USA ISN'T a profitable country for hardware. The currency rate means that Japan loses 10 cents for every dollar. 30$ loss on a 120g, just for what the money is actually worth. That is on top of the loss they already take for the cost of hardware. Shipping more consoles to a country doesn't increase the number of buyers for the console or the number of consoles sold. Yes there is excess demand on the 120g in the US, but there are still plenty of 250g ps3s lying around. Which proves once again that the concept of demand is beyond you. Price has an impact on how many people buy a console, and phasing out the cheaper console makes that group of consumers smaller, which, is idiotic if you make a huge profit on the games.

The concept of supply and demand is for supply to meet demand. For the case of 120gb and 250gb, its essentially a zero sum economy. If you increase the demand for 250gb, the demand for 120gb will decrease(unless you have some odd group who would purchase both 120gb and 250gb). So their best plan is to just lower the 250gb price a bit, to alleviate the demand for 120gb and increase the demand for 250gb.

Your explanation means that the 250g costs at least 350.01$ to make, right? That would be a loss. Just follow my logic for a moment. The difference between HDD costs is barely 8$ on a mass production scale. That would mean the ps3 120g would have to cost Sony 342.01$ But the 120g costed 336 in loss as of 6 months ago. Do you think the cost has actually gone up? What you don't understand is that there isn't a 1:1 distribution of the console sales. There are more 120s sold than 250s. That is the basis of demand. THe cheaper version of a product sells more. Now, if, out of 4 sales, 3 are 120s, then they are losing, say, 26$+26+26+n. The 6 cents per dollar on those consoles comes out to 75$. Set the equation to 0 and you get 26+26+26+n=75.....78+n=75....n, being the profit on a 250g console, we get 3$. This is a simple explanation for you.

Then, you have to take into account that roughly 45% of ps3s sold lose 10+cents on the dollar. In england and Euro countries they make about 20 cents on the dollar.

I don't think you understand the meaning of 6cent loss/dollar. I will reiterate: On a shipment of say 3 (120gb) and 1 (250gb), their loss for the shipment is 3*300*0.06 + 1 *350*0.06. This is what they given us. It doesn't matter if no consumer buys the 250gb, because its the retailer already purchased that shipment. So every 120gb console that they ship is a $18 loss and every 250gb is a $21.5 loss. 

They are making a profit, as of last quarter.

Are they making profit off console overall? Thats the point of this whole debate.

Sure then. I understand that you need definitive proof. I'm the same way. When I take a shower, I will refuse to believe the water is hot until i get a thermometer in there.

If thats sarcasm, then lets say, you manage a swimming pool, your clients tells you that the swimming pool is freezing cold, then of course you would get a thermometer in there. The point of the thermometer is not for you to believe but to convince other that you are right. Thats the basics of a debate, facts -> argument -> conclusion. I am using the WSJ report of the 6cent/dollar loss to draw my argument and conclusion. You claim you have other facts that contradict my argument, such as the cost for making a 250gb is just $8 more, and they would earn a whole $42 more than 120gb. I inclined not to believe that, because I know most royalty and costs scale with price. Of course I can't argue if you have proof, but it sounds like you don't want to spend the effort to present.

The reward is helping you understand the concept. But, from here on out, I'm just going to wait for someone else to explain it to you, or for official numbers to come out.

I apperciate that you have invested so much time to this thread, more so than I have. It is a shame to see you just give up but I guess I am just the type that needs facts and sources to slap me in the face.

heprof00 said said:

The demand of the 250g is one number and the demand for the 120g is another. There is a 50$ price difference, and an 8-10$ cost difference. 120g loses 36$ per console. Your suggestion is to then lower the cost of the 250g? To what, may I ask. What price do you actually believe is going to alleviate 120g demand and at the same time exist for the reason it was designed (to be profitable). There is none. Even a 10$ drop potentially obliterates the profit, the only reason the 250g console exists in the first place.

What I find so absurd about your argument is that you assume you know what the demand is for both of these products. You assume that you know better than the group who has done the research and found the model for their price points. The 250g is already a difficult sell as there is virtually no difference between the two, and it's 350$. 70% of consoles are sold in the 200$ and under mark. 300$ price point is exponentially more marketable than 350$.

Below, we have confirmation of that personality in action. "Sony marketing is not smart enough..." You keep insisting that making a profit on consoles is the most important thing in the business. It's not. The 250g model is a trick. It's a way to charge people 50$ for the same product. Nothing more.

If making a profit is not important (not that they are making one at the moment), then they should just reduce the 250gb cost to just $310 to cover the production cost. 250gb will then sell just as well as the 120gb. Do you think this would not affect the demand for 120gb? Its an hourglass effect, you shift the demand for 120gb to the 250gb. However, lowering the price that low, would just cause a shortage to shift to the 250gb side but this example is a clear logical indication that a price drop on 250gb will reduce demand for 120gb.

If the 'group who has done the research and found the model for their price point' did their job correctly, then there shouldn't be an excess supply of 250gb.. they either shipped too much or priced it too high. Again, pointing to "sony marketing is not smart enough".

Your statement is based on faulty reasoning and silly logic.

Thank you for correcting me, you have opened my eyes.

They got so much because the technology is so crucial to the playstation brand.

They got that much because the royalty and license is worth that much.

When you brought up royalties, you brought them up as evidence which contradicts the 42$ increased profit. I am curious to know what you expect the licensing costs to be. I am thinking maybe 1-2 percent of total revenue, which turns into 35-70$, which is already looking improbable. In this case, the increase from 300 to 350 only costs an extra 50 cents-1 dollar.

I am guessing around *30-50% of revenue. PS3 is simply thousands of technology assembled into one piece of hardware, sony didn't invent anything, except maybe the gameOS.

...You know what? This discussion will not continue until you can reasonably explain why the ps3 demand is an hourglass. That assumption figures that a buyer MUST buy one or the other without other options. Options include "waiting", or buying from the competition. From now on, we are going to go through each and every one of your points until you realize that your statements are indeed "wild".

You are right, there other factors that you can take in account like Xbox and wii. Best to see 250gb and 120gb as different consoles and they are competiting with each other. Its similar to PSPgo and PSP (or DS and DS XL), they are basically the same hardware but they are sold as a competitor of each other. Individually, 120gb and 250gb make up part of the PS3 and the console market share.

heprof00 said said:

That will just cause the 120g to be phased out. Don't you get it? I just explained that the 250g is "a trick". It's a way to get a lot more money out of a minimal investment. While the 120g is loss-leading. They aren't losing that much. In that case, it's not about profits, it's about selling more consoles. However, in the case of the 250g, it IS about profit. It's is about getting a 500% margin on a 10$ upgrade. They are virtually the same console. I've shown you prices over and over, and earlier, you doubted that the HDD is that cheap. I can quote you if you need to be shown.Making the 250g 10$ more expensive than the 120g phases out the 120 because the perceived value is that much higher. However, then they are losing the same amount on the 250 as they are on the 120, and they are back to square one. Your idea is niether helpful or profitable. The help is does contribute is only being used to reinforce your own backwards logic, and the benefit it does contribute is only against other ps3 purchases, which it is already doing.

Again, why charge a customer 310, when the perceived value is 350? The better idea is to simple lower 120g production and get "must-havers" to spend the extra 50$, rationalizing that they will need a bigger hard drive eventually. The average consumer doesn't know the value of hard drive sizes versus price, and it reflects in both the pricing and demand. Just look at an Ipod. Larger sized drives in Ipods are nearly 1000% price inflated, but people still buy them, because the economics is not an issue. Sure, at larger sizes, they are paying less per GB, maybe 10% less, but Apple is making like 50% more. The value is null, but the consumer doesn't see it as losing value, they see more GB and think that the storage is reasonably sized and priced based upon their needs. Again, this goes back to why they need to keep the price at 350$, because it is reasonable to the customer who finds value in having a larger drive. With your idea, the best business decision would then be to introduce a 400GB ps3 and sell it for 399$.

Look, they don't mind losing money to sell more consoles, but why shouldn't they make something back? It's not like they don't have the 120g at 300$. For the majority of the consumers who focus on price, that model exists. For the higher-end consumers, there is the more expensive one. They will sell the same number of 120s and lose some profit on those and sell some 250s and make money on those. It comes close to evening out, and stabilizes losses and looks better on financial statements. While your idea does level the demand for the two (dropping price to 310$) it doesn't contribute any profound benefits, only a superficial one. Additionally, it's better to tell you investors "we are losing 6 cents per every dollar of hardware sold, PLUS we make 20$ per game and peripheral sold" rather than (your idea) "we are losing 18 cents per console and making 20$ per game and peripheral".

I doubted the production cost increase is that low, not the HDD size increase cost. If the profit increase was so substantial, you would think Xbox would of jumped on the HDD increase 'trick' many SKUs ago but instead, they stuck with their 120gb for 2 years before releasing their 250gb 'super elite' model which is priced at $400. Granted, that their HDD is not standard but it is conceptually the same and doubling the space shouldn't be that much more expensive. At this point, PS3's sales is slowly overtaking Xbox, if the there is such a big profit margin, you would think MS would be slightly more price compettive and undercut PS3's 250gb model? 

The benefit of lowering the 250gb price is to remove the excess supply of 250gb and tap into the demand for the 120gb (which they are currently not producing enough of ) and other consoles in the market. They lose a lot of money for not meeting demand, and they lose a lot of money for having excess supply both scenerio is occuring on the 120gb and 250gb respectively. Lowering the Price on 250gb is like kill 2 birds with 1 stone. You potentially fix both problems. Yes, the profit margin on the 250gb will greatly decrease but they are getting more console sold which in your logic is more important than profit on console.

BTW: "we are losing 18 cents per console and making 20$ per game and peripheral" sounds a lot better than "we are losing 6 cents per every dollar of hardware sold, PLUS we make 20$ per game and peripheral sold"

Look, the excess supply won't be excess for long. They do not produce as many of the 250s as they do the 120s. They will eventually sell, and then they will phase out the 120s and make the 250s standard at 300$. However, in the meantime, they sold several hundred thousand of them at an extra 50$ and drove down production costs by scaling, so that at the point when they do phase out the 120s, the cost is under 300$. 

(also, by that time, they may not actually phase out the 120s, but instead drop them to 250$)

That just means they are just stocking up on 250gb, which further indicates that 250gb is not making money. If only 30% of the 250gb is sold, it doesn't matter if they make money off the 30% because they lose a lot more on the 70% of un sold consoles. The 6cent/dollar assumes all console are sold.

It is worth that much because the market decided its worth in a specific context. I brought this up because the rumble suit is so unlike the regular licensing fees in that it would have caused a major problem. It was never initially paid for, and they wanted production to halt until it was paid. All other licensing fees are just regular fees, (fyi half of the ones you listed on that page are free), and while there may be some scaling based on pricing, it cannot be any higher than 1-2% of the toal (if even that. Probably something closer to .5-1%) As far as the laws go, you cannot just raise prices based on how crucial they are to the system. That's why contracts are in place. Your previous example differs from the norm in every way.

It wasn't really out of the norm, the blackberry keyboard lawsuit was a similar case and that went over the millions of dollars as well. Technology License do cost around that much.

I am sorry but this is the stupidest thing I have ever heard anyone say. 30-50% of the revenue? Do you understand that that would mean that every 120g costs Sony 430-480$? I hope I am taking something completely out of context and you ere just unclear about what you meant, because this is another example of an eggregious error on your part.

I did some quick google search on it: http://www.inventionstatistics.com/Licensing_Royalty_Rates.html

I think Sony fits in the "Well known brand category" so its about 8-12% and "up to 15%" for video game invention. Yeah, our guesses are way off but ~15% is still pretty substantial.