Predict: When will Sony make money?

[Dodece]

The loss leading model isn't that terribly complex. Alternate revenue streams from licensing and the official peripherals are not what covers the losses. Those are where the profit is derived. To cover the costs of loss leading a console must generate as much profit as was lost initially. So if you have a console, and lose four billion dollars in the loss lead. You must make four billion dollars in profit after the console reaches price production parity.

Say I am selling a console at a two hundred dollar loss at the beginning of a generation. Then say that after two years I am now manufacturing the console without losing any money. Given that I continue the trend of manufacturing cost reduction I will recoup my losses in two more years. That means in four years I break even. The licensing and peripherals are my profits. Do not forget the profits the investors demand them. The investors are like the mob if you don't pay them they will break your legs. Stocks are purchased for dividends not to be hung on a wall.

A lot of members forget that Sony is beholden to a lot of people to get them their money. They have to pay investors. They have to pay back loans with interest. They need to generate added capitol for the purposes of reinvestment.

Speaking as to gaming as a whole the division is spread across four platforms that would be two PS consoles, the portable, and the PC. Everyone forgets the last one, but it brings in a good deal of profit. Last I heard over a hundred million a year. That is half a million paying fifteen dollars a month in subscriptions plus base games, and expansions. Not sure how much longer that will last they are losing ground in that market to. Really there are two profit generators there, and we probably have two profit losers so on the whole it is close.

Speaking to the PS3 in specific. I think five billion dollars is a good guess for losses. With the loss lead, and the interests in loans taken out to produce the machine. Given the probably length of this generation, and the fact that Sony is always pushing parity farther back they will probably have to produce the machine for in excess of eight years to make back the losses they ate. We have to remember the PS3 is bottoming out.

Were we to use the PS2 as an example. The Manufacturing can only generate a maximum profit of $200 per machine, and that is if Sony never reduces the price of the machine again, and that savings will not arrive until year eight or nine. We have to be realistic though the PS3 will be at under $200 long before that happens. Maintaining this price point for more then two years in the end would just kill off the console.

PS3 no chance in hell. The gaming division as in gaming only probably not this year. Maybe next year with software and peripherals. Though it will be a very meager profit. Which will need to be funneled right back into reinvestment. Damn the investors are really getting hosed on this deal. Especially if the BluRay doesn't pay off, and given the price reduction of the media its looking to be more likely.