1337 Gamer said: both these companies are bluffing. Activision cannot afford to not sell atleast their high tier games on SONY platforms and SONY cannot afford to lose even more of their high tier popular games. This is a lose lose situation for everyone. At "worst" Activision stops making their crap shovelware games on the PS3!! Oh no im trembeling at the thought!

The development of a low budget PS3 game or a port is upwards of 6 million last I heard. Thats quite a bit to port over a game from the 360 or to develope a low budget title for the PS3. Activision has to sell hundreds of thousands to a million copies per game to be profitable. The PS3 does not look like it has a future (Outside of Japan). For a major western publisher like Activision Blizzard it makes far more sense to support the Wii and 360 here in NA then put their eggs in Sony's rickety basket.

I remember reading Atari state that a game for PS3 cost up to 13-million to develope and that was the primary reason they weren't going to support the PS3 initially. I also know EACanada stated a game for PS3 could cost upwards of 15-million to develope. I also know that Konami lost money when they released MetalGearSolid 4 and they stated they would have to sell millions of copies to reap a profit.

So with development on PS3 still not profitable why wouldn't Activision pull out. Activision can afford to loose all of their PS3 revenue and they will still be one of the largest publishers in the world. Its a win win for Activision, they win if they pull out, millions less down the drain. They win if they stay because they win favour from Sony for future platforms and maybe they can get something from Sony in return for staying.

But either way Sony is the only one who stands to loose anything. It's not like the PS3 has a high attache rate for software. So few even to reach the million mark in sales. I think Activision Blizzard could essentially do to PS3 what EA did to DreamCast!

1337 Gamer said: both these companies are bluffing. Activision cannot afford to not sell atleast their high tier games on SONY platforms and SONY cannot afford to lose even more of their high tier popular games. This is a lose lose situation for everyone. At "worst" Activision stops making their crap shovelware games on the PS3!! Oh no im trembeling at the thought!

You know, the Playstation strategy has been to get as much cheap shovelware to the systems as possible, when dropping the support would be a direct hit to the strategy.
Of course, someone who doesn't buy shovelware wouldn't lose anything, but Sony would.

Squilliam said: bdbdbd said: Erik Aston said: And in the meantime, EA has hit bottom and is plotting it's return, and Ubisoft's underdog status hasn't changed, and both of those companies are taking Wii more seriously, looking for new growth opportunities, because they don't think they're sitting pretty. Basically, I think Activision could yet have the troubles that EA, THQ and Take-2 are going through in store for them in the future. And this statement, more than anything it says about Sony, sort of shows that they are in the same place EA was during the later PS2-era, where they think they are the kings of the world, but don't have a long term plan, and don't even know it. There were two things in your post i'd like to point out: If Activision-Blizzard wants to focus more on Wii, dropping the PS3 support could allow them to allocate more resources to Wii. Investing to PS3 doesn't look like good short term or long term strategy. And as for the EA comparision, last gen EA threatened to drop Gamecube support and managed to get their licencing fees lowered. Excuse me sir! If the royalties were lowered, wouldn't it mean that in the longer term the razor blade model was being threatened so therefore the quantity of future royalty revenue per PS3 would be lower and they couldn't borrow so heavily against future and present royalty earnings which would put price cut plans in jeapordy?

Yes and no. Of course the royalties wouldn't be completely cut off, only lowered. In any case, if the games aren't primarily made for the system, what you'd earn would be a share of what your competitor is getting.
In the end, Sony would also lose games in the systems library (not to mention important games in their new systems libraries). This is starting to be the time when the devs start to look for next gen systems developement and Sony just introduced its new motion controller at E3, so there's more in stake than just the PS3:s current success.

@bd*3

The systems are sold at a loss on the expectation that future royalties/revenues will not only cover the loss but provide a profit for the console maker. If those royalties are cut down then the delta between the cost to market and sale price would therefore have to be smaller for Sony to remain profitable. Thats one of the more important points if Activision is indeed wanting concessions on the royalty payments because other publishers would seek parity with any agreement.

Yes, theres a lot at stake outside of royalties. Game releases, Sony mote adoption, etc. This is a business thats difficult to break into simply because publisher goodwill is hard to come by. Thats why said publisher good will is so very important for the success of any company in the business.

@Squilliam: The situation where Sony is in, is a situation where they can only lose. Cut price -> make bigger loss. Cut royalties -> lose income. Don't cut price -> lose sales. Don't cut royalties -> lose games. What Sony likely wants to do, is to make the situation for the future as good as possible.

Since Sony already went to bundle 3rd party games, the situation likely is a start of snowball effect.

Times like these I'm glad I don't work for Sony but as I buy their consoles...I guess I should feel for them x_x

bdbdbd said: @Squilliam: The situation where Sony is in, is a situation where they can only lose. Cut price -> make bigger loss. Cut royalties -> lose income. Don't cut price -> lose sales. Don't cut royalties -> lose games. What Sony likely wants to do, is to make the situation for the future as good as possible. Since Sony already went to bundle 3rd party games, the situation likely is a start of snowball effect.

Probably their best bet would be a price cut, even a little $50 (12.5%) price cut would probably be enough to satisfy Activision-Blizzard. It wouldn't cost them the earth and they could possibly even reap a higher profit on the longer term and still break even on the short term.

Wait, has Sony said they will comply with Activision's request?

HappySqurriel said: RVDondaPC said: Activision will never stop supporting the PS3 because if the CEO does that then he will be out of a job. Vivendi would not appreciate it if he cuts off a giant revenue stream that is the sony platforms. Infact this CEO could even lose favor just because he has a big mouth. The guy may be the CEO, but he doesn't have absolute power. Shareholders and Vivendi which has a controlling stake in Activision hold the fate of his future in their hands. Also Modern Warfare and Guitar hero has such a big following it could potential lure people to whatever platform still has them. However Activision makes a shit load of licensed games from mostly movies that don't have a strong enough lure to get people to follow them so therefore they will lose out on all that revenue. Further more Activision would probably no longer get these contracts from all these movies and other IP because they don't support the PS3. So not only would they lose out on the PS3 sales from all games but they would also lose out on games like Shrek, Wolverine, Spider Man, Transformers, etc. across all platforms. If Activision stop supporting Sony their console revenue stream would be reduced to about 30% of what it is. Activision doesn't have any pull with Sony at this point. Yes they can really hurt Sony but would be killing them self in the process. Vivendi knows this and would never let this talk go further than it already has. First off ... The revenue from Sony platforms doesn't matter, all that matters is the profit generated and the return on investment. If a company is spending $10 to make $5 on a platform, or they can get double the return for investing the same money on another platform, then they have nothing to worry about from losing the revenue from dropping a platform. I'm not saying this is the case, just that it is more complicated than simply looking at the revenue generated. Now, you may not hear about people buying a videogame console to play cheap licenced games but they do have an impact on the system that ends up being bought. While most people imagine the "Man of the house" as having the power to buy the toys he wants for himself, quite often devices like game consoles are bought with a consideration of how the entire family can get use out of it. A system that has "poor quality" licenced games targeting everyone is a much easier sell in most households than a system that is full of high quality games targeting teenage boys and men.

 

Are you trying to give me a lecture on finance or are you adressing the situation? It doesn't matter what you call it, we don't know the numbers all we know is that it is a giant revenue stream. And yes revenue streams are very important, not just profits. Revenue streams are an indication of long term profitability while profit is just a short term indicator. But that is all besides the point. The potential profitability that Activision would have without supporting Sony is much lower than with it supporting Sony. 

As for your second point, it doesn't really matter because Activision doesn't own those licensed games IP's. So they wont get to make the games if they don't support Sony because it would be lost revenue for the licensees so they would just look for THQ or EA or Take-Two to license their games instead of Activision. Even if activision still published the games for the 360/Wii they would probably just get Sony to publish the games for the sony platforms and that would just be increased revenue for Sony. 

@Squilliam: I don't think the real issue is the price. What seems to be mostly ignored is, that Activision-Blizzard also wants Sony to cut down dev costs, which in practice is to cut royalties.
However, if Sony drops the price, it takes the pricecut base from the argument away for awhile, in the end they male new similar threat after this is forgotten if Sony only drops the price.

@RVDondaPC: The potential isn't helping a bit, if a company can't make reality of that potential.

The problem with the potential is, that usually you can cut costs only to an extent. The problem we have here, is that they could be making better return for their investment by doing something else, since the resources are limited anyway.
The situation isn't different from a store that has to decide what to keep on their shelves. Ham has bigger revenue, but eggs make better profit.

RVDondaPC said: Are you trying to give me a lecture on finance or are you adressing the situation? It doesn't matter what you call it, we don't know the numbers all we know is that it is a giant revenue stream. And yes revenue streams are very important, not just profits. Revenue streams are an indication of long term profitability while profit is just a short term indicator. But that is all besides the point. The potential profitability that Activision would have without supporting Sony is much lower than with it supporting Sony. As for your second point, it doesn't really matter because Activision doesn't own those licensed games IP's. So they wont get to make the games if they don't support Sony because it would be lost revenue for the licensees so they would just look for THQ or EA or Take-Two to license their games instead of Activision. Even if activision still published the games for the 360/Wii they would probably just get Sony to publish the games for the sony platforms and that would just be increased revenue for Sony.

The revenue streams from the American automobile manufacturers have always been massive, and yet they are all desperately trying not to go bankrupt; in contrast Toyota and Honda were smaller companies that focused on profit (and not just revenue) and as a result they now produce more cars at lower costs and sell them for more money with a larger margin. If a company is unprofitable on a quarterly basis (or is unprofitable for one year) this isn't necessarily a bad thing, but if there is structural unprofitability the long term prospects for the company are not good; because the company can not sell enough products at a high enough margin to make a profit this year and builds up debt, which means they have to sell more products next year at a higher margin to service that debt which is unlikely if you're already struggling.

Now, as for licenced games, do you remember how many licenced games the Gamecube or XBox received last generation? It was (somewhere) in the range of 10% to 25% as many licenced games as were released for the PS2. The reason for this is simple, while most licences give a publisher the rights to create games based on the IP for all platforms very few IPs have the expectation that every game is released for every platform. Even if refusing to publish a game on a platform meant that you lost rights to that licence on that platform, you don't lose rights to the game that you funded the development of, which would mean that anyone who took up the licence on that platform would have to build a new game from scratch; and how excited do you think a large publisher would be about funding the development of a licenced game for one platform when the sales of that platform are less than amazing?