Should SONY Scrap PSP2?! (If they plan to make one)

[Smashchu2]

Squilliam said:

Smashchu2 said:

Squilliam said:

Alby_da_Wolf said:

 

And nobody even considers a possible MS entry into the portable market.

Microsoft is already entering the market. Windows mobile 7 games are about as close to an Xbox 360 Arcade title as you can get without actually making them 1:1. IIRC the code base of a typical game is 97% identical. So it goes without saying that Windows Mobile 7 will get a decent supply of downloadable games, enough to make it a gaming platform in its own right.

@Smashchu:

"According to an NPD data analysis, the iPhone is now responsible for 19% of all revenue generated by handheld games (as of 2009), compared to the PSP’s 11%. Obviously, the DS still reigns supreme with 70%."

http://socialmediaseo.net/2010/03/25/iphone-beats-psp/

Given the fact that the iPhone has a superior (read more profitable) distibution model the likely split between iPhone and DS is likely to be closer to >30% publisher revenue compared to <65% for the DS as the distribution fee is a flat 30% vs the obvious packaging, distrubution, retailer and license costs from Nintendo.

That's not even 1/4th of the market. How can we say that Apple is a threat? They obviously do not have anywhere near the strength  to effect Nintendo.

A few other misnomers. The distribution is not really "more profitable." What it really has is higher margins (Difference bewteen the slaes price and it's unit cost). Profitability is the end result. Let me take two products (and we'll say they are both softare titles on two diferent platforms) and show you how one is more profitable)

	Game A	Game B	Game C
Selling Price	$5	$40	$40
Variable Cost	$2	$48	$30
Unit Gross Margin	$3	$2	$10
Sales	500	50,000	50,000
Gross Margin	$1,500	$100,000	$500,000

See how A, despiting having a weaker margin, would generate more revenue. This is because it has a higher potential to sell better. Game C was to show that higher price can mean better margin. The most the margin for A could be was $5 (this is with no cost). The most the Margin of product B and C could be is $40. There is a lot more wiggle room. Because the price is higher, it can meant the margin can be higher as well. Now, look at this.

 

Notice how iPhone has far more games. They have asmaller peice of the pie and it is spread across more games. This means they they are not a real gthreat to Nintendo as making a game on a Nintendo system has a higher chance of yeilding better profits. The 19% is more from shear bulk them from compeling software.

So I still say that Apple is no threat to Nintendo.

You're not understanding the bigger picture at least in my opinion anyway.

The iPhone has a completely different business model to the DS which is why the device could be disruptive to Nintendo and which is why Nintendo pre-emptively defended themselves from it with the 3DS.

A 3DS game which is $40 has what? 20% retailer margins? Thats $32 to the publisher whom probably has costs of $6 to make/distribute the cartridge. Nintendo probably gets $6 and thats pretty much the best case scenario because if they have to discount it skews their profitability model even further. So the total margins as I figure roughly are $18/20 etc. Whereas an iPhone game could cost $15 in the store and the publisher margins are $12 because Apple only takes a 30% cut for everything. This means they can price their games lower, don't have to worry about distribution costs and take very little risk because aside from making the game all the costs are variable costs. They can sell many more games at $15 than they can at $40 but the margins for each game are closer because of the distribution models efficiency.

Nintendo cannot support a direct download model because their business model is mainly retail so they cannot continue to offer the same games for a lower price online as it would irk the retailers whom sell their games. The reason why there are so many iPhone games is that the cost of entry is much lower and it is a free(er) market compared to Nintendo whom hold their dev kits close to their chest. Also most of the games are very cheap $5-50,000 which is very easy to recoup on the app market.

The issue is that the iPhone is 'good enough' to be a game system. Its not able to take over the entirety of the market at first but just like GPS units the iPhone and similar are slowly moving into direct competition with Nintendo.

There is no overshooting, so there is no disruption. You have to have the incumbent overshooting the market in order for the product to be disruptive. In order for there to be overshooting in what you are saying, the normal retail method of buying games from a store has to be overshooting customer values. Since people still go and shop at Wal-Mart, a retail model is not disruptive. The disruption writer refuses to say that Apple is a disruptive company. iPod and iTunes are disruptive, but nothing else they make is.

The whole point of the margin table was to show that just because you have a better margin per unit, it does not mean you are more profitable. Gross Margin is Sales*selling price-Returns-Gost of Goods Sold. if you sell more (which the DS does), than you'll be more profitable, even with a lower margin.

At bold: Cost of rent, utilities, and salaries and wages, and depriciation are all fixed cost, so that is not true.