Sony's gonna lose $100 on each PlayStation 3?

We probably won't ever know for sure (or at least not anytime soon) what their real numbers are going to be, but Merrill Lynch Japan Securities has calculated the cost structure of putting a Sony PlayStation 3 on the shelf, and they're expecting Sony lose $94 per unit selling each at an estimated $399 at launch. (In case you're curious, they're estimating $101 apiece for the Cell chip, RSX, and BD-ROM drive, and all the rest of the costs). They go on to predict a net loss for Sony of $1.18 billion the first year—way, way more than the $458 million they lost the first year on the PS2, but we know Sony's got deep pockets (and apparently a whole lot of faith in their platform). How did Kutaragi respond when asked how they'll be able to justify the huge cost of the device on launch, even despite their cost-slashing? "Our ideal [for the PS3] is for consumers to think to themselves, 'OK, I'll work more hours and buy it.' We want people to feel that they want it, no matter what." Ok, fair enough. Now get back to work, people.

[Thanks, Julien]

[jacob @ Dec 19th 2005 1:01AM]

What if people don't buy the PS3 as much as Sony wants?

[haloman @ Dec 19th 2005 1:01AM]

At least they can recoup some of the cost by selling the requried memory cards or hard drive.

[B @ Dec 19th 2005 1:01AM]

Since we don't know how much the PS3 will cost to product or how much it will sell for, of course I agree that Sony will lose $100 for each one sold.

[jeremy @ Dec 19th 2005 1:01AM]

I don't want to work more hours for a gaming system!!!

"Our ideal [for the PS3] is for consumers to think to themselves, ‘OK, I’ll work more hours and buy it.’ We want people to feel that they want it, no matter what."

Translation:

"Since we pack all this hardware that no game is even going to take 100% advantage of and we want to be the cool company so that we can have marketshare, you, the customers are going to have to be an exorbitant amount for a console that will have at least 80% of its games being mediocre. Have fun, suckers!"

[tips @ Dec 19th 2005 1:01AM]

See, video game consoles *encourage* people to work more...

[declan @ Dec 19th 2005 1:01AM]

They will probably just sell year old PS3s for �500 to �600 in Europe and recoup the losses made in the States.

[deuce @ Dec 19th 2005 1:01AM]

I don't want it. They just lost $493. Oops.

[Desert @ Dec 19th 2005 1:01AM]

I would say they have less faith in their platforms and put all their faith in the brainwashing power of their marketing division, which havn't let them down yet.

[leo @ Dec 19th 2005 1:01AM]

they wont do that as long as ebay is still exist :D

[Yet another matt @ Dec 19th 2005 1:01AM]

this of course is why games cost 4x the amount of any normal dvd

[Mr.Ortiz @ Dec 19th 2005 1:01AM]

And suddenly Nintendo's business model makes sense. They don't have to be #1 to stay in business because they never lose money on a sale. Unfortunately, perception is reality in this industry. If enough people think Nintendo is unprofitable, they will become unprofitable because people will stop buying their products.

[James @ Dec 19th 2005 1:01AM]

Keep in mind that this is the same Merrill Lynch who recenty paid $35 million in penalties to the SEC and who saw "significant upside" in stock winners like Pets.com and Webvan.

It would be nice if they had mroe detail than just pulling numbers out of their asses, espeically how the Blu-Ray drive, CPU and 3D chipset all magically happen to cost the same.

[robotplague @ Dec 19th 2005 1:01AM]

Wow, $399 price launch. Nintendos gameplan I think is going to pan out this gen. A $199 estimated price launch is going to look mighty tempting to parents and teens who can't afford to dish out twice as much for the PS3 that has a million things the average consumer most likely won't use. I don't think im going to get a PS3 until a significant price dr- whats that....a whisper...."must own ps3, don't think, get back to work, save, save save!"

[Phil @ Dec 19th 2005 1:01AM]

Microsoft will eat SONY's lunch with the XBox 360. Allard knows a thing or two...

[Guinnis @ Dec 19th 2005 1:01AM]

HMM 399 for a PS3 thats way too much. The 360 will be at around $300 as per A Microsoft guy i talked to last week at a TS2 event. He didnt give an exact price but said around 300. I looked otherplaces speculation is around the same price too. So by the time the PS3 comes out the 360 should be around 250 and the PS3 will be 399. HMM I think sony is going to lose a ton of money on this one. esspecially if they release Halo 3 on the release date of the ps3

[otakucode @ Dec 19th 2005 1:01AM]

I think Kutaragi just stubbed his toe on a major cultural difference between Japan and America. Mr. Kutaragi, perhaps you should come to America for awhile to better understand your market. You see, we don't belive in earning things any longer. That's old-fashioned and, most believe, cruel. The concept of working hard to achieve a goal went out sometime around the 60s or 70s. The most you'll see us do is petition the government for PS3 grants, complain a whole lot and feel cheated, maybe even file a few lawsuits.

Working hard may work in Japan, Mr. Kutaragi, but not here. Not America. Not any more.

[swarmster @ Dec 19th 2005 1:01AM]

"I don't want it. They just lost $493. Oops."

Actually, it sounds like they just _made_ $94. Oops!

[sk @ Dec 19th 2005 1:01AM]

Maybe in the first year but after that components become cheaper and cheaper and than they start making more and more money.

[Somoky @ Dec 19th 2005 1:01AM]

Guinnis you said by the time the PS3 comes out the 360 should be around $250. I don't think that will happen. When was the last time you saw a console's price drop only 6 months or so after its release. I think it will still be $300.

[OddManOut @ Dec 19th 2005 1:01AM]

"...When was the last time you saw a console's price drop only 6 months or so after its release. I think it will still be $300."

Well...you might be right 'Somoky'. But consider, MS will need some kind of campaign to fend off the onslaught of the PS3 at it's release. Personally, I think if the 360 doesn't have HDDVD at launch, either a minor hardware add on or a firmware up grade will come out and enable it when the PS3 launches...sort of an 'easter egg' if you will (but that's just a minor theory). But dropping the price so the gap is significantly bigger than $100 would be a huge draw for teens and parents. And even if MS drops the price after 6 months, they won't have to do so again for a LONG time to stay competative with the PS3.

[threEchelon @ Dec 19th 2005 1:01AM]

I find it funny that Sony is bragging that it will sell so well when it comes out. If sales are high when it first comes out and much lower later on in its life they'll just lose more money. In any case, I still think they're screwed. Their pockets just are not that deep anymore.

[mike @ Dec 19th 2005 1:01AM]

hahahahaah they talk about how people are still lining up for the PSP even though its high priced.

uhhhhh the PSP is selling, i guess.. but compared to the DS? No way.. the DS is outselling PS2 in Japan.. I mean.. the DS is just kicking ass!

Guess what? It's affordable.. (149 here in the US)

[Grindstone @ Dec 19th 2005 1:01AM]

$399 just for the console and probably 1 controller. Then a game, another controller, the Hardrive, HDMI connection and then maybe an online subscription (not sure, we'll see) makes this package a little less desirable.

Work harder?! I hate having my goals dictated to me. Come on Sony, I don't want to make any brash decisions on my next major gaming purchase.

[Eric @ Dec 19th 2005 1:01AM]

I don't think companies sell their products if they expect a loss. Think about it. Who the hell would want to do that? Thats just plain stupid!

[miketwig @ Dec 19th 2005 1:01AM]

dang the rsx for 101 buxs!

[Azalyn @ Dec 19th 2005 1:01AM]

OddManOut: I'm sorry to be the one to tell you this, but you're a few bluescreens short of a Windows install.

How the hell did you come up with this ridiculous "minor upgrade" theory for HD-DVD?

There's several glaring gargantuan flaws with your "minor theory", and here they are:

1) There is no humanly possible way to simply 'add' HD-DVD support to a system with a "minor hardware add on", sorry, it will not happen. As for the firmware upgrade idea, you should be smacked with a dirty shoe for even thinking that a firmware update alone can just magically give you HD-DVD. I'm sorry for being harsh, but seriously, have you even read anything on HD-DVD and/or blu-ray? The formats require a different kind of laser to work. And shipping the Xbox 360 with the infrastructure to support HD-DVD without actually making use of it would be pointless, since the primary costs *are* the things that *cannot* be simply 'added' on to the system. You'd have to switch out the whole optical laser assembly. Which isn't a 'minor upgrade' at all, and there is no way Microsoft would be stupid enough to pull such a move. If the system ships with DVD support only, then it's *stuck* with that for the next five years. At least for games... more on that later.

2) Even if Microsoft was retarded enough to attempt such a foolish move, the fact is that any new HD-DVD based games would not work on first-gen systems without the add-on, this kind of business model has been attempted many times in the past, you need only see Sega's fatal add-ons to see. Releasing such add-ons in the mid-life of the console is almost like stating that your system has a problem. Microsoft would lose marketshare by doing this, it would be easier and more profitable to just freakin' make a 4-disc DVD game or something rather than go through all the trouble to support HD-DVD. The only time any sort of add-on like this has ever worked as matter fact, is Nintendo's Expansion Pak for the N64, which was pretty successful, however in this case, the earlier games were compatible both on a regular N64, and on an upgraded N64, and only when the Expansion Pak reached near market saturation (it was after all included with a huge hit title), did they start making games that only work with it. This wouldn't work for HD-DVD however, since there is no way whatsoever to create a disc that can be read in both the normal Xbox360 and in a theoretical HD-DVD-enabled unit, perhaps if they used a dual-sided disc, but then one of the sides would be missing like a huge amount of game content, and those dual-sided dual-format discs are likely way too expensive, in the end, a 4-disc game would be more reasonable.

Now that I've dispelled your sillyness, I must address the comment that Bill Gates made during the whole Toshiba+Microsoft deal what was announced a few days ago.

Bill *did* in fact mention that a future version of the Xbox360 could have HD-DVD support, however, you have to read between the lines and use logic, his statement was intentionally ambigious so that it would cause exactly the kind of misleaded hype that I'm seeing here. The fact of the matter is that he was for *sure* trying to state that a future Xbox360 could support HD-DVD *movies* and not actual games. So anotherwords, the future units may include it for HD-DVD movie playing, so that Microsoft can ride off of HD-DVD's success in hoping to crush one of Sony's advantages (which is being able to play blu-ray movies).

They will absolutely *not* make HD-DVD games, this wont happen unless the very first shipment has HD-DVD built-in, if it doesn't, then you can place your bets on the system never having HD-DVD gaming.

By the way, a friendly note, I'm hoping HD-DVD as a multimedia format wins the format war against blu-ray. It's backed by the DVD Forum so it's the only one of the two that can officially claim to be "The Next DVD", I'm hoping it will win, since it would be better for the market, and it would deal a pretty bad blow to Sony.

Sony is fighting two important wars now, the PSP war against the Nintendo DS, which it's losing, and the blu-ray VS HD-DVD war. Soon it will be fighting in the next-gen console race too, as the third war.

I think Sony has essentially shot themselves in the foot. Now they essentially have *three* initiatives to focus on, and that's four if you also count UMD. And I don't see them winning the handheld market at this point. Nintendo has several really high-profile titles on the way in the next few months, and once the DS online service launches, we'll likely see a lot more sales for the DS.

If they lose that first war, and then lose the war against HD-DVD, which I'm almost certain they will, because HD-DVD has too many studios backing it, the hardware manufacturers backing the blu-ray are essentially worth nothing, it's the content that is important, and seeing as the *top* studios in the biz are backing HD-DVD (Paramount, Universal, Warner Bros, etc), and the recently announced partnership with Microsoft to develop low-cost HD-DVD players, I just don't see Sony winning this one.

They spent a huge amount of cash on blu-ray, and even more money buying MGM so they could have their movie library in support of blu-ray (I doubt this will make much of an impact, what does it say about a format when your biggest supporter is you?), which will all end up in wasted funds.

If this plays out in that way, then Sony is set to lose billions. And then all bets are off on the PS3, they still have a strong brand there, but the "Nintendo Factor" could likely proove unpredictable, Nintendo definitely has something cooking, in all the years I've been a Nintendo fan, I've never seen them *this* confident, normally they're quite modest and reserved, and now all of a sudden they're talking about kicking ass and taking names, and boasting about having a revolution on stage? Some people think the change is more image-oriented, and it might be partly that, but I think they've also got something really big under the hood that they're excited about.

We'll have to wait and see. It would seem that every single console generation someone in some magazine or site says "this will be the most interesting generation ever", and okay, sometimes it pans out, but most of the time the generation is just the same as before. This time however, I really do believe, that 2006 will be a year to remember, things will happen in the game market that we never thought possible, and more than a few of us will likely be left with a "WTF" look on our faces by the end of the year. ;)

[nostradamus @ Dec 19th 2005 1:01AM]

Nice post Azalyn. I agree that Sony is trying to do too much currently with their entertainment industry. The Blue-ray vs HD DVD is a 50/50 showdown, but I predict an HD DVD victory due to costs and the movie industry support. If Sony actually had games for the PSP, it would be a much larger success. The PS3 will not be as successful as the PS2 because of the increased popularity of the Xbox and as a result, they won't generate near the profit they did from the first two.

On another note, if you read the article, Merril Lynch predicts a loss of 130 billion yen in the first year. If you take the cost (54000 yen) subtract the selling price (44800 yen) and divide 130 billion yen by that value, you rougly get the # of units predicted to be sold. That would be 14 million in the PS3s first year. Microsoft just said that they want the Xbox 360 to sell 10 million units in the first year or so. Does that mean PS3 is the winner after year 1? Although, since the PS3 isn't debuting for 6 months after the Xbox 360 (at best), perhaps it'll be a draw in the Spring of 2007.

Finally, the cost of a console usually goes down as the production increases for its components. Where the PSOne and PS2 cost to manufacture decreased significantly after the first year (I don't think they were losing money after that, or it was a rather small amount compared to the release point) due to mass sales, I don't think the PS3 will garner such a benefit. The Cell chip is not mainstream nor will it become mainstream for years. The Blue Ray DVD certainly won't establish itself as the brand by 2007 as I don't see an HD format winner till probably 2009 when HD TVs are far more the norm. And the 7800 GTX will be Nvidia's PC high end graphics card, but those market sales have been steadily declining especially with new consoles coming out (although the segments are generaly seperate, it certainly can't help). Granted sales of PS3s alone will result in somewhat "mass" production, but not massive enough to limit the losses. I also see the 360 continually undercutting the PS3 at the register given the 360s much easier produced components and Microsoft's ability and determination to gain marketshare. The Sony coporation is dependent on the Entertainment division profits, where as Microsoft is more interested in market share (and have the cash to offset the losses) and getting their slimy hands into your living room.

[OddManOut @ Dec 19th 2005 1:01AM]

Wow. Did you enjoy that 'Azalyn'? It was an interesting read. My posts classically are about as long and I've been trying to be more concise. So basically I didn't bother adding a lengthy explanation because I thought most people would recognize the term 'easter egg' as being representative of hidden features ALREADY PRESENT. Bah...I should just do this in order...

"How the hell did you come up with this ridiculous "minor upgrade" theory for HD-DVD?"

I realized that in order to enter a locked room all you need is the key, a relatively minor bit of hardware. Using the key will not generate bricks of gold with in the room, but if such bricks already exist within the room, the key will give you access to them. I then applied this knowledge to the arena of consummer electronics.

" There is no humanly possible way to simply 'add' HD-DVD support to a system with a "minor hardware add on", sorry, it will not happen."

I agree, as the above analogy reflects. So you should probably save your dirty shoe (did it get that way because you aparently like to put your foot in your mouth ?) for whoever you are quoting who said you could 'add' HDDVD capabilties with a firmware update. *I* said 'enable' them, implying they were (bum-ba-da-DA!) *disabled*, implying they were already present. I guess you kind of have to 'read between the lines'.

As for 'humanly possible', who said Bill Gates was human ? :)

"I'm sorry for being harsh"

Strange. You rather seem to enjoy it actually...

"have you even read anything on HD-DVD and/or blu-ray? The formats require a different kind of laser to work. And shipping the Xbox 360 with the infrastructure to support HD-DVD without actually making use of it would be pointless, since the primary costs *are* the things that *cannot* be simply 'added' on to the system. You'd have to switch out the whole optical laser assembly."

Yes I have read about them both. Quite a bit actually. And even still I am in the minority of people who don't see a multi laser system as all that farfetched. And my point was never that HDDVD hardware will be included and never used. Within my theory it WILL be made usable, but at a time when it provides the best MARKETING value. Right at the point when they most need to attract new buyers without alienating those who already bought 360s. I could of course be wrong, but that's why it's called a 'theory'...

"...there is no way Microsoft would be stupid enough to pull such a move."

Oh no. Microsoft would never do anything stupid *cough**cough**WINDOWS ME**cough**cough**. Not MICROSOFT...

"If the system ships with DVD support only, then it's *stuck* with that for the next five years. At least for games... more on that later."

Why ? Even if you had to purchase a completely external HDDVD drive you could attach one if a game required it. The SNES game 'Starfox' had a sub-processor built into the cart to enhance the systems capabilites, so whether people knew it or not they were augmenting their system to support this game (and paying to do it too). I don't know if you've ever noticed, but sometimes companies make money off of MANDATORY ACCESSORIES. I remember this one product, I think it was called the Xbox, that had a DVD compatible drive, but could not be used for playing DVD's without the optional remote control that had to be purchased as an ACCESSORY. I mean it's not EXACTLY THE SAME CONCEPT, but maybe you can see how one might compare the two...

"any new HD-DVD based games would not work on first-gen systems without the add-on, this kind of business model has been attempted many times in the past, you need only see Sega's fatal add-ons to see."

Um, ok. Who said anything about HDDVD games ?
In any case, I say again, some companies like to force people to buy accessories because they can make more money that way. Yes, Sega did it (32x, 'nuff said). Yes, it was not a winning strategy for them. So what? Microsoft has a legal and by gosh a god given right to do as many idiotic things as they like (Just like you and I, nes pas ?). And the stumble that could kill a crippled beast (Sega, around the time of it's demise) might not necessarily fell a hearty (not to mention RICH and SNEAKY) Warrior (Microsoft). I never said it was a good strategy, I just think it's technically possible (as now outlined in more detail) and within Microsoft's capabilities and mentality.

"Releasing such add-ons in the mid-life of the console is almost like stating that your system has a problem."

What system doesn't have problems ? I prefer to see such a release as a statement that they have a SOLUTION to the problem your system has.
I don't think most people see the release of the Eye Toy or the Dance mat as an admission of oversight in the PS2's design on Sony's part. I think they just thought 'Cool! Now my system can do even MORE neat stuff. I think I'll give Sony some more money". And I think that's what Microsoft will want and need for themselves when the PS3 is debuting. Somthing to refresh the appeal of the already released 360. I don't think HDDVD movie playback will do it, but I don't expect Microsoft to always be right. And judging by your blue screen refences, neither do you...

"The only time any sort of add-on like this has ever worked as matter fact, is Nintendo's Expansion Pak for the N64"

Never did get the Nintendo love goin' so all this mish mash about the N64 pak I'll just say 'Sure.' to.

"...there is no way whatsoever to create a disc that can be read in both the normal Xbox360 and in a theoretical HD-DVD-enabled unit, perhaps if they used a dual-sided disc, but then one of the sides would be missing like a huge amount of game content, and those dual-sided dual-format discs are likely way too expensive, in the end, a 4-disc game would be more reasonable."

There have also been theories tossed around about having multiple layers on the same side, one conforming to HDDVD the other standard DVD. I don't know that they've ever actually gotten that to work but the solution you mention is perfectly viable (a 2 sided disc). Yeah content would be missing on the standard side. Just cause a product isn't completely satisfactory to legacy consummers doesn't mean a company won't produce it (in the vernacular it's called 'throwing someone a bone'). The 360's slated backwards compatibility is far from ideal, and will only allow people to play SOME of the old games, but that's the price of not buying every new thing that comes to market. Pay, deal, or pirate. The same choices microsoft always offers us...

But I repeat, who said anything about HDDVD games ? Aside from you of course...

"Now that I've dispelled your sillyness"

You probably feel a whole lot better, right ?

"Bill *did* in fact mention that a future version of the Xbox360 could have HD-DVD..."

And my theory is one way of accomplishing that. I would assume the Xbox 360 HD (or whatever) would just have the firmware or add-on out of the box. So why is my theory 'silly' ?

The rest I don't think was directed at me so I'll finish there. I'll assume that even though some of your statements were a bit venomous that they were all in all in good humor. Please take my responses in the same fashion... :)

[Lane @ Dec 19th 2005 1:01AM]

I want the system JUST for the FF7 remake!