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Forums - Sony - Sony Could Lose $350 Million in Profits on PS3 Price Cut, says Analyst

NoCtiS_NoX on 13 June 2009

industrygamers

Sony Could Lose $350 Million in Profits on PS3 Price Cut, says Analyst

Posted June 11, 2009 by James Brightman

IndustryGamers just launched a new regular feature with Wedbush Morgan Securities' Michael Pachter. One of the questions we posed to him in the "Pachter's Podium" column was about whether Sony could realistically cut the price on PS3 hardware without killing their balance sheet.

Sony Computer Entertainment in Japan has had a profitability mandate on the PlayStation business for some time.  It's a very tough balance to strike because PS3 is losing market share as long as the MSRP remains high, but as the cost of components for the hardware comes down, Sony needs to drop the MSRP to remain competitive, thereby somewhat negating the potential benefit to profitability. 

Here's what Pachter told us:

"Sony signaled a price cut when they upped their PS3 shipment forecast to 13 million this year, compared to around 10 million each of the last two years. They are not likely to sell 30% more units without a price cut. The question is not whether, but when, and by how much. They can cut by $100 and perhaps see a spike of 30%, or can cut by a lower amount with bundles. I think that their decision will be based upon profits, so I think that they favor a smaller cut (likely $50) with a bundle of Sony first party games (which cost only $1 - 2 each). Look for $349 and a Killzone bundle in October, instead of a Madden cut in August. Their profits will suffer by the amount of the cut multiplied by the number of units sold, so probably 6 - 7 million units at $50, or around $300 - 350 million. They will not make this decision lightly."



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haxxiy on 13 June 2009

I already thought about it. In my opinion, a $350 PS3 with KZ2, LBP and GT5 would have like what, $180 of embedded value while costing virtually nothing to Sony. The question is: would it be as apealling to the average mainstream costumer as a straight $300 PS3?

A $400 slim could do part of the job still.



 

 

 

 

 

libellule on 13 June 2009

hum,

I completely understand the problem of a big 100$ pricecut
but I doubt a 50$ price cut will be sufficient to boost the PS3 sales significatively

I have already see some "special offer 50$ reduction" around in France (for the 360 too), and I doubt a "minor" 50$ price cut will be enought
but yeah, it is perhaps impossible for them to make a real 100$ price cut ...



Time to Work !

Munkeh111 on 13 June 2009

The thing is, they may sell an extra 3m consoles, but the question is how much does this boost software sales? If they sold an extra 500k of 1st party games, that gives them about an extra $15m just across the holiday, plus a boost of 3rd parties across the holiday, and then you have to think about the long term affects, but the big question is the software boost



masterb8tr on 13 June 2009

do we know how much they loose per console? and how much cheaper a slim is to produce?



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papflesje on 13 June 2009

Still think that it's going to be a tier-based one (the price cut).

This is a possibility imho: A small price cut, ride it out until the sales dwindle, then hope for pickups with a bundle with FF XIII and possibly GT 5, ride that one out and then place the Slim in line, ride that one out and then drop the price a bit again for the slim. All of those would cause surges in sales without causing too much of a "slit your wrist"-move I think.

Dropping 100 and then still factoring in all the possible spikes from FF XIII, GT 5 and a Slim would be insanity.



Munkeh111 on 13 June 2009
masterb8tr said:
do we know how much they loose per console? and how much cheaper a slim is to produce?

No we don't unfortunately, there is speculation that they lose about $40 per console



masterb8tr on 13 June 2009
Munkeh111 said:
masterb8tr said:
do we know how much they loose per console? and how much cheaper a slim is to produce?

No we don't unfortunately, there is speculation that they lose about $40 per console

Its safe to say that the slim will be cheaper to produce, the question is how much? might they still be able to sell the ps3 slim at only 50$ loss at a 300$ price point?



Munkeh111 on 13 June 2009
masterb8tr said:
Munkeh111 said:
masterb8tr said:
do we know how much they loose per console? and how much cheaper a slim is to produce?

No we don't unfortunately, there is speculation that they lose about $40 per console

Its safe to say that the slim will be cheaper to produce, the question is how much? might they still be able to sell the ps3 slim at only 50$ loss at a 300$ price point?

The way that they can make it slim is by removing the power unit, so creating a brick. This means that they can save money on that, and then loads of money on saving ventilation, and they will also use a smaller and probably cheaper chip, but I don't know the breakdown of the price of the construction of a PS3, so I can't accurately say



student on 13 June 2009

It's definitely a tough decision for them. Will they do it? Eventually. But so long as they NEED to be in the green, they're in a catch 22 for sure