losers are: (from best to worst) #1 - Wii (good initial install base, instant profit from all areas, room for significant future profit from software. Good 3rd party support given low risk on break even sales margin) #2 - 360 (head start and similarity with PC parts allows room for growth of profit margin in all areas. But inital profit losses weaken overall performance this gen.) #3 - PS3 (lowest initial install base, least room to manoeuvre for some time on profit margin, but once production cost issues are rectified and profitability in the significant score area is achieved it may be too late) Note this is very crystal ball. It is more an analysis of each companies face value business model surrounding the console. Sony is by no way or shape doomed however. They will most likely lose the race profit wise. But as a company, Sony may see significant gains from the PS3 with regards BD and sales arising from that technology. The PS3 can already be seen to be having an impact on the HDDVD market. This comes with a caveat though. For people to adopt a system, en masse, they need to see a relative increase in what that system offers them by a 10:1 (or close to) ratio of new to old performance increase. Tape to CD, VHS to DVD. They represent that increase to the masses. However CD to MiniDisc for those that know it never took off because it didn't abide by the general rule of performance increase. In this way it will be interesting to see if the general public en masse acept either HDDVD or BD as the new format. Personally i like DVD's and i'm happy enough with them. Do i need HD? not yet. Most people i talk to feel the same. In this regard, the overall business model of PS3 selling both games and movies and a new format to boot is a very big gamble. But it is one that i see paying off, at least in the long term, 10yrs+, as BD being the dominant format. As i said at the start feel free to correct any falsities in ay of my statements you percieve. I only propose a differnt approach to deciding whether sony is doomed and who will win. My gut feel is that PS3 has been priced out of the market, but will have BD to back it up. Also that the Wii will end up being the winner. Most people have been quick to point out the novelties of the Wii but slow to remember that whilst it cannot deliver hardcore gamers a visual experience that they want, the control scheme can be still made to suit with use of the GC or virtual console "classic" controllers. Allowing a return to the "hardcore gamer" control schemes where appropriate. Have fun digesting this and look forward to intelligent discussion.