The backwards compatibility thing IS an issue, Cliff. In a fantasy world where I had unlimited disposable income, I would still not buy the PS3 slim. I would keep my original, clunky, big PS3 because it is one box that plays the 50+ old PS1 and PS2 games that I own.
Thats fine, Don't get me wrong I don't think its an undeserieable feature, I'm just saying its not a deal breaker for me. I play games, often finish and sell at the local flea market, or craigslist.
Despite that though everything I said was true. Just nothing worth playing on the Wii, sounds like Nintendo's getting their act together though. The release line up is starting to get shiny.
Despite that though everything I said was true. Just nothing worth playing on the Wii, sounds like Nintendo's getting their act together though. The release line up is starting to get shiny.
There are Xbox owners and there are PS owners, sony's price drop will not elude xbox owners to switch over. The price drop will help sway people that want blue ray that currently haven't bought into it. Not that Sony cares why they are being purchased but a lot of PS3 sales will stem from the fact that a Decent Blueray player is $200 so why not pony up for a PS3. People purchasing systems for that reason game sales become secondary. What that does mean though is that a rise in PS3 sales will not necessarily mean an equal increase in game sales which is where their main money comes from. It's possible, in a weird twisted way that Sony could be hurt more by lower sales since they lose money on each unit if the game sales don't increase in proportion. How twisted is that.
There are Xbox owners and there are PS owners, sony's price drop will not elude xbox owners to switch over. The price drop will help sway people that want blue ray that currently haven't bought into it. Not that Sony cares why they are being purchased but a lot of PS3 sales will stem from the fact that a Decent Blueray player is $200 so why not pony up for a PS3. People purchasing systems for that reason game sales become secondary. What that does mean though is that a rise in PS3 sales will not necessarily mean an equal increase in game sales which is where their main money comes from. It's possible, in a weird twisted way that Sony could be hurt more by lower sales since they lose money on each unit if the game sales don't increase in proportion. How twisted is that.
This buisness model is facinating and more common than we may even realize, its called a "loss leader". King Gillette more or less invented the concept when he and a few engineers set out to market the original safety razor. The US military during WWI had to mandate that soldiers be clean shaven for a few practical reasons. Lice were rampant in the trenches, having your beared pulled during a hand to hand exchange is unpleasant, and mostly because you needed a skin tight seal around your gas mask in case the Germans felt like pulling out the mustard gas on that particular day. A clean shave was actually a matter of battlefield safety. So what does King Gillette do, like a good patriot he sells 3.5 million safety razors at a substantial loss to the -armed forces knowing that given time he will re coup the loss many times over in eventual blade sales. Years later they do similar things. I remember when I turned 18 I got a Sensor Excel and a couple of cartridges for free by mail. My son who turned 18 not too long ago go something similar (a fusion I believe).
A similar product, Ink Jet printers, look how cheap ink jet printers are these days. Having trouble with one, heck with it, go to your local Wal Mart pick up a Cannon multi function model brand spanking new for $75, throw the old one out. But then you eventually buy ink, and that stuff is ultra high margin. The loss up front is designed to create eventual demand for your high margin item.
Free software is another place. Google gives you Picasa free of charge, and its a good application for organizing your photos, people used to happily pay about $50 for it before Google purchased it and started giving it away. Why, because there is an in house store to service all your photo printing and gift giving needs. Want a picture of the kids on a coffee mug for your mothers day gift, they got ya covered. Apple's Itunes spent the first year or two of their buisness nearly giving away the farm in hopes of getting a loyal long term user base, they gave away millions of songs at a substantial loss to the music industry with a Pepsi promotion, all in hopes of converting that initial freeloader into a lifelong customer, and it seems to have worked.
Now onto Sony. Many reports have Sony loosing at least $250 per unit on the PS3 slim. Sony has two primary missions with this, first they obviously want you to buy games, and games do sell at extraordinarily high margins despite the whining that many developers do about the rise in production costs. $59.99 for a new game is kind of absurd, but its necessary when your digging out of the initial hole on hardware. Second, and this is a big one for Sony, Blu-ray adoption. Sony did not spend millions upon millions of dollars in marketing and movie industry incentives to crush the HD-DVD consortium just to have Blu-ray fail. It's all about technology and licensing. For Sony if does not matter if they produced the film or not, or if they developed the player or not, will get a cut of every blu-ray related purchase for years to come. This kind of technology licensing can literally carry a buisness for years if the licensed technology has a widespread enough adoption rate. JVC gained allot of clout in the buisness overnight when VHS vanquished betamax. I believe old patent and licensing deals finally ended for Sony and Phillips for the creation of the compact disk (they both did very well there).
Many folks pointed to the PS2 as the device that got DVD into allot of consumers homes. To be honest, the PS2 was my entry into the DVD market, and once I saw it, I quickly got rid of my VHS equipment and never looked back. Now DVD was a rare instance where it seemed like the entire industry backed it. It was a great opportunity to expand on peoples desire for home theater, not just the DVD player, but other electornics, speakers, amps, giant TV sets, all benefited from the widespread adoption of DVD so everyone made plenty of cash, in some part the PS2 helped that come along. With Blu-ray Sony got a competitive jump on the competing HD-DVD consortium when they got buy in from the major motion picture company's, so licensing fee's are in the bag for as long as the technology is widely adopted, thus, they will sell you that PS3 at a loss in hopes of a long flowing revenue stream.
It's risky, and I'm with you on this one, I think broadband, down-loadable HD, home media servers, they are not too far away from becoming more obtainable and once people can just dial up the movie they want from anywhere in their home without the physical media to fuss with that will become the tech of choice. I'm sure Sony is keen to that reality, but if its ten years away instead of two, perhaps Sony can still pull off a nice profit with Blu-ray. Either way, Sony has invested far too much on it to just give up on it, so if selling the PS3 at a loss gets it into more homes that is the short term pill they will swallow in hopes that it eventually displaces DVD. I'd say they have their work cut out for them, but the recent move is going to help it along.
The same sales loss exists for xbox360, though I seem to recall the per unit loss being much lower then that. However MS has some advantages. First they make a killing off of xbox live subscriptions. They also are more likely to make money off of game sales since people are buying an xbox360 for playing games, since it's not really of any primary use for other services. So while the same tactics of selling a console at a lost to make up later exists between Sony and MS. MS has a more direct means of recouping those costs.
Sony loses more per console and the recent sales are often as a Blue-Ray player primarily. This means they take longer to recoup costs based on a much smaller and less direct trail of movie purchases. If you figure their stand alone blue ray player costs about $200. They are basically throwing away the PS3.
Keep in mind the 360 lost a metric ton of cash on warranty costs, an added hole to dig from the original loss leader plan. Live revenue, micro transactions all help, but I wonder if the warranty fiasco has done enough damage to that platform so it will never turn a profit.
Internet ramblings on failed xbox's does not a reality make. Most happy people don't post about their xboxs where as 1 pissed off person will post about their failed xbox's 100 times. Which isn't me discounting that xbox's do have problems, I know people that have had failed 360's and there are many side industries to repair them as well. It's certainly an issue. But the 54% failure rate based on 5000 forum heads is crap statistic.
Like going to a hospital, interviewing 50 people 'at random' and determining that 1 in 5 people are doctors.
But to answer your question specifically the Xbox 360 became profitable in 2008.
Xbox 360 platform and PC game revenue decreased $161 million or 3%, primarily as a result of decreased revenue per Xbox 360 console due to price reductions during the past 12 months, partially offset by increased Xbox 360 console sales and increased Xbox Live revenue. We shipped 11.2 million Xbox 360 consoles during fiscal year 2009, compared with 8.7 million Xbox 360 consoles during fiscal year 2008. Foreign currency exchange rates accounted for a $74 million or one percentage point decrease in revenue.
..Cost of revenue decreased $326 million or 7%, primarily due to decreased Xbox 360 platform costs.
This was before the price cuts, MS may see more losses this next quarter, even with lower production costs. Theres also network infrastructure, datacenter, server costs for XBL which may grow with more users.
However, in the grand scheme of things, MS's Enterainment Division still returns a profit. I think they can afford to take this hit. A war is a war.
Comments
Shshhshh Koreish, the adults are talking.
kryyst,
So timely, the PS3 is employing a similar buisness model as razor blades, http://life.icrontic.com/articles/classic-budget-shaving/?utm_source=3features&utm_medium=banner&utm_campaign=homepage
This buisness model is facinating and more common than we may even realize, its called a "loss leader". King Gillette more or less invented the concept when he and a few engineers set out to market the original safety razor. The US military during WWI had to mandate that soldiers be clean shaven for a few practical reasons. Lice were rampant in the trenches, having your beared pulled during a hand to hand exchange is unpleasant, and mostly because you needed a skin tight seal around your gas mask in case the Germans felt like pulling out the mustard gas on that particular day. A clean shave was actually a matter of battlefield safety. So what does King Gillette do, like a good patriot he sells 3.5 million safety razors at a substantial loss to the -armed forces knowing that given time he will re coup the loss many times over in eventual blade sales. Years later they do similar things. I remember when I turned 18 I got a Sensor Excel and a couple of cartridges for free by mail. My son who turned 18 not too long ago go something similar (a fusion I believe).
A similar product, Ink Jet printers, look how cheap ink jet printers are these days. Having trouble with one, heck with it, go to your local Wal Mart pick up a Cannon multi function model brand spanking new for $75, throw the old one out. But then you eventually buy ink, and that stuff is ultra high margin. The loss up front is designed to create eventual demand for your high margin item.
Free software is another place. Google gives you Picasa free of charge, and its a good application for organizing your photos, people used to happily pay about $50 for it before Google purchased it and started giving it away. Why, because there is an in house store to service all your photo printing and gift giving needs. Want a picture of the kids on a coffee mug for your mothers day gift, they got ya covered. Apple's Itunes spent the first year or two of their buisness nearly giving away the farm in hopes of getting a loyal long term user base, they gave away millions of songs at a substantial loss to the music industry with a Pepsi promotion, all in hopes of converting that initial freeloader into a lifelong customer, and it seems to have worked.
Now onto Sony. Many reports have Sony loosing at least $250 per unit on the PS3 slim. Sony has two primary missions with this, first they obviously want you to buy games, and games do sell at extraordinarily high margins despite the whining that many developers do about the rise in production costs. $59.99 for a new game is kind of absurd, but its necessary when your digging out of the initial hole on hardware. Second, and this is a big one for Sony, Blu-ray adoption. Sony did not spend millions upon millions of dollars in marketing and movie industry incentives to crush the HD-DVD consortium just to have Blu-ray fail. It's all about technology and licensing. For Sony if does not matter if they produced the film or not, or if they developed the player or not, will get a cut of every blu-ray related purchase for years to come. This kind of technology licensing can literally carry a buisness for years if the licensed technology has a widespread enough adoption rate. JVC gained allot of clout in the buisness overnight when VHS vanquished betamax. I believe old patent and licensing deals finally ended for Sony and Phillips for the creation of the compact disk (they both did very well there).
Many folks pointed to the PS2 as the device that got DVD into allot of consumers homes. To be honest, the PS2 was my entry into the DVD market, and once I saw it, I quickly got rid of my VHS equipment and never looked back. Now DVD was a rare instance where it seemed like the entire industry backed it. It was a great opportunity to expand on peoples desire for home theater, not just the DVD player, but other electornics, speakers, amps, giant TV sets, all benefited from the widespread adoption of DVD so everyone made plenty of cash, in some part the PS2 helped that come along. With Blu-ray Sony got a competitive jump on the competing HD-DVD consortium when they got buy in from the major motion picture company's, so licensing fee's are in the bag for as long as the technology is widely adopted, thus, they will sell you that PS3 at a loss in hopes of a long flowing revenue stream.
It's risky, and I'm with you on this one, I think broadband, down-loadable HD, home media servers, they are not too far away from becoming more obtainable and once people can just dial up the movie they want from anywhere in their home without the physical media to fuss with that will become the tech of choice. I'm sure Sony is keen to that reality, but if its ten years away instead of two, perhaps Sony can still pull off a nice profit with Blu-ray. Either way, Sony has invested far too much on it to just give up on it, so if selling the PS3 at a loss gets it into more homes that is the short term pill they will swallow in hopes that it eventually displaces DVD. I'd say they have their work cut out for them, but the recent move is going to help it along.
Sony loses more per console and the recent sales are often as a Blue-Ray player primarily. This means they take longer to recoup costs based on a much smaller and less direct trail of movie purchases. If you figure their stand alone blue ray player costs about $200. They are basically throwing away the PS3.
Keep in mind the 360 lost a metric ton of cash on warranty costs, an added hole to dig from the original loss leader plan. Live revenue, micro transactions all help, but I wonder if the warranty fiasco has done enough damage to that platform so it will never turn a profit.
Like going to a hospital, interviewing 50 people 'at random' and determining that 1 in 5 people are doctors.
But to answer your question specifically the Xbox 360 became profitable in 2008.
Profitable when compared to that quarters total operating income, not in the history of the device.
You know how Microsoft did that? They took the loss as a single hit all at once Q4 2007 1.2 Billion.
http://www.mcvuk.com/news/27808/Warranty-costs-drive-189b-loss-for-Microsoft
In the quarters they were posting profit they were showing 90 million for the entire entertainment division (xbox, games for windows, zune).
They still have a long way to go to pay off the warranty bill.
This was before the price cuts, MS may see more losses this next quarter, even with lower production costs. Theres also network infrastructure, datacenter, server costs for XBL which may grow with more users.
However, in the grand scheme of things, MS's Enterainment Division still returns a profit. I think they can afford to take this hit. A war is a war.