Vita is doomed, Sony doesn't get gaming, PSP/PS3 losing money

[Alby_da_Wolf]

HappySqurriel said:

Alby_da_Wolf said:

HappySqurriel said:

[...]

Realistically, for Sony to mount a "come-back" for the Vita and get it on track to sell like the PSP they need a $50 price cut and to bundle the memory card with the system. Being that the upper management is under extreme pressure to return Sony to profitability, it is extremely unlikely that Sony will be willing to lose between $500 million and $1 billion at this point in time for a price reduction like this to take place.

To make matters worse, if Sony plans of releasing a next generation console in 2013 (which is likely), Sony will likely see a massive increase in costs within their gaming division in the next year. If Sony cuts the price of the PS-Vita the gaming division will (likely) already be seeing substantial losses before these costs 'appear', and when they begin to ramp of for the launch of the PS4 the gaming division will be in a deep hole; and become a massive target in a company where executives are desperate to reduce losses to return the company to a profit.

Your estimate of losses by cutting price early could be quite excessive. Losses by doing it depend on two things: how many more units will be sold with the lower price compared to cutting later, at the originally planned time, and this provides the maximum possible  loss (or missed profit, if the system was already profitable and stays so, SW and peripherals included, after the cut too), but it's not so simple, early cut before Xmas could mean increased SW sales and also persuading publishers to release big titles earlier, so it could increase lifetime SW sales, and you should subtract them from the losses.
So for example, if the cut was originally planned for Q1 2013 and it happens instead during September or Q4 2012, the loss will be AT MOST $50*number of units sold between actual and originally planned cut time. For this maximum possible loss to be $500M to $1B those sales should be between  10M and 20M, and this not counting additional profits from SW (and cutting HW price BEFORE Xmas instead of AFTER there would surely be increased SW sales).
Oh, I almost forgot it, another factor decreasing losses compared to their theoric maximum, is that increased production accelerates the economies of scale and cost reduction of components.
This said, cutting too earlier, meant as earlier than really necessary is bad, botching the cut with bad advertising and missing synergies with big and profitable SW releases is bad too, but even if things aren't going well and you can't choose a good, but just a lesser evil, the key is cutting "at the right moment".
About PS4 launch, its best possible date depends, amongst many factors, also on how Wii U will be received and how much PS3 HW and SW sales will be affected by it.

1. We can argue over the cost of a price cut, but being that we're both dealing with assumptions it is not really meaningful ...

2. On the bolded. Sony doesn't have the luxury to wait and see what happens with the Wii U to plan the release of the PS4; they will need to have third party publishers on board (at least) 2 years ahead of the release of the system to ensure that they can allocate resources for games to be developed in time for the system's launch. If Sony was launching in 2013 they would have made that decision last year, and if they're releasing in 2014 they (probably) would have made that decision earlier this year. If they waited until the Wii U launched and they could evaluate its impact on the market they would (probably) be unable to release a console before 2016.

Good observations.

About 1: Sony actually can have a very good estimate only of the maximum losses, because it knows the originally planned date, and it can also plan the maximum number of units it will produce for Xmas, while the mitigating factors can't be predicted precisely.
But Sony could also not modify the definitive cut date at all, and until then do just time-limited discounts and other special offers, and these could be acceptably accounted for as marketing expenses, more justifiable for shareholders.

About 2: you're right, by now all must already be decided, so the only option for Sony is to do its best to keep PS3 healthy as long as possible until late Q3 or Q4 2014. The good side of this is that launching last it will be able to make a more powerful console for the same launch price, but launching so late 100% BC will be mandatory to give PS4 any possible help. Launching last will also allow Sony to equip PS4 with the largest RAM, so ports of multiplats from the other platforms won't meet any major obstacle, but the opposite could become more difficult for the largest games. The last launched, if the most powerful, could also enjoy more longevity. And yes, also in this case, the size of both possible handicaps and benefits is totally unpredictable, but as you wrote, Sony has no choice except trying to do its best in this situation.