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
    Donald Duck, 16 Nov 2006 @ 11:53pm

    They'll make money LOL

    Sony makes the Sony BDP-S1 Blu-ray Disc High-definition player for $1,000 bucks. The PS3 well play SONY blue ray movies it should make them a few bucks. A coupon for movies would get a good response from all the teens and you know the family would purchase their movies along with their new play station.

    They are going to allow people to purchases images, music and games off their FREE net browser. They hope that the free net browser would get more buyers of their unit because of how well Microsoft has done with their paid net service.

    I waited a long time to purchase my Xbox I thought the prices in the United States was way to much compare to the prices in Europe or Asia. Since there is some post about economics on this site how about the economics of wasting money. I purchased an Xbox to save my computer from crashing no matter what some of these games just crash your system and that bothered me. Just seems to not be as fun as computer games.

    Now which makes more economic sense? Purchase a play station 3 or use that on a computer or upgrade your computer. PDA, cell phone, mp3 player, bigger monitor. $600 with that amount of money you could purchase a nice TV set any major appliance. Freaking remodel a room in your home like a new fireplace? I already read that the play station 3 was having problems in Japan and it doesn't play all the old games correctly they are having sound problems. Sony is making the most out of this economics of scarcity with prices that high and only a few game consoles at the local wal mart.

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