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Plaupius on 04 May 2009
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Rpruett said:
Smashchu2 said:

Yes they will make a cut when they deside they can't turn a profit in the industry and must try to clear as much dept as they can. Someone mentioned that Sony borrowed against the PS3 which means they probably sold bonds (meaning they will have to pay interest). That means Sony can incure cost over time.

The problem is your assuming the company can make a profit from cutting the cost. They can't. If Sony drops the price by $100, they lose an additional $100 on every sale. They are still incuring interest on those bonds (or a loan). The division will be under more pressure to turn a profit. They can't meet the difference in game sales as the system doesn't sell many games. The reason for not cutting the price is becuase they are trying to get the console trun a profit on each sold and then clear out their debt.

Now, if they cut, then they are not trying to make profit. In this case, they have given up on profitability and have desided to simply meet the dept the best they can. If Sony cuts price, they are in survival mode.

 

Sure they can. You are trying to simplify this WAY too much in your head.  Have you forgotten everything else that is for sale for a console? Controllers? Memory Card Adapters? Controller Covers? Bluetooth Microphones?  On top of the first party software that they have created (Many of which are some of the best games on the system).

The average attach rate for the PS3 is somewhere around 9 games.  Trust me.  9 games sold (With about 3 to 4 being first party) would easily without a shadow of a doubt cover Sony losing 100 dollars.

 

Sony will not get into a cutting price war for one primary reason.  They have a product that costs tons of money in actual cost.  They are competing against two products that have cost a substanial amount less from day one with cheaper overall hardware.   It makes zero business sense for them to get into a price cutting war and lose the ONLY advantage that the system has. 

In the eyes of the consumer,  the PS3 is a valuable item.  By keeping the price high, you keep the demand high.  Sony is nursing a price cut because it makes sense for them on a business standpoint as well as a marketing one.

 

   If they cut the price on the PS3 they aren't in survival mode.  That's utter rubbish.

 

The question here is, because of the dire financial situation of Sony: can they sell enough additional software within the same fiscal year to cover the losses caused by the price cut? They do not really have the luxury of offsetting the payback to future fiscal years. Remember that the current attach rate is a product of the total lifetime of the PS3 in market, and it does not mean that an average new owner would buy 9 games in a year. So, with that in mind, here are two different scenarios:

Scenario A, with the current price, Sony sells 10 million PS3s during the current fiscal year, with 4 million sold up to the beginning of October and 6 million after that.

Scenario B we assume that they drop the price by $100 at the beginning of October and end up selling 14 million during the current fiscal year.

The cost of scenario B compared to Scenario A is an extra loss of $100 dollars for 10 million consoles = $1000 million extra loss.

Now, about the accessories and extra software: The price drop caused an additional 4 million PS3 to be sold, so the burden of turning a profit out of the price drop lies on those 4 million, which means that each additional PS3 sold would have to bring in more than $250 profit from accessories and software. And that is not likely to happen no matter how you twist it.

Now, if Sony were in a position where they could afford to take losses with the hope of recovering during a longer time interval, things would be different. Let's get together two additional scenarios that span two fiscal years:

Scenario C, maintain the current price. Sales remain flat so 20 million PS3s sold during two fiscal years. Same as before, 4 million sold up to the beginning of October and rest after that.

Scenario D, price cut of $100 at the beginning of October. It boosts sales so total sales for the two following fiscal years is 28 million PS3s. In addition, the manufacturing price of the PS3 is gradually decreasing during the second fiscal year so that at the end of the year, they are back to the level of profitability they were before the price drop.

The cost of scenario D compared to Scenario C is an extra loss of $100*10 million + $50*14 million = $1700 million extra loss.

The price drop caused an additioinal 8 million PS3s sold, so each new owner would have to bring in more than $212.5 for the price drop to be profitable within 2 fiscal years. Still unlikely, IMO.