@jkimball

Again, Net Loss does not just mean component costs, but ALSO marketing, advertising, etc.

So I think it is fair to associate all those to the PSP launch.

For example, if you it costs you $5 to produce a widget and $6 to market it, what is your cost for the widget? Your total cost would be $11. If you sell said widget for $10, then you are losing money on this widget, UNLESS you suddenly stop "marketing" it.

You can argue whether the marketing for PSP should be allocated to just the "launch year PSPs" OR to all PSPs sold including future PSPs. However, that is more of an accounting theory argument rather than a financial statement analysis argument.

The fiscal year naming conventions are standard ... Sony's fiscal period goes from April 1st one year to March 31st the next year, and (by standard naming conventions) it is refered to as the fiscal year that the period ended in.

For what it's worth, I think you should assign a certain percentage of the turnover to other costs such as marketing and maintaining the PSN/Home infrastructure, that way you might get improved results from the analysis. IMO, since Sony has stated that they are striving for cost reductions on the PS3 to stop bleeding money, 150$ net loss per console feels a bit high, I'd imagine it's hard to cut that much costs at this stage of the life cycle of the console, especially without expecting major increases in quantities. So I'd be interested to see what are the results of your analysis if you allocate, say, 18% of the turnover to other costs. If you want to go further, you can make some assumptions as to how that 18% is divided between the platforms, but since the 18% figure is pure speculation (though not really that unrealistic, at least it shouldn't be too high) it might just create more uncertainty that it would add to the analysis.

MMOS are part of SCEA which is part of the gaming division.

Their costs are significant as if you add every MMO managed by Sony you probably reach 1 million subscription which is 1/10th of Wow.

I disagree with you on development of games since the release of PS3.

If you look at Sony first party studios they have released very few titles since the release of the PS3 as most of them shifted to develop for the PS3 and they don't have the advantages of Multiplatforms developers able to release titles on several platforms.

Like I seriously doubt the revenue brought by Uncharted, GoW Chains of Olympus and GT5P covered all the development costs for 2007, even less for 2006.

First party development is even more cyclical than third parties , I think it's a fair assumption that for the 2002-2005 period those studios contributed positively to Sony bottom line and negatively for the last two years.

With the uncoming releases on the way it's probably a fair assumption to say they will soon start to contribute positively again to the bottomline ( and your methodology would imply that the cost of making the PS3 decreases when development studios start to make a profit..). The cost associated to the PS3 mgiht chance but the loss/unit doesn't.......

In the end what I disagree is you ending your analysis by computing a loss/unit which most people will use to deduct that if Sony sells X more units the loss will be loss/unit *X.

I can agree with rolling PS3 third parties development costs under the PS3 profit or loss but not when it comes to computing a loss/unit which is really a thing we do not have enough information to compute...

The financial statements of course include all costs, but as far as I understand, you're making certain assumptions on how the profits/losses are distributed between the different platforms based on the sales numbers and the total profit/loss of SCE. Your current analysis seems to assume that fixed costs are divided equally between all platforms, though I might be mistaken since I haven't crunched the numbers myself. I'm pretty sure that the statements we have gotten from Sony about the profits/losses per platform do not include fixed costs, only manufacturing, i.e. the statement that they are aiming for profitability with the PS3 most probably refers to the sales margin, not operating margin. That's why I'd be interested to see how the numbers change if you change how you distribute the fixed costs.

1. If I assign percentages for other costs, then that would imply I would have to figure out actual revenue for the divisions as well, not just operating income.  It could be done, but that would entail even more assumptions and frankly while doable, will take much more time.

2. Also, for next quarters projection - $150(*) does sound a bit high if you go by PS3 hardware costs alone.  But if you also take into account all other costs, it does not seem so high anymore.  At 2.5 million PS3 units projected to be sold for the quarter, that amounts to ONLY $375 (*) million. 

Which if by all accounts, component costs have been reduced to about break even on the PS3 hardware, still leaves a lot of expenses (losses) to be allocated - overhead, marketing, distribution, etc.

If you feel that the actual component costs of PS3 hardware is about $400(*) per unit, then another $375(*) million allocated to operate the actual hardware division is not too much of a stretch.

Does that answer make sense?  The main point is that if PS3 Hardware component costs is about break even, there are still a lot of costs that has to be deducted - hence a LOSS for the PS3 hardware division still.

What do you think?

Actually, SCEA and SOE are two completely different companies. SOE is a part of Sony Pictures, whereas SCEA belongs to Sony Computer Entertainment, Worldwide. The MMO profits of SOE have nothing to do with SCEA whatsoever.

Good Work, yet I agree with the some others, 2 dollars seems far too low of a licensing fee per game, I speculate its probably closer to the 10$ range

I thought I read recently that Sony combined SOE into SCE.

1. Yes, although my thought was to use just a percentage of the turnover of the whole SCE and divide that between the platforms, but like you said it requires another set of assumptions and I don't know how much it would add value to the analysis. Still, I'd be interested in it :)

2. Ok, when you put it that way it makes more sense. The biggest problem I have here is that your approach puts together all fixed and variable costs and derives a profit/loss figure per product, that kind of approach is just something I'm not used to in my work. Though I have been talking about wanting to see figures where the marketing costs are allotted to each product separately, so I'm not saying this approach is wrong in any way.

On the other hand, from an accounting perspective the PS3 hardware division is not responsible for the marketing and distribution costs of PS3, same as they are not responsible for the R&D costs either. Hmmmm... dagnabit, the more I think about this, the more it seems that there's no way to get any numbers that would be more refined that just pure net profit/loss per product, i.e. exactly what you're doing.