| WereKitten said: Your math looks weird: let's define the current situation the baseline with a phat console losing $40 per piece, and going to sell another 5M during the year. a) If Sony sells 9M slim at $300 (cost 350) instead of 5M phat at $400 (cost 440) the profit is 9M*(-$50) =-$450M instead of 5M*(-$40)=-$200M. Thus if they are losing $10 more per slim console sold, they are losing -$250M more than the baseline. As you yourself calculated, the increased userbase generates $320M more, ie the net result is +$70M over the baseline. b) If they reduce production costs by $90 and keep selling it at $400 (cost 350), they make 5M*($50)=+$250M instead of -$200M =+$450M over the baseline. Thus not cutting price the difference in profit is only $450M-$70M=$380M, not $580M. And while that could still look like some healthy extra profit to have in the bank, it will easily be offset by the extra money you make in the following year from those extra users through game licenses. For example let's say each user buys 3 games a year, lets go into the second year of price cut: that's 4M*3*$20= $240M. Next year it will be 8M users over the baseline= extra $480M for the second year, and I think we're being conservative here by stating that each user brings Sony only $60 a year (first party titles bring more profit, increased BluRay market brings royalties, other accessories, PSN download royalties, some small Home stuff money) Basically with these numbers not having the pricecut makes you more money only in the first year, but you're losing the money that comes after about 18 months with the expansion of your market. Different numbers will lead to this time being longer or shorter, but the outcome fundamentally has this "shape": more profit short term (no price cut) or more profit mid and long-term. If the cost reductions or the per-user income are bigger than what we supposed then that mid-term is actually more like a short term (less than a year), and I can't see Sony not choosing the price cut option even in their current financial situation and facing their shareholders.
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OK I'm going to write it what I mean in full to catch any possible mistakes.
Scenario A: No price cut, 4 million sold at $440 production cost and 5 million sold at $350 production cost.
Profit from hardware = 4m * (-$40) + 5m * $50 = $90 million.
Profit from software = 9 million * $80 = $720 million
Total profit = $810 million
Scenario B: 4 million sold at $440 production cost, then price cut to $300 selling 9 million more at $350 production cost.
Profit from hardware = 4m * (-$40) + 9m * (-50) = - $610 million (loss)
Profit from software = 13 million * $80 = $1040 million
Total profit = $430 million
Difference between the two scenarios = $380 million lost from the price cut.
I hope there's no mistake now.
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