Oki guys. This is not a attack on PS3 as a gaming/media device, this is pure finance talk. The fact is that no matter how well PS3 is selling at any price and no matter how good games and the machine is, the industry is about making money. The whole thing of this comes from a case I had at uni namned "PlayStation 3: Game over?". It's a harvard case on how bad PS3 is hurting Sony in the gaming industry.

So this is first a recap of the current situation for both the game division and the whole company. Then my questions on how bad is it….

Fiscal Q1 (Calendar Q2)

Sony as whole
Net income drop of around 50% to 326.9 million dollars, from Q1 2007. From a net income of 18,5 billion dollar.

Gaming division

Ps3 sold 1.56, a plus of the double since 2007. The division produces a 51 million dollar profit,

-          PS2 is down 43% from 2.66 to 1,51. PSP is up 75% from 2.13 to 3.72

Fiscal Q2 (Calendar Q3)

Sony as company
Net income drop of 71,8% from Q2 2007. Revenues of 19,90 billion dollars but only a net income of 200 million which is around 1% of the revenue

Gaming division

Sony’s game division loses: 379 million dollars
PS3 sold 2,43 million, a plus of 1,12 million from last year

-          PS2 and PSP are selling with profit. The margins for these to should be better then same quarter 2007. So the losses on PS3 should be even higher then 379 billion, due to hardware.

-          The sales of PS2 is decreasing with 780 000 compared to Q2 2007 and PSP increasing with 600 000.

How much have they lost on PS3 yet?

According to Sony them self they have lost 2.16 billion dollars in 2007 on PS3 and will lose 1.16 billion on it in 2008.

It is also said that the cost of launching it in 2006 was 563 million dollars. This is the lost of the gaming division in whole of 2006. Partly due to launch, partly due to sales, partly due to development. But this is the total loss of the whole division so the lost of just PS3 should be higher.

This should also include the developing cost in earlier years like FY2005 where Sony notes that despite great PS2 and PSP sales the net income is low due to PS3 costs.

So my question is

-          How much and when will PS3 cut in price.

M Many people are talking about 2009 in being the big year for Sony. But looking at numbers they are in the worst position of cutting prices. Declining sales of PS2 will reduce net income since that machine should be the one with best margins

The pricecut will not likely come in the first 6 month of 2009, the sales are to low and since the great comeback of Microsoft this year I think Sony will try the same tactic. I guess we won’t get more then 50 dollar lower, the case of 100 dollar would hurt Sony to much yet another year. The last pricecut was made much do to stripdown of hardware, they don’t have that option anymore.

-          Won’t the pricecut force Sony to yet another year on losing money on PS3 hardware?

Even with 50 dollars of the PS3 won’t make money next year as a total. I think the 45nm CELL will come in Q3 and give some space but that pace will be eaten directly with pricecut.

-          Will a pricecut help Sony to catch up with 360? Looking at numbers Microsoft has a even better position on cutting it again

Many people talk about 2009 being PS3 year and that a pricecut will give them a comeback. I believe that the YTY sale will be higher, around 15-17 million total. But Microsoft also has the option to lower all versions with 50 dollars to. End of the year the gap will still be around 7 million

-          Will they ever make enough money in the end so the PS3 actually will be on plus?

No. PS2 is the biggest success ever, PS3 won’t repeat that. Yeah Sony is talking about their 10-year plan but the PS3 has to hard competition and to bad start so even if it will last 10 years the last years won’t be as good as PS2 and they won’t make up for all the costs.

So please help me out on other thoughts and ideas for my own case on that case.....

Are people just making accounts to come here and throw out some supposed bad things about sony?

Well if you disagree with me so tell my why then. It is a case, not fiction och bashing.

It's not like I can write a case and say everything is all good, this is pure finance and the numbers that i find is not positive. But if you have source saying something else please post it. I need fact about my case and it's hard to find.

 Oh shut up.

I can understand you complaining when someone is just saying "The Ps3 is d000med!", but this guy actually made some good points.

Now, I'm certain this thread won't get any replies -  I know that from experience, but the few he gets should at least be decent, and not just thrown out by someone who didn't even read it.

The OP has some good points, and nice information. I won't reply (at least not yet) as I know I'll just kill the thread (50 lines long posts tend to do that...)

You complain about people trolling the Ps3, yet when someone makes a thread that's informational, you do something that's darn close to trolling yourself.

I'll just say one thing.

You stated " PS2 is the biggest success ever". As the rest of your post is by a financial angle, I guess you mean so here too. I really doubt that the Ps2 was the biggest success ever, I think Sony even made less (or slightly more) money during the 6th gen than Nintendo did (thanks to GBA). I think, from a financial perspective at least, that the Ps1 and the Game Boy line were more successful.

Great article!Very informative and well thought out. I have known for years that sony was hiding the TRUE costs of the PS3. From its inception, including R&D, Sony has lost between 8-10 billion on the PS3 alone. Yes, I know that figure is staggering, but it is most likely a reality.

The hardware market for gaming is akin to an oligopoly/monopolistic competition model with product differentiation, as none of the companies sell the same product. However the issue is that Sony and MS are not as differentiated as Nintendo, both in hardware and in software, so for them price is very important. The key is that while they are not perfect subsitutes, the 360 and PS3 are mostly interchangeble, especially as Sony loses exclusives to the 360, inaddition the dropping prices in standalone blu-ray players takes away that issue, so for Sony their problem is that for a lower price the 360 can deliver a very similar experience, as long as 360 can keep the price edge, and blu-ray players continue to fall in price, the PS3 will have a very hard time catching up to the 360 in sales

Welcome, PalmiNio. Great read, BTW.

Nice thoughtful post.

I, for one, think Sony is in trouble, for all the reasons we've seen discussed here for weeks. The yen, Blu-Ray driving up the costs and not allowing for price drops, the 360 eating away at the Sony base, the runaway success of the Wii, the economy, etc etc etc.

Sony as an entire company is hurting, so they can't just keep sinking money into the PS3. It will be interesting to see what happens, but if the economy in Japan continues to slide, especially if greater problems relative to the rest of the world, I could see the PS3 really take a turn for the worse as Sony Corp. has to focus its attention/money/resources where they can make profits back in their other divisions.

It could conceivably come to the point where they have to somewhat pull the plug if it gets bad enough. If GM and Ford can go down, Sony can go down. It is a possibility that this could drive them from the market, which would be pretty sad for gaming.

It is difficult to gauge how much Sony is loosing on the PS3 when you don't know how they are amoritizing the R&D costs against console sales.

Net income dropping 71.8% in just one quarter? That's surprising.

Given this, Sony cannot afford to drop the price until maybe Q3 2009, unless they "miraculously" find a way to lower the cost of so many parts at once!

For the price cut to have any help on Sony in catching up with MS, they should wait until maybe GT5 is released. And have a drastically cheaper "entry level" PS3 model bundled with the game. (Or they stand to empty their wallets even faster)