haxxiy said:
How many times are we going to rehash this discussion?
It makes economic sense for them to subsidize the cost even now because they'll make it all back in licensing fees later on, if PS3 end up a massive sucess like Sony most likely would expect with a pricecut.
The PS3, and the X360 also, isn't just a console in the same way a Television isn't just a picture tube - it's a medium for content delivery. You know, Cable TV/Satellite also loses money when they give installation for free. The only difference is you're giving your money directly to the Cable TV guys, so you don't question it. Here, the route is a little less direct so the profit line/rationale isn't as obvious.
Sony has significantly less in the bank than they did before, but at the peak it was hundreds of billions (their gross revenue is bigger than Nintendo and Microsoft put together I think) A rediculously huge amount of cash that was truly frightening to think about. Heck, some companies like AMD are working with no profits for ages now and nobody complains about new Phenom pricecuts or something along these lines. Why? Because investors at the moment care only for grabbing a bit more of Intel's marketshare, profits later on.
How many of you are high Sony executives or investors to tell with sure what they will do? |
You're looking at two very different companies with very different business models and expecting them to react in a similar way to different situations ...
The true manufacturing and distribution costs of microprocessors is actually very (VERY) small, and most of the cost of the processor is related to fixed costs like Research and Development and technology licensing fees. The "money" AMD stands to "lose" was spent years ago to develop the processor, and today they are given the choice of selling a processor at a moderately high margin (and recovering some of that money) or not selling a processor and an extremely high margin (and therefore recovering no money).
The true manufacturing and distribution costs of most of Sony's electronics are actually pretty high compared to their purchase price because the margin on such devices has been worn away from competition of inexpensive Chinese products and increased competition from quality manufacturers. The decision to make noticeable reductions to the price of a Sony TV or the PS3 doesn't translate into the recovery of money that has already been lost, it only means that the losses will grow at a more rapid rate.
Now, suppose that dropping the price of the PS3 by $100 would result in a $100 loss per system and a 25% increase in sales from 8 Million PS3 systems to 10 Million PS3s. Assuming that this price reduction would have no impact on the purchasing habits of the 75% of people who would buy the PS3 anyways, the only way for Sony to recover these additional losses is for the 25% new PS3 owners to generate $400 in profit each. To put that into perspective, that would (probably) translate into selling an additional 30 to 50 PS3 games per console or 80 to 200 Blu-Ray movies ...
If Sony was turning a profit on the PS3, would continue to turn a profit (or break even) after they reduced the price of the PS3, and could get a large enough boost in sales (say 50%), then a large price reduction could translate into a positive thing for investors; otherwise, the losses will only translate into Sony needing to reduce spending on recurring costs (like R&D and Marketing) which will hurt them more in the long run.
