By using this site, you agree to our Privacy Policy and our Terms of Use. Close

Forums - Sales - PS3 still losing money?

Squilliam on 03 May 2009
Dodece said:
The problem for most on these forums no matter where they sit in the debate is a case of clear near sightedness. You simply must view Sony as a whole. Sony was able to aggressively price the PS3 due to the company as a whole making this possible. The gaming division was not self sufficient. You cannot view any division at Sony on a local level. Stringer talked about doing this, but there is no indication that it became a reality.

This is the reality at Sony. They are losing money. They owe a lot of money. They are in a economic recession. Which means it is taking longer to make money, and finally they are up against a poor currency exchange rate. The bottom line is this Sony is in no position to abandon profit, or look the proverbial gift horse in the mouth.

When a division any division begins to bring in a profit Sony is going to be using that profit to offset losses in other divisions. Pay down that debt load, and bring dividends to their investors. The gaming division alone has brought down has a billion dollars of debt on the shoulder of Sony in loans alone. Which is what a lot of members forget. Sony couldn't afford the manufacturing and launch of the console alone. They went borrowing against the console.

Frankly any consideration of price cutting on this console was idiotic once the economy hit the skids. The question is not what can Sony do to win. I am sorry the contest is over Sony has lost this battle. What matters now is not losing the war, and the number one way to do that is to survive to fight another day. The true fan must understand this, and actually be happy.

In a bizarre way if you find Sony cutting the price on their console that is when you should get upset. That has a greater then fifty percent chance of meaning they are abandoning the console. That would mean they have given up on the console being a profitable venture period, and have decided to do what it takes to liquidate stock.


I don't really understand why you wrote that. It makes sense that at this point they won't abandon the console and if they do make any moves on the price of the console, it will be because such a move is justified and is productive towards their corportate goals which include improving profitability.

 



Tease.

Around the Network
Graves on 03 May 2009

I don't think there is much Sony can do to compete. They can't do a price drop because they'll lose more money. They lose 3rd party exclusives because they sell the least consoles this gen. I'm sure Sony will come out of this with some profit but that goes to show no company can release a game console for such a high price.



Plaupius on 03 May 2009
binary solo said:
Plaupius said:

No, no, no. The question was specifically about hardware, and the result is clear. On top of the hardware costs, there are a LOT of other costs that the PS division (forgot what it is called now, networked entertainment and devices or something) has to cover. Companies need a healthy sales margin to cover those costs. Of course, the margin varies for each company, but to give you an idea one manufacturing company that I know well has a sales margin around 50%, meaning that if a product costs 100€ to produce, they will sell it for 200€. That will give them a healthy EBIT margin, but nothing extraordinary.

So, my point is: if Sony at some point starts to profit from the hardware, that DOES NOT mean a price cut is imminent.

Just a small point: 50% sales margin on an item with a 100€ manufacturing cost is 50€.

No, it is not, because in company financials the margins are calculated "backwards" from the revenue. So, if you sell your product for 200€ to your distribution channel, and it costs you 100€ to make, you have a sales margin of 50%. That is different from the usual way of calculating the margins of a distribution channel, where each step may take for example 30% margin which is added to the price at each step.



Alby_da_Wolf on 03 May 2009
Graves said:
I don't think there is much Sony can do to compete. They can't do a price drop because they'll lose more money. They lose 3rd party exclusives because they sell the least consoles this gen. I'm sure Sony will come out of this with some profit but that goes to show no company can release a game console for such a high price.

It's slightly different: the current exchange rates situation means that they can't do a big cut in USA without losing money.

A cut in EU and Japan is possible, especially if done as late as possible before next Xmas. This means that currently and in the short and mid term Sony hasn't any hope to compete stronger in USA, but it can consolidate its 2nd place in Japan, take it bach in EU and compete stronger for it in Others and, in the mid term, compete stronger for 2nd place WW.

Wii is still out of reach, though, and, as I wrote above, most probably the war, limited to USA, is lost this gen, so the best hope for Sony is to end 2nd WW and content itself of 3rd place in USA but limiting losses.

If and when $ is stronger again, USA will eventually be able to get better prices, but the gap there by then will be very difficult to fill.



Stwike him, Centuwion. Stwike him vewy wuffly! (Pontius Pilate, "Life of Brian")
A fart without stink is like a sky without stars.
TGS, Third Grade Shooter: brand new genre invented by Kevin Butler exclusively for Natal WiiToo Kinect. PEW! PEW-PEW-PEW!   


arsenicazure on 03 May 2009
jonnhytesta said:
Bitmap Frogs said:
arsenicazure said:
disolitude said:
I wish this economy was around when Dreamcast was fighing the PS2 in 2000...

$149 DC with much bigger and better library of games and other perks not found anywhere else like Online gaming
vs
$299 DVD player with promises of MGS2 and FF10 in the future

 

haha.. true that.. but i doubt sega out of all companies could "beat the economy"..

 

 

 

Sega around that time was too busy beating up itself to bother about beating the economy.

sega isnt m$.  m$ has a lot of $$$$ and sega doesnt. that helps.

 

oh yea.. MS should have bought sega out when they had a chance, that would have resulted in 10-20 million sega customers right in the xbox kitty... too bad they have had too much money n not much else..

 



Doubt is not a pleasant condition, but certainty is absurd.

owner of : atari 2600, commodore 64, NES,gameboy,atari lynx, genesis, saturn,neogeo,DC,PS2,GC,X360, Wii

5 THINGS I'd like to see before i knock out:

a. a AAA 3D sonic title

b. a nintendo developed game that has a "M rating"

c. redesgined PS controller

d. SEGA back in the console business

e. M$ out of the OS business

Around the Network
Smashchu2 on 03 May 2009
Squilliam said:
Dodece said:
The problem for most on these forums no matter where they sit in the debate is a case of clear near sightedness. You simply must view Sony as a whole. Sony was able to aggressively price the PS3 due to the company as a whole making this possible. The gaming division was not self sufficient. You cannot view any division at Sony on a local level. Stringer talked about doing this, but there is no indication that it became a reality.

This is the reality at Sony. They are losing money. They owe a lot of money. They are in a economic recession. Which means it is taking longer to make money, and finally they are up against a poor currency exchange rate. The bottom line is this Sony is in no position to abandon profit, or look the proverbial gift horse in the mouth.

When a division any division begins to bring in a profit Sony is going to be using that profit to offset losses in other divisions. Pay down that debt load, and bring dividends to their investors. The gaming division alone has brought down has a billion dollars of debt on the shoulder of Sony in loans alone. Which is what a lot of members forget. Sony couldn't afford the manufacturing and launch of the console alone. They went borrowing against the console.

Frankly any consideration of price cutting on this console was idiotic once the economy hit the skids. The question is not what can Sony do to win. I am sorry the contest is over Sony has lost this battle. What matters now is not losing the war, and the number one way to do that is to survive to fight another day. The true fan must understand this, and actually be happy.

In a bizarre way if you find Sony cutting the price on their console that is when you should get upset. That has a greater then fifty percent chance of meaning they are abandoning the console. That would mean they have given up on the console being a profitable venture period, and have decided to do what it takes to liquidate stock.


I don't really understand why you wrote that. It makes sense that at this point they won't abandon the console and if they do make any moves on the price of the console, it will be because such a move is justified and is productive towards their corportate goals which include improving profitability.

 

But your wrong in the fact that a price cut will not help profitability, at least not dirrectly. What he is trying to say is that if Sony is not cutting price, they are trying to turn a profit. If they do cut price, then their goal is not to make a profit (as they will be selling the console at a loss). In the latter case, they are just trying to meet the depts.

 



Squilliam on 03 May 2009
Smashchu2 said:
Squilliam said:
Dodece said:
The problem for most on these forums no matter where they sit in the debate is a case of clear near sightedness. You simply must view Sony as a whole. Sony was able to aggressively price the PS3 due to the company as a whole making this possible. The gaming division was not self sufficient. You cannot view any division at Sony on a local level. Stringer talked about doing this, but there is no indication that it became a reality.

This is the reality at Sony. They are losing money. They owe a lot of money. They are in a economic recession. Which means it is taking longer to make money, and finally they are up against a poor currency exchange rate. The bottom line is this Sony is in no position to abandon profit, or look the proverbial gift horse in the mouth.

When a division any division begins to bring in a profit Sony is going to be using that profit to offset losses in other divisions. Pay down that debt load, and bring dividends to their investors. The gaming division alone has brought down has a billion dollars of debt on the shoulder of Sony in loans alone. Which is what a lot of members forget. Sony couldn't afford the manufacturing and launch of the console alone. They went borrowing against the console.

Frankly any consideration of price cutting on this console was idiotic once the economy hit the skids. The question is not what can Sony do to win. I am sorry the contest is over Sony has lost this battle. What matters now is not losing the war, and the number one way to do that is to survive to fight another day. The true fan must understand this, and actually be happy.

In a bizarre way if you find Sony cutting the price on their console that is when you should get upset. That has a greater then fifty percent chance of meaning they are abandoning the console. That would mean they have given up on the console being a profitable venture period, and have decided to do what it takes to liquidate stock.


I don't really understand why you wrote that. It makes sense that at this point they won't abandon the console and if they do make any moves on the price of the console, it will be because such a move is justified and is productive towards their corportate goals which include improving profitability.

 

But your wrong in the fact that a price cut will not help profitability, at least not dirrectly. What he is trying to say is that if Sony is not cutting price, they are trying to turn a profit. If they do cut price, then their goal is not to make a profit (as they will be selling the console at a loss). In the latter case, they are just trying to meet the depts.

 

You're really just speculating here. They will make a cut if it makes sense otherwise they won't, and yes they can have a profit motive for cutting the price because the more consoles they sell the more 1st/3rd party games can be sold as well.

 



Tease.

Smashchu2 on 04 May 2009
Squilliam said:
Smashchu2 said:
Squilliam said:
Dodece said:
The problem for most on these forums no matter where they sit in the debate is a case of clear near sightedness. You simply must view Sony as a whole. Sony was able to aggressively price the PS3 due to the company as a whole making this possible. The gaming division was not self sufficient. You cannot view any division at Sony on a local level. Stringer talked about doing this, but there is no indication that it became a reality.

This is the reality at Sony. They are losing money. They owe a lot of money. They are in a economic recession. Which means it is taking longer to make money, and finally they are up against a poor currency exchange rate. The bottom line is this Sony is in no position to abandon profit, or look the proverbial gift horse in the mouth.

When a division any division begins to bring in a profit Sony is going to be using that profit to offset losses in other divisions. Pay down that debt load, and bring dividends to their investors. The gaming division alone has brought down has a billion dollars of debt on the shoulder of Sony in loans alone. Which is what a lot of members forget. Sony couldn't afford the manufacturing and launch of the console alone. They went borrowing against the console.

Frankly any consideration of price cutting on this console was idiotic once the economy hit the skids. The question is not what can Sony do to win. I am sorry the contest is over Sony has lost this battle. What matters now is not losing the war, and the number one way to do that is to survive to fight another day. The true fan must understand this, and actually be happy.

In a bizarre way if you find Sony cutting the price on their console that is when you should get upset. That has a greater then fifty percent chance of meaning they are abandoning the console. That would mean they have given up on the console being a profitable venture period, and have decided to do what it takes to liquidate stock.


I don't really understand why you wrote that. It makes sense that at this point they won't abandon the console and if they do make any moves on the price of the console, it will be because such a move is justified and is productive towards their corportate goals which include improving profitability.

 

But your wrong in the fact that a price cut will not help profitability, at least not dirrectly. What he is trying to say is that if Sony is not cutting price, they are trying to turn a profit. If they do cut price, then their goal is not to make a profit (as they will be selling the console at a loss). In the latter case, they are just trying to meet the depts.

 

You're really just speculating here. They will make a cut if it makes sense otherwise they won't, and yes they can have a profit motive for cutting the price because the more consoles they sell the more 1st/3rd party games can be sold as well.

 

Yes they will make a cut when they deside they can't turn a profit in the industry and must try to clear as much dept as they can. Someone mentioned that Sony borrowed against the PS3 which means they probably sold bonds (meaning they will have to pay interest). That means Sony can incure cost over time.

The problem is your assuming the company can make a profit from cutting the cost. They can't. If Sony drops the price by $100, they lose an additional $100 on every sale. They are still incuring interest on those bonds (or a loan). The division will be under more pressure to turn a profit. They can't meet the difference in game sales as the system doesn't sell many games. The reason for not cutting the price is becuase they are trying to get the console trun a profit on each sold and then clear out their debt.

Now, if they cut, then they are not trying to make profit. In this case, they have given up on profitability and have desided to simply meet the dept the best they can. If Sony cuts price, they are in survival mode.

 



Rpruett on 04 May 2009
Smashchu2 said:
Squilliam said:
Smashchu2 said:
Squilliam said:
Dodece said:
The problem for most on these forums no matter where they sit in the debate is a case of clear near sightedness. You simply must view Sony as a whole. Sony was able to aggressively price the PS3 due to the company as a whole making this possible. The gaming division was not self sufficient. You cannot view any division at Sony on a local level. Stringer talked about doing this, but there is no indication that it became a reality.

This is the reality at Sony. They are losing money. They owe a lot of money. They are in a economic recession. Which means it is taking longer to make money, and finally they are up against a poor currency exchange rate. The bottom line is this Sony is in no position to abandon profit, or look the proverbial gift horse in the mouth.

When a division any division begins to bring in a profit Sony is going to be using that profit to offset losses in other divisions. Pay down that debt load, and bring dividends to their investors. The gaming division alone has brought down has a billion dollars of debt on the shoulder of Sony in loans alone. Which is what a lot of members forget. Sony couldn't afford the manufacturing and launch of the console alone. They went borrowing against the console.

Frankly any consideration of price cutting on this console was idiotic once the economy hit the skids. The question is not what can Sony do to win. I am sorry the contest is over Sony has lost this battle. What matters now is not losing the war, and the number one way to do that is to survive to fight another day. The true fan must understand this, and actually be happy.

In a bizarre way if you find Sony cutting the price on their console that is when you should get upset. That has a greater then fifty percent chance of meaning they are abandoning the console. That would mean they have given up on the console being a profitable venture period, and have decided to do what it takes to liquidate stock.


I don't really understand why you wrote that. It makes sense that at this point they won't abandon the console and if they do make any moves on the price of the console, it will be because such a move is justified and is productive towards their corportate goals which include improving profitability.

 

But your wrong in the fact that a price cut will not help profitability, at least not dirrectly. What he is trying to say is that if Sony is not cutting price, they are trying to turn a profit. If they do cut price, then their goal is not to make a profit (as they will be selling the console at a loss). In the latter case, they are just trying to meet the depts.

 

You're really just speculating here. They will make a cut if it makes sense otherwise they won't, and yes they can have a profit motive for cutting the price because the more consoles they sell the more 1st/3rd party games can be sold as well.

 

Yes they will make a cut when they deside they can't turn a profit in the industry and must try to clear as much dept as they can. Someone mentioned that Sony borrowed against the PS3 which means they probably sold bonds (meaning they will have to pay interest). That means Sony can incure cost over time.

The problem is your assuming the company can make a profit from cutting the cost. They can't. If Sony drops the price by $100, they lose an additional $100 on every sale. They are still incuring interest on those bonds (or a loan). The division will be under more pressure to turn a profit. They can't meet the difference in game sales as the system doesn't sell many games. The reason for not cutting the price is becuase they are trying to get the console trun a profit on each sold and then clear out their debt.

Now, if they cut, then they are not trying to make profit. In this case, they have given up on profitability and have desided to simply meet the dept the best they can. If Sony cuts price, they are in survival mode.

 

Sure they can. You are trying to simplify this WAY too much in your head.  Have you forgotten everything else that is for sale for a console? Controllers? Memory Card Adapters? Controller Covers? Bluetooth Microphones?  On top of the first party software that they have created (Many of which are some of the best games on the system).

The average attach rate for the PS3 is somewhere around 9 games.  Trust me.  9 games sold (With about 3 to 4 being first party) would easily without a shadow of a doubt cover Sony losing 100 dollars.

 

Sony will not get into a cutting price war for one primary reason.  They have a product that costs tons of money in actual cost.  They are competing against two products that have cost a substanial amount less from day one with cheaper overall hardware.   It makes zero business sense for them to get into a price cutting war and lose the ONLY advantage that the system has.   

In the eyes of the consumer,  the PS3 is a valuable item.  By keeping the price high, you keep the demand high.  Sony is nursing a price cut because it makes sense for them on a business standpoint as well as a marketing one.

 

   If they cut the price on the PS3 they aren't in survival mode.  That's utter rubbish.

 



Plaupius on 04 May 2009
Rpruett said:
Smashchu2 said:

Yes they will make a cut when they deside they can't turn a profit in the industry and must try to clear as much dept as they can. Someone mentioned that Sony borrowed against the PS3 which means they probably sold bonds (meaning they will have to pay interest). That means Sony can incure cost over time.

The problem is your assuming the company can make a profit from cutting the cost. They can't. If Sony drops the price by $100, they lose an additional $100 on every sale. They are still incuring interest on those bonds (or a loan). The division will be under more pressure to turn a profit. They can't meet the difference in game sales as the system doesn't sell many games. The reason for not cutting the price is becuase they are trying to get the console trun a profit on each sold and then clear out their debt.

Now, if they cut, then they are not trying to make profit. In this case, they have given up on profitability and have desided to simply meet the dept the best they can. If Sony cuts price, they are in survival mode.

 

Sure they can. You are trying to simplify this WAY too much in your head.  Have you forgotten everything else that is for sale for a console? Controllers? Memory Card Adapters? Controller Covers? Bluetooth Microphones?  On top of the first party software that they have created (Many of which are some of the best games on the system).

The average attach rate for the PS3 is somewhere around 9 games.  Trust me.  9 games sold (With about 3 to 4 being first party) would easily without a shadow of a doubt cover Sony losing 100 dollars.

 

Sony will not get into a cutting price war for one primary reason.  They have a product that costs tons of money in actual cost.  They are competing against two products that have cost a substanial amount less from day one with cheaper overall hardware.   It makes zero business sense for them to get into a price cutting war and lose the ONLY advantage that the system has. 

In the eyes of the consumer,  the PS3 is a valuable item.  By keeping the price high, you keep the demand high.  Sony is nursing a price cut because it makes sense for them on a business standpoint as well as a marketing one.

 

   If they cut the price on the PS3 they aren't in survival mode.  That's utter rubbish.

 

The question here is, because of the dire financial situation of Sony: can they sell enough additional software within the same fiscal year to cover the losses caused by the price cut? They do not really have the luxury of offsetting the payback to future fiscal years. Remember that the current attach rate is a product of the total lifetime of the PS3 in market, and it does not mean that an average new owner would buy 9 games in a year. So, with that in mind, here are two different scenarios:

Scenario A, with the current price, Sony sells 10 million PS3s during the current fiscal year, with 4 million sold up to the beginning of October and 6 million after that.

Scenario B we assume that they drop the price by $100 at the beginning of October and end up selling 14 million during the current fiscal year.

The cost of scenario B compared to Scenario A is an extra loss of $100 dollars for 10 million consoles = $1000 million extra loss.

Now, about the accessories and extra software: The price drop caused an additional 4 million PS3 to be sold, so the burden of turning a profit out of the price drop lies on those 4 million, which means that each additional PS3 sold would have to bring in more than $250 profit from accessories and software. And that is not likely to happen no matter how you twist it.

Now, if Sony were in a position where they could afford to take losses with the hope of recovering during a longer time interval, things would be different. Let's get together two additional scenarios that span two fiscal years:

Scenario C, maintain the current price. Sales remain flat so 20 million PS3s sold during two fiscal years. Same as before, 4 million sold up to the beginning of October and rest after that.

Scenario D, price cut of $100 at the beginning of October. It boosts sales so total sales for the two following fiscal years is 28 million PS3s. In addition, the manufacturing price of the PS3 is gradually decreasing during the second fiscal year so that at the end of the year, they are back to the level of profitability they were before the price drop.

The cost of scenario D compared to Scenario C is an extra loss of $100*10 million + $50*14 million = $1700 million extra loss.

The price drop caused an additioinal 8 million PS3s sold, so each new owner would have to bring in more than $212.5 for the price drop to be profitable within 2 fiscal years. Still unlikely, IMO.