Sony's PS3 Plan: Lose $300 On Each Unit, But Make It Up In Volume

from the backwards-math dept

Much has been made of Sony's ongoing supposed turnaround, and the Playstation 3 was supposed to play a significant role. But between the Sony battery fiasco and the multiple delays of the PS3 launch, the company's still treading water. Now, just as the PS3 is (finally) going on sale, an analyst report says Sony will lose between $240 and $310 on each unit it sells, even with its high starting prices of $500 and $600. It's common for game consoles to be sold at a loss at first, until economies of scale come into play and bring manufacturing costs down -- for instance, the same analysts say a year after its launch, Xbox 360 unit sales now likely generate a small profit for Microsoft. This means that companies have to make up the difference with game sales, and the huge loss on each PS3 means that it needs to get an "attach rate" -- the average number of games a consumer buys along with the system -- of 6. Analysts consider 4 to be high, and 3 to be the average rate, so Sony's got quite a challenge on their hands, particularly when you consider the high cost of the system, and the growing cost of games. Games for new systems are getting more expensive, and they continue to be developed for and marketed to the core gamer demographic, focusing on technological achievement over everything else. But is this an increasingly niche market? Nintendo's gone the other way, attracting a wider audience to gaming by keeping prices low and focusing on less flashy games with a lot of attention on the gameplay itself. Of course, its next-generation console, the Wii, is also out soon, setting the stage for an interesting tussle between the two strategies. One final footnote about the PS3: its second most expensive component, at $125 -- and apparently the one also responsible for many of the delays -- was that oh-so-awesome Blu-ray optical disc drive. All in all, the PS3 sounds like a masterstroke: delay the launch for an expensive component that nobody really wants anyway, and kill your margins even more in the process. Looks like we'll still be waiting a while for that Sony turnaround.

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  1. identicon
    DJ Hiphop, 16 Nov 2006 @ 2:02pm

    Missed Something

    That attach rate might make sense if the thing only played games, but what about the fact that it is very likely to make Blu Ray the dominant format? That's gotta be worth something. You can argue all you want about which format is going to be popular in the United States with Softie selling their Hd-dvd add ons, but Blu Ray has already won in Japan. Also there's all those online games and stuff that they sell at a huge profit because there all they have to do is port an old game and then deliver it via broadband. I bet they make a bigger profit on blast factor than they do on any of the games sold in the store. These brilliant "analysts" didn't seem to consider any of this. I also question their figure of an average of 3 games per console. Is that like the amount people buy the day of release or what? Most of the guys I know buy more than three copies of Madden through the life of the console. Sony is going to make a fortune off this console unless they start exploding.

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