Guess you did have a lot of time to think this up.

No problem, Sony is fine.

still contradicts your analysis.....

They're going to have profitability problems because they get a lot of praise and kudos from the industry and vocal minorities for their mistakes with their true customer base. And therefore will have incentive to continue struggling probably until it's no longer feasible, or they'll start getting the product right. Which they are not doing currently.

I think the state of the economy needs to at least be considered, but in general I think this is going to hold true. 15m units would be my target for 2010 if I were SONY.

They could still make a profit with all that though. Once you start to get parity or profit per unit hardware sales the software (essentially) becomes self supporting only and you gain profit far easier than before when software sales had to support both its own development costs _and_ the hardware.

@OP
That's some dodgy logic you're using there, Squid.

Basically your whole thread is based on comparing hardware sales with software sales -because of the assumption that licensing revenue must cover for losses on the console sales itself- but then you compare the increase in total hardware base versus the increase in Q4 software sales?

If each console generated losses when sold, then it must be covered by the sale of a given number of games. Thus the only comparisons that make sense is total versus total or yearly versus yearly, not total versus yearly, even less versus a particular quarter.

By comparing yearly software with total hardware base you're basically asking each yearly software to pay for all the install base, even the old consoles that have been paid for yet in previous years, by previous software sales.

Plus, by saying that software sales follow with a certain delay from hardware sales -which was the Source original consideration if I understand well- doesn't follow mathematically in any way a profitability problem. Technically, it's a convolution problem modeled by a Green function.

Practically, after the software peak the profits can still increase because software sales are somewhat a growing function of total install base and old consoles don't keep costing Sony a penny. Thus, even with less yearly software sales per installed console they're going to bring increased revenue month after month, whereas the yearly hardware loss will stabilize and decrease after the hardware sales peak. The problems can come much later in the life of the console, when software sales relatively to the total install base will dwindle (see PS2). But by then the losses on each hardware sale is also likely to be gone as well, and each console is simply a source of very little profitability, until it is finally cut.

Example:

2009: about 12M consoles sold at about $30 loss each (31M final hardware), about 91M software sales (about 2.93 sw/final hw ratio) at about $10 each -> in the order of $550M profit

Let's say that in 2010 we get numbers not incredibly off from:

15M consoles sold at about $27 loss each (46M final hardware), about 130M software sales ( 2.83 sw/final hw ratio) at about $10 each -> in the order of $895M profit

Please notice that hardware sales increased 25%, I even used a diminished sw/hw ratio and we still end up with increased profitability per sold console.

Additionally, trying to infer market models ("So essentially the Xbox 360 software differences show that when the hardware rate increase falls to ~33% year over year the sales increase of software stagnates without some extra input.") from 4 numbers is very naive. Repeat after me: 4 numbers. Last time you tried to forecast the sale increase of the PS3 after the 399->299 price cut by estimating the market elasticity, and you came up with a +25%. How did that work out? :)

The quarterly reporting will settle all of these discussions, definitely...although some will still try to spin spin spin.

Actually in short my point is this: The overall software sales may apex sometime next year and may decline after that. Then assuming that Sony loses money over the next couple of quarters like they seem to be forcasting it will be difficult for them to make back even the recent losses on PS3 hardware (~$1B), especially considering strong competition and the fact that the PS2 didn't make much more profit on a larger install base. The price cut alone is not enough in this dynamic so I felt they needed another ingredient and I felt that the Gem wand was it in that it had the potential to raise software, hardware and accessory sales so they wouldn't have to keep cutting into their hardware revenue to keep the ball rolling.

Also I used Q4 because I wanted a fixed time period with the most similar conditions (attempted market saturation by publishers) whereas the conditions during the year are much more dependant on big game releases and can vary widely. The last quarter was the test period and the console sales were important to show how the attach rate of software sold per console declines over time.

stating facts is not allowed if it makes sony look bad
get out while you still can

i dont know about everyone else but i'm saving the money for the games coming in 2010. they are just sooo many. i dont think the ps3 will suffer from poor software sales next year, nothing alarming.

lol i think PS3 actually have one of the best 2010 line ups for software...

Tales of Vesperia (WW)
FFXIII (WW)
SO4 (WW)
GT5 (WW)
WKC (WW)

These are world wide releases. Not counting JP games ;x yea... all pretty big titles if you ask me ;x