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Forums - Sales Discussion - Do you think Sony will ever make a net profit from the PS3?

Yes , they could ... I see them barking even with development cost late 09 , and get into green zone sometime in 11 ... still , software will be the big money pusher for them ...



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I would have to say no. They will have incurred too many loses on the console. Remember the loses exceed hardware components. Development costs, marketing, exclusivity contracts, software support, and other support all go on the spread sheet. When Sony spends twenty million dollars advertising the PS3 that has to be billed to the division. When Sony buys exclusivity that must be billed to the division. Every software update Sony does was coded by employees that had to be paid. Basically there are a lot of hidden costs on top of the inferred hardware losses.

Even if Sony gets to positive monetary gain on the hardware some point late in the next fiscal year. They still have to offset all of these incurred losses. Which they will continue to incur as the hardware becomes profitable. They might have a fifty million dollar advertising tab to pay off. They might have spent thirty million dollars in buying exclusive content. They may have to pay upwards of ten million dollars in software development. All of those added costs would drag the profitability into the next fiscal year at the very least. So it will have taken them three years to stop bleeding money. Realistically thats half of a consoles life devoted to bleeding badly.

That is actually the sunny version. The way things can go right for Sony. The grim version is that Microsoft forces Sony to reduce prices again. Their game sales remain in a slump. The other formats lower price increases pressure on Sony's own. Their console begins to get squeezed out of the market. Almost all of it is out of Sony's hands. They have no control over Microsoft or Toshiba's pricing. They can't change the buying habits of their customers. Changing market impression of your product is hard. The longer they stay out on the fringes the less likely it is they will be noticed or considered later on.

Everything Sony supposes has to be based on current trends, but what if those sales start slipping in response to these factors. Either Sony bleeds a lot more money to stay in the race, or they have to accept that they are going to slide off the map. After all it cost them over two hundred dollars more per console last year to keep that from happening. There has to be a limit somewhere. Where is the point of no return I wonder. Either way the result is the same.

They either have to increase losses to stay in the race, or they stand firm and watch the market drift away from them. Sony just isn't going to have a choice in the end. They either end up selling more consoles at a major loss, or they sell fewer consoles at a smaller loss.



Just to add to the general sentiment here, no, definitely not. Sony can turn a profit in individual quarters, but it's already impossible to turn a lifetime profit on the PS3. They're simply too far in the hole already ($3 billion and counting). That's not even including this current holiday quarter just passed; when Sony releases its financial numbers in January, we're going to see the true costs of their latest price drop - and it will not be pretty.

Both Sony and Microsoft run a business model that necessitates achieving PS2-level dominance in the market in order to turn a profit. Since the PS3 is clearly never going to get anywhere close to that level, we're going to see XBox-level financial losses. That article posted by libellule is a good example. Cutting through the PR spin, Sony is stating that they HOPE to break even on PS3 hardware sales in the NEXT fiscal year - that's April 08 to March 09. So "maybe" Sony will stop losing money on PS3 hardware within the next 18 months.

Hardly an encouraging prospect.



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End of 2008 totals: Wii 42m, 360 24m, PS3 18.5m (made Jan. 4, 2008)

Software prices are likely to remain high to help them claw back some of the damage the PS3 unit is doing.

They are loosing a lot of money with each unit sold and I do not see that changing for several years!!



libellule said:

damn,

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 EDIT :

Sony's Hirai eyes PS3 profit as costs decline

Mon Jan 7, 2008 5:02am EST

By Franklin Paul

LAS VEGAS (Reuters) - Sony Corp (6758.T: Quote, Profile, Research) gaming chief Kaz Hirai hopes to turn a profit on the PlayStation 3 console business in the entertainment conglomerate's next fiscal year, fuelled in part by falling costs for the parts used to make the device.

"We want to get to the positive side of the equation as quickly as possible," Hirai, who is chief executive of Sony Computer Entertainment, said late on Sunday on the sidelines of a news conference at the Consumer Electronics Show in Las Vegas.

"The next fiscal year starts in April and if we can try to achieve that in the next fiscal year that would be a great thing. We are going through the budgets right now. That (profitability) is not a definite commitment, but that is what I would like to try to shoot for."

His comments came after Sony announced stellar holiday sales for the PS3. The company said on Sunday it sold 1.2 million PlayStation 3 video game consoles in North America over the period, two-thirds what it sold in the rest of the year.

The Tokyo-based electronics and entertainment conglomerate currently loses money for each PS3 it sells.

Sales of the PS3 have lagged those of Microsoft Corp's (MSFT.O: Quote, Profile, Research) Xbox 360 and Nintendo Co Ltd's (7974.OS: Quote, Profile, Research) Wii consoles due to what analysts say is its lofty price and a dearth of must-have games.

Great games, which draw consumers to buy the console, matched with declining component prices will hopefully lead to profitability for the PS3 and the company's gaming division overall, Hirai said.

"Component costs are coming down, and the number of components ... we are seeing a reduction," he said. "The 40 gigabyte PlayStation 3 obviously has fewer components (than more powerful models), and uses less power, which means that components required to dissipate heat, for example, can be smaller, so there is some cost reduction there."

"So costs are coming down significantly," he added, noting that the decline is in line with what the company had expected.

(For more from the Consumer Electronics Show, please visit the MediaFile blog: blogs.reuters.com/mediafile/)

 

==> I suppose the important word is "hope" ...


 Well, this pretty much answers the question, doesn't it?  Yes, they could make a profit, but it depends on how soon BD starts selling at a higher rate.  That will naturally drive costs down and as the BD drive is the single most expensive part of the PS3, will make the biggest difference.  No one knows right now (as far as I've seen) where Sony is in selling the 40GB units.  How much of a loss is that?  

In any case, the article also makes it clear that while they (of course) "hope" to make a profit on the console over the next year, they're fully prepared not to.  They know they may need to drop price again in response to MS or other market pressures.  The fact that they think they even MIGHT be profitable over the next year should tell people that they're not losing near as much per unit as they used to be.  Something worth checking out, don't you think?

Either way, we all know Sony has always made profits on the software end, not the hardware.  They've been operating this way for some time now.  It's much more crucial for MS to get profitable in their gaming division and stay that way.  MS MUST sell a good bit more of the 360's than they did with the original Xbox.  Right now over 2 years into the lifecycle as opposed to about 4 years for the original Xbox, it looks like they're on pace to slightly outsell the original Xbox.  I'm assuming they lose less money on the 360 than they did that original unit (one of the reasons they switched to PPC, etc) so hopefully they'll be able to attain overall profitability on that product.  If not, they'll have to seriously evaluate strategy when bringing out their next generation.  And before people get their backs up, yes I know MS has tons of money, but they still operate under business principles and that means they expect profitability from ALL their divisions, at least after initial scrambling to carve out a spot in the market.  We'll see... 



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Lifetime it should make a small net profit of roughly 200-500 million. Although I think Sony will be more than happy just to break even. Sony will be getting more than enough profits from their bluray royalties.



 

 

mid 2009 they'll start cutting into their losses, they won't come back from the losses they've already dug out this gen though.. probably next round



Not that I'm doubting you guys, but could someone give me a source for how much money Sony made with the PS2? It'd be nice to have more than "some very credible guys told me on a very credible forum" if I later quote the numbers and someone asks me where they're from. =P

If you have them handy, then I'm also interested in the same numbers for Nintendo and Microsoft (-4bn$ wasn't it?) as well, but don't strain yourselves for little old me.



Well if they are really going for a 10 year plan, as in no successor for 10 years (which I honestly don't think the CAN do, but I won't get in to the myriad of reasons why that is right now) then they might.

But think about this, If they start turning a profit in TODAY, they would need to make 1 billion in profit each year just to break even in 2011. Their losses are still piling up and if they start making a profit in 2009, as I suspect they will, they should be around 3.5-4 billion in the hole.

That means making an average of 1 billion profit a year (which they wouldn't) they wouldn't break even until 2013-2014.



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It seems the PS3 has won the format war for sony.

I think they've been vindicated from a buisness point of view.

For me personally, the PS3 still isn't a machine I'm interested in, but I think it's going to make more money for Sony than the 360 will for Microsoft.