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Game Theory: How Sony Gave PS3 Another Year of Profits with a Simple CES Announcement

Notsocommoncents: Way back in the 20th century, 1994 to be exact, a price war was raging between the Daily News and the New York Post for the price of New York’s Daily Tabloid Newspaper. The lessons of this exercise in game theory provides insight into the ongoing console wars between Microsoft, Sony, and Nintendo. In addition, Sony’s CES announcement that it will not be launching PS4 at the 2012 E3 conference (E3 is the video game industry’s largest conference) is one of the best illustrations of game theory seen in recent years.

(Disclosure: I am employed by Microsoft. I neither work on Xbox nor have insight into their product marketing, product strategy or product roadmap. This blog reflects my personal opinions as a practitioner of business strategy.)

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RealityCheck2106d ago

It seems that this analysis is taking a short-term approach. It only considers the profits for this coming year without accounting for later.

The article uses a simple consumable product (newspaper) compared to a product that consists of a generation platform (console) followed by platform-tied products (games).

My point, is that a company might loose more money in the long run (market share of next generation) by only focusing on the short-term profits.

A company that comes out first can secure exclusivity from 3rd party that will in turn help increase the platform's market penetration and public perception. I think this is something to consider carefully.

Mustang300C20122106d ago

"A company that comes out first can secure exclusivity from 3rd party that will in turn help increase the platform's market penetration and public perception. I think this is something to consider carefully."

Dreamcast proves this isn't always the case.

RealityCheck2106d ago

@RedHemi300c, I agree that just releasing first is no guarantee, key negotiations need to happen.

In the case of the Dreamcast however they failed to get EA to publish any games for them; that was quite a unique situation and quite a fiasco for them.

In more recent examples, the Xbox360 was able to secure exclusives ahead of the PS3 launch and the 3DS did the same ahead of the Vita launch.

Garrison2106d ago

True there is just a ying to every yang in life thou. Staying focused on the ps3 I think would be the best option at this point. I don't think anyone should be on a rush to bring out new consoles especially considering there just isn't that much new technologies out there that would allow to bring out substantial changes in tech at affordable prices.

zag2106d ago

The problem for people is they think next gen will be some really up to date hardware that cause games to be really good or changes them drasticly from the current stuff.

The reality will be a slight upgrade in hardware and games pretty much the same deal.

The PC shows what the next gen is currently, there's nothing really new or different from the current stuff.

They could pop in some ram but that would be pretty much it in terms of "next gen" it could get.

They could make it so it goes over 2 TVs or something but who will be willing to shell out for 2 50 inch TVs just to have a wider screen.

The PC does that but on smaller screen sizes.

aCasualGamer2106d ago

As my nickname suggests, i'm only a casual gamer. Not really that hardcore of a gamer to know what the entire history of console launches were like. The furthest i can remember where i was following a launch of a console was PS2.

Now, i don't believe either Sony nor Microsoft want to come out first with a console. They know they are the ones competing with the high end tech of the next gen consoles. Nintendo have made it pretty much clear that their tech is only on par with PS3 and 360(i personally don't believe that, i think it's slightly worse). That means that those competing for the true high end consoles are Microsoft and Sony.

I think that Sony will wait out and see what the tech inside the next microsoft console will be like before they announce their next playstation. Why?

Because Nintendo are going for casual kid market. I believe Microsoft will try to go for both casual kid market and hardcore, which means that Microsoft can't reach the hardcore all the way. Sony will try to focus on the hardcore only and make it super high tech like PS3 was at launch.

That's the only moves these companies can make that would guarantee an income. Why?

I don't believe Microsoft can compete with Nintendo on the casual kid market. Nor do i believe that they have the same patience of Sony in waiting for next gen launch. So they will come out with a great tech like 360 was for this gen, but slightly worse than the next Playstation. Question is whether or not Sony will try to tap the kid casual market aswell at launch. I don't believe so, because i know their next console will be a bit more expensive than Microsofts and the only excuse they have is making it "a gaming console for the hardcore". Thats the only way they're gonna get hardcore to pay up more for a nextgen console instead of buying Microsofts nextgen console.

How do i think it will play out?

Nintendo:
In all honesty, i can't think of any good reason that people would buy the next nintendo console because it's not as revolutionary as wii. The remote is too big and clunky for children to hold on to so they will loose that market quickly i believe, and i'm pretty sure it will be expensive. This Nintendo wii HD is coming a little too late in my mind. Sure, the true hardcore nintendo fans will buy the console because they want an HD Zelda game and HD Mario game. But they'll do much worse than they think.

Microsoft:
I believe they will get the same advantage they had when 360 came out. I believe they will do well with their uptaded nextgen Kinect camera because it will connect with the kid friendly casual market. And all those exclusives they didn't pay for in this gen we will see at launch on their next console. This is until next playstation comes out.

Sony:
They will come out a little later than Microsoft. They will have much better tech in next playstation, same architecture as cell in PS3 but more advanced than ever, much more ram etc. The games will be the only factor when looking at their launch since they will have the more expensive console.

Death2106d ago

I agree with RealityCheck.

It would be in Sony's best interest if Microsoft waits for Sony to be better prepared. While launching together would be good for Sony, what incentive does Microsoft have? The 360 was out a year longer, how would waiting benefit them?

the "10 year plan" is a myth. Reality is any manufacturer will sell a product as long as their is demand. If the next Xbox launches after the 360's been out for 7 years, who is to say the market for a $99 dollar Xbox 360 will not be around for 2-3 more? This is how Sony has operated as long as the Playstation has been around.

Ladies and gentlemen, Nintendo decides when the next generation starts. Neither Sony nor Microsoft want to see Nintendo grab the casual gamers at the start of the console cycle again.

This is common sense.

The awesome newspaper story would only apply if Nintendo, Sony and Microsoft were trying to undercut console prices. This is about which newspaper delivers the news first. If the Post started reporting news a day later than the Times, I doubt saving a dime would be an issue.

-Death

tehnoob32106d ago

@zag

currently the best PC hardware is 10 times more powerful than consoles.

So unless sony and microsoft fail epically. Next gen console should be 8-10 times more powerful than current consoles.

In the past consoles at their release had cutting edge hardware.

BattleAxe2106d ago (Edited 2106d ago )

Sony is dedicating the next 2 years to not only continuing to build the popularity of the PS3 and the PSN, but to the success of the PS Vita. The PS Vita is essentially Sony's new console, so its no surprise that they've decided not to announce the PS4 this year. Besides, the PS3 will still crush the WiiU, and honestly I think it will probably be able to compete head to head with the XBOX 720. Rumors have been flying around saying that the XBOX 720 might not be as powerful as you would think. The last point I'd like to make is that nobody can touch Sony's lineup of games, and this is what will ultimately keep the PS3 going strong.

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dedicatedtogamers2107d ago

This article is really, really good. Definitely something that N4G needs more of. And I hope the guy is right.

gamingdroid2107d ago

It certainly is a signal, but at the same time it also signals MS an opportunity to move forward while Sony isn't. It is a gamble from Sony's part.

That said, with the recent momentum and opportunity to drop prices to stimulate sale by MS, I see no reason for them to announce anything at this time.

Either way, Nintendo is putting the pressure on both it seems so we will see.

IRetrouk2107d ago

nobody really knows what these companies have planned, i still think if microsoft announced a new console, sony would announce one pretty quick, its a smart move that will benefit both companies, although i must admit i was looking forward to an announcement regarding a new gen.

scofios2107d ago (Edited 2107d ago )

If Ms announce the next xbox at E3.
Sony can still anounce the PS4 at TGS or gamescom , they only said they won't announce any hardware at E3.
But i don't think none of them will annouce something at E3 both MS and Sony are still selling a lot of 360's and PS3.

gamingdroid2107d ago

I personally don't think it was remotely possible that Sony would announce a new Playstation. Sony is still under pricing pressure, and the prices aren't exactly mainstream yet the way the PS2 was at $150 (even when adjusted for inflation). Sony at this point wants this generation to last as long as possible.

Xbox 360 is doing so well, I don't think they are in a rush either, but they might just want to stop the Wii U from achieving what the Xbox 360 did to the Playstation brand. Sony announcing it, must be they perceive a risk.

Personally, I hope MS announces a new console. The current console technology is far too old....

CarlitoBrigante2107d ago

PS3 is doing really good, probably 2012 is another peak year

sikbeta2106d ago (Edited 2106d ago )

MS is in great position, but they'll not let N play alone in the market with its new console, X360 price dop will arrive in time to counter Wii-U launch and if it's not enough, well they sure got something under the sleeve, as for Sony, another price-cut can be done as well, maybe a new redesign model, that would be great, don't see it happening though :P

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tiffac0082107d ago

That makes a lot of economical sense for both MS and Sony.

Grimhammer002107d ago

Keep in mind that Nintendo may have a few "adult" games....in large part Nintendo markets itself as the wholesome alternative to Sony & MS.

So I personally can't see Nintendo courting titles that we associate with the other two consoles. A few of course, but can any of you really see saints row 3 on a Nintendo machine?

GameTavern2106d ago

After the beating, THQ took this weekend. I don't really see them having any choice with future games but to put them on any and everything that has potential of selling.

DrFUD2107d ago

Sure everybody knows there was the billion dollar RROD fix, but what about the money Microsoft spent to get GTA out of exclusivity (that was at least 50 million...rumors say closer to 100) and other deals like those. Then there's the advertising. I remember hearing $500 million advertising budget numbers for Kinect alone. Truth is in reality XBOX isn't making money like people are led to believe because it's costing them an absolute fortune to try and portray the XBOX as a success.

koh2107d ago (Edited 2107d ago )

A company the size of Microsoft would employ dozens of people whose sole job is to make sure they are on that sweet spot where the utility of marketing is maximized. They certainly aren't simply throwing money at their marketing division and hoping that they make a profit.

And the same can be said of Sony, Nintendo and every other major corporation. It's possible that Sony may have found that less marketing is needed for them because of any number of reasons, but to imply that Microsoft is sacrificing profit to save some sort of face is misleading.

mcstorm2107d ago

MS have Made more money than Sony this gen. Yes there was alot of money spent on getting the 360 up and running but this is because the names in the games industry was Sony and Nintendo MS were unknown for Consoles. So by MS pumping money into the games/advertising has worked for MS and they are now here to stay. If Apple entered the Market now they would have to do the same. But just because you pump millions behind something dose not mean it will be an over night success. Look at the difference in Kinect and Windows Phone 7 sales they both had the same amount of money spent on them and Kinect sold 10 million in its first few months and WP7 sold around 2 million.

But MS have become a smart company when spending money and pushing there products. They know when they will make a profit and when to take the loss to get the name out there.

But this is the same thing Sony did to get the PS name out there in 94/95 the only difference was the industry was not worth what is is now and games where not on the same scale in terms of sales.

What MS have done this gen is proved that there is room for 3 consoles in the industry and they have taken some market share off both Nintendo and Sony this gen.

The best thing to come of MS being in the market is that they are now making Sony and Nintendo step up there game and all 3 are delivering 3 amazing consoles with something different on them all.

kikizoo2106d ago

"MS have Made more money than Sony this gen"

source ?

selling less consoles each years (almost the same numbers than sony now, gap is dead), less games since 2 years + rrod + marketing X100 than sony...are you sure they have made more profits ? (even if they are asking money for free sony things, like online, wifi adapter, battery, etc and the inferior hardware cheaper to make, i'm not sure who have made more money, and who will)

mcstorm2106d ago

www.gamegrep.com/news/4088-mic rosoft_xbox_made_more_money_tha n_sony_and_nintendo

That link shows ms did not make a loss with the rrod. Also kinect sales compared to move sales and then there is the number of games sold on the 360 compaired to the same game on the ps3.

Half-Mafia2106d ago

It cost MS $56 in components to make a Kinect. Then you have to add manufacturing and shipping costs, ect. All in all its around $70 for MS. MS probably sells it to retailer for $110. So its $40 profit for retailers and $40 profit for MS. $500M marketing for 11m sales, is a loss of $60m.

God know how much MS spent on marketing in 2011. for an extra 7m units.

+ millions in R&D

I dont think MS has made any profit on the Kinect yet.

As for WP7 they just wasted money on that. They got under 2% market share, the last reports that came out shows WP7 lost market share.

drsnobby2106d ago (Edited 2106d ago )

$50 million or $500 million is peanuts for MS. this link will show how MS did in the US in 2011. let me know what you think of it.

http://www.gamespot.com/new...

hellvaguy2106d ago (Edited 2106d ago )

@DrFUD

"but what about the money Microsoft spent to get GTA out of exclusivity (that was at least 50 million..."

Sony must be about bankrupt with thier many exclusive pay out amounts under this roll of the number dice. Except the problem being we here arent accountants, or dont have insider info on these figures. Fun to dress up and play make believe sometimes I guess.

(Also $60/year to play online, you know thats a huge money maker for MS. Too many variables like that for us to pretend to know a companies total profits).

Biggest2106d ago

When did Sony have to pay for exclusivity? The overwhelming majority of Sony's exclusive games are made by Sony. Microsoft got GTA late last gen. They paid to get it on time this gen. Rockstar wasn't paid by Sony to make GTA. They made it and released it on the only console available at the time. The Xbox was released a month after GTA. The Gamecube was released a month later. And certain "insiders" have talked about the GTA deal. The numbers range from $50mil to $75mil or more.

http://www.gamespot.com/new...
If Pachter's inside info isn't enough for you, I found some insider info from Lainie Goldstein. Ms. Goldstien isn't an accountant for Take Two, though she is an accountant. She is much more important than a simple accountant for Take Two. http://people.forbes.com/pr...
http://www.1up.com/news/mic...

PetitPiPi2106d ago

DrFUD & his hilarious BS. Lovin it!

Selling the 360 at the same cost as the PS3 & the income from XBL isn`t making money for MS at all!
THEY ARE DOOMED!! lmao

DrFUD. How much do you think Apple spends on advertising? If you would like other company names, I have all kinds for you buddy!

IMO, DrFUD = EPIC FAIL

(giggles)

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