bigger profit requres bigger investments thats all it is :)

To answer some of the questions that a lot of people seem to have (con't):

2. For all intents and purposes, PS3 = games + hardware + PSN, etc.
There is no breakdown for PSN, so most likely it was broken down into a combination of Software (eg. unit sales) and allocated to hardware as well.

But overall, PSN is probably not material to the financial statements YET. Otherwise, Sony would probably disclose some sort of number to inform/excite investors.

To answer some of the questions that a lot of people seem to have (con't):

3. If there have been some R&D costs allocated to different Sony divisions, then a more appropriate term would be:

PS3 Losses allocated to the Game Division

But the actual profits won't be bigger at all. Licensing fees and margins on software have not increased dramatically since the PS2 age.

Lower install base = less games sold = less licensing fee AND less revenue on 1st party software.

AND development costs for the 1st party games have risen (4 fold is often mentioned).

So overall the bigger investment + bigger loss per sold PS3 lead to less profit (if profit at all).

Its difficult to measure the benefit from the Blu-Ray victory. Right now the Blu-Ray consortium have spent hundreds of millions of dollars (if not Billions of dollars) in marketing Blu-Ray and getting exclusivity contracts from major movie studios. It will take years for these costs to be recovered, and until they are none of the members are going to see much in the way of revenues from licencing costs.

Now, if you assume similar licencing fees for Blu-Ray that currently exist for DVD you're (probably) talking about $5 per Blu-Ray player and $1 per Blu-Ray movie (in particular after they have paid for the technology licencing); remember, these licencing fees have to be low enough that (eventually) the players can be sold for $20, and a movie can be sold at $10, at a profit for the manufacturer and retailer. Sony is not the only person who would make money from these licencing fees, and I would be surprised if they made 25% of the total.

In other words I would be surprised if Sony made 1/2 the money they lost on the PS3 back from Blu-Ray licencing ...

Now there are other ways that a HD format benefits Sony, like the sales of high-end electonics and being able to re-sell old movies, but these are difficult to measure and Sony would have received these benefits regardless of what format won.

I'm dumb. I meant PSP.

There's only 2 bucks made off of each PSP sold? Or each PSP game sold?

To answer some of the questions that a lot of people seem to have (con't):

4. The assumptions for PS2 hardware NET Profit is $10(*) per unit CONSTANT.
Taking into account higher prices earlier, and lower production costs in the later years.

5. LOSSES mean NET LOSS, not just component costs for hardware.

DMeister, the PSP Hardware assumed $2(*) net profit.

The total for 2 years ending Mar 2008 = 22.25 million units of PSP

So if you allocate a NET PROFIT of $10(*) per PSP, then the total profit for the 2 years is $222.5(*) million as opposed to $44.5(*) million in the original analysis.

Therefore, the difference of $178(*) million should be allocated as a LOSS somewhere else, most likely PS3 hardware - increasing the OVERALL TOTAL LOSS of the PS3.

I've always wondered about licensing fees. Surely they must vary depending on factors such as the MSRP. $8-10 seems plausible for a $50 title, but it just seems silly that a $20 PS2 game would have almost half the money go to Sony. Once the retailer takes his cut, and manufacturing and distribution get paid, that leaves hardly anything for the publisher.

I agree with you Benga, but there's an even better way to illustrate how costly price cuts can be:

Sony is planning (in their financials) to sell 10 million PS3s this fiscal year. If they cut the price by $100 on each unit, that's a loss of $100 x 10m = 1 billion dollars. Maybe everyone will keep that in mind when discussing what each company should and shouldn't do in terms of sales.