UncleScrooge said:
I wonder where that "not losing money" sentiment comes from. It also happened with the 3DS: People said it had a BOM of $110 so it must be making money. There is not just production costs you also have (more or less) fixed costs: Working costs, advertisement, shipping and warehouse costs, development, software development, service and repairs, taxes, etc. and things like the strong yen that you can't really influence. These all add up! Just because you sell something above the BOM doesn't mean you are making money. Sony didn't expect the Yen to be this strong, they didn't expect sales to be this low. The strong Yen is horrible but bad sales are even worse. Lower sales mean: 1) Higher production costs than expected (cost per unit improves at high manufacturing rates) 2) Less money from peripheral sales 3) Lower software sales but dev costs staying high (!) 4) Lower royalties from 3rd party publishers due to lower software sales etc. Couple that with the "fixed" costs I mentioned above (you could spend less money on advertisement but that would mean lower sales... death spiral here we come) that won't get away, the strong Yen, Sony's financial situation (lower credit rating means higher interest rates), the need for heavier bundling (console + game --> less games *sold* per customer) and Sony probably sitting on a huge amount of unsold Vita's (because when they say "we'll sell 10 million" they are going to produce 10 million... it happened to Nintendo before with the Gamecube --> they halted production to avoid even higher stocking costs) and it becomes obvious that Sony's estimates were simply wrong and the Vita is and will be more expensive than they imagined. This also has an effect on price drops: The hardware could be profitable at $250 next year but other costs could be so high (calculated at a per unit basis) that selling the device for $199 might actually mean smaller losses for Sony due to higher sales, more software sold, more royalties. A rock and a hard place... This post was not aimed specifically at you, btw. We had this discussion when the 3DS released and I'm sure it'll pop up again once Nintendo presents their quarterly numbers - people will be like "what? But they said just one game per console = profit!?"
And back on topic: It will be close. We'll have to see what the price cut does and how much retailers are going to reduce prices. Sales should go up from here due to the holidays kicking in. Never say never. |
um...Nintendo's BoM was at $101 and that was during 2011.
