Winning the console war?

[CrashMan]

Kasz216 said:

CrashMan said:

Kasz216 said:

Mummelmann said:
@TC: Hmm, if you loose 100$ per console, you won't make up the loss with more consoles sold; you'll make MORE of a loss with every console sold!
However, Sony will try to push the hardware with lower prices and bundles that cost them a lot in order to get a bigger install base so they can make up some loss with software.
The software is where the big money is, after all!

 

Well that's not completly true.  Products cost money to store in warehouses, and the more the PS3 piled up the more it was costing them money in warehousing costs.  They can't just stop making PS3s because they deals with the factories.  Also it's very costly to stop production and then restart it.

By selling the PS3 at a loss they are saving even more money in warehousing costs which are going to increase the loss you are taking on each unit anyway.  So why not cut the price and get them out of there now and try and build up some momentum instead of taking massive warehouse losses.

There is absolutely no way that storing, say, 100,000 consoles for a length of time costs sony more than selling those 100,000 consoles at the huge loss they take from them, especially with a price drop.

 Sony's price drop was obviously to boost userbase, as cost is the determining factor for most people for the PS3 (or at least was initially, and now other reasons cropped up due to said lack of user base)

Sony does NOT make money of selling playstation 3s, they lose a LOT of it.  The money for sony is to be made elsewhere.  (now for Nintendo, they actually have made money per console sold on all of their systems)

The problem I see for are three fold:

1.) The obvious, they lose money on each console sold

2.) The next source of money for sony would be 1st party games.  The problem here (which also spills over in to point 3) is that to create what is considered a Quality PS3 title takes a huge development team and a lot of time. 

This means development costs are through the roof these days for playstation and 360 games, so either a) more of each title needs to be sold or b) the cost of a single game will need to go up (which it has.)  Sony doesn't have the installed user base to support multiple concurrent high selling games to make them a ton of money to make up for (1)

3.) Finally, money comes from 3rd party licenses.  While they did have a TON of 3rd party prior to this gen, the exclusives and massive third part support have been dropping due to the relatively small install base.  Combine huge development costs for 3rd parties, licensing fees, and small install base, and the PS3 becomes a not so attractive console to develop for, hence less choice in games, hence lower purchase rate, compounding the problem. 

None of this is not universally true for every game, but it is the general trend for sony.  I'm not sure what they will need to do to build momentum and gain back exclusives.  Thats why I am a Software engineer and not an executive.

 

There is nothing more a company hates in the modern age then having product sitting in the warehouses.  Say every PS3 cost 600 to sell.  Every PS3 they have in their warehouse is a 600 dollar lost until they sell it.  With warehousing fees adding on to that... with PS3's being produced faster then they are being sold.

You can not keep that up and reducing the number you produce and products you've ordered is hard to do considering how long in advance these deals are usually done.  You've got to make the move to get back atleast some money.  You need the momentum so you don't have them keep piling up in the warehouses.  It's better to take the risk, then to just stockpile consoles because you might end up with more supply then demand and suddenly have a bunch of boxes you have to bury next to ET or sell on clearance prices mostly as  blu-ray player.

While that is true, my argument was against the idea that selling the console was cheaper than keeping up with storage costs.  Sony doesn't want to sell the PS3s simply to make back their production cost (except in their firesales of end-of-life skus), as they are well aware of the hit they take with each sale.   They need an installed base, otherwise no profits will ever be seen, that is just the point I was making.

 As an addendum to my previous post however, the one thing Sony DOES have going for it is brand name recognition and loyalty, and in my opinion a lower price point may cause consumers to buy it for those alone.