What if PS4 was $299, but took a $200 loss?

[Dodece]

The reality is that loss leading in itself isn't a bad strategy. Anyone claiming otherwise doesn't know too terribly much about this industry. Like so many strategies however it is contingent upon certain scenarios playing out, and that any company that uses such a strategy can sustain the initial losses to reap the greater profits later that the strategy if performed well will provide. Selling more consoles sooner in a generation. Actually increases the profits that can be gained from each console sold.

Neither Sony or Microsoft were foolish to employ the model. It made Microsoft more money from the console generation. Then if they had sold their console at a price that was at parity with production costs. The reason that Sony lost money is not, because they were following the model, but that they were forced to abandon the model. When they misjudged the price that the market could tolerate. Had Sony been in a position to maintain its retail price points. Within a few years if would have been able to have balanced the ledger, and would have then been in a position to start making serious profits off of their hardware.

Further more their problem went beyond over estimating consumer demand. They under estimated their competition. Nintendo ended up eating up so much of their market share, and Microsoft didn't just prove to be a force to be reckoned with, but a rival that kept Sony on a perpetual defensive. They never really let Sony actually profit from its hardware. Every time Sony got to a point where they could start making money off its hardware. Microsoft would either lower its retail prices to force Sony to do the same, or released technology that Sony was obliged to answer to.

That all said the loss leading strategy while very much available to Microsoft, and I have no doubt that they will probably decide to employ it again. Seeing as it offers them a win/win scenario. If Sony doesn't respond then Microsoft gets to claim hardware superiority. If Sony obliges it increases damage to the company in the short term. Leaving them substantially weaker in the long term.

In my opinion the loss lead strategy just isn't available to Sony. The company doesn't have the available liquid assets to fund such a strategy adequately, or the will to absorb the severe short term losses. Global market conditions are uncertain. So Sony cannot leverage a certainty of a profit somewhere against intentional losses elsewhere. Lastly the competition has exploited the strategy effectively to their benefit, and to Sony's severe detriment. Sony can ill afford a price war with Microsoft, because they wouldn't just lose that war, but would devastate their core financials. Sony is running dangerously close to a parity between debt and equity.

It isn't that Sony can just lose money on gaming, but that compounded by losses is so many of their other divisions could quite literally break Sony's back. Especially when they aren't ensured a return on investment for their assets. If Sony fails with their new hardware. As long as they manufactured at a profit they still have options. I really don't put any stock in the rumors of a really powerful machine. I think the reason that Sony bought the game streaming service is so they wouldn't have to suffer any big losses on hardware out of the box.

They could create more modest hardware that could be sold at a profit, and the streaming service could redress any hardware inadequacies. It isn't a perfect strategy by any means, because it has obvious limitations. To do with infrastructure, outages, and the obvious lack of access in so many places in the world, but it can get them into twenty million homes with relative ease, and as global infrastructure improves they can move into markets that open up.