360 In The Drivers Seat to Start Console Price Cuts This Year, says Pachter

[Squilliam]

Darth Tigris said:

Squilliam said:

Remember people, if they are taking say a $70 margin on a console if they cut the price they'd only make a $20 margin and the increase in console sales will not offset the loss in margins on the hardware. Furthermore the cheaper the price the less each gamer who was unwilling to buy at a higher price is likely to be buying full priced $60 games and instead they may be more reliant on classic hits and used titles. When was the last time a console maker posted a much greater profit when they cut the price of their console? As for a $199 PS3? Sheesh do people really want Sony to never post a profit, even if they 'plan' for 10 years these are the years where they are supposed to be making a profit in order to fund the very expensive development of a next generation PS3.

They don't want to realistically discuss Playstation profits and losses.  Many are so confused by the subject that they took the statements about the PS3 no longer selling at a loss as the PS3 being a profitable endeavor for Sony.  As you stated, a loss leader can only maintain that status for the first few years of release before it turns into just a loss.  It needs to make a profit on the backend of its life or the division will be in trouble.  If they were to drop the price of the PS3 to $199 now, how many more years would it be before it'd start making a profit again?  

And while manufacturing can be streamlined and component parts get cheaper, there is a LIMIT to how low they are going to drop during the lifetime of the console.  There is a reason why PS2 price drops kept getting smaller and smaller as the system aged ($299-199, $199-$179, $179-149, etc).  PS3 sales aren't slow enough to make such a desperate move as they were in early 2007 or 2009.

It seems also that the whole Playstation losses has been interpretted by some as 'Sony is being good to the gamer by deliberately not taking a huge profit'. I.E. Any price cut is of course at a service to the gamer. So therefore a $199 PS3 is infact Sony showing moral ascendance in the game industry.

If you look at the PS3 $600 or E600 to $400 / E400 price cut it was a 33% cut. The following cut two years later was a 25% cut from $399 to $299. Following that trend the price cut two years after that would be $249 and E249 which would be a 16% cut. If they cut the price to $199/E199 it would again be a 33% cut which is relatively as big as their first which also bucks the trends of the PS2 price cuts you listed.

Another thing people assume is that process shrinks are always cheaper than the previous version. That isn't true, AMD actually cancelled a few chips for 32nm which were going to be more expensive than the 40nm version and they get the benefit of the extra switching speed and lower power useage to increase performance of which Sony has no such luxury. It is possible that the 32nm shrinks for the RSX and Cell processor will be of marginal benefit to the actual cost of production as every process shrink gets more expensive as time passes as more investment is required to reach each new node.