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Sony Lost $3.31 Billion To PS3 Cost, Pricing Imbalance

Kotaku writes: "Pricing the PlayStation 3 below its production cost caused Sony to lose $2.16 billion in 2007 and $1.16 billion in 2008, the company revealed today.

Sony's fiscal 2008 annual report delineated potential risk factors to its investors, outlining that "the large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered." The loss figures were provided as an example of the "significant negative impact" introducing a new platform can cause at first.

"In the past, large-scale investment relating to capital expenditures and research and development for the manufacture of key components, including semiconductors supplied for [PlayStation 3] was also recorded within the Electronics segment," the company said."

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pharmd4470d ago

"The loss figures were provided as an example of the "significant negative impact" introducing a new platform can cause at first"

yeah, at first, but once there is an install base and games the profits begin to flow!!!

this is true regardless of console, it takes money to make money!

eagle214470d ago (Edited 4470d ago )

Sony was always thinking long term instead of short term. They could have made a ps2 1.5 EASY..lol I am so glad they didn't. They are in for a great future with PS3.

Now with Blu-ray the de facto high def format, they are going to enjoy healthy income from the sale of games, movies, PC Software, etc. that uses Blu-ray Discs.

@the disagrees, should they have charged $100 for wifi, and made dongles? LOL The PSP, DS, PS3, and Wii have built in wi-fi, all outselling 360's every week worldwide. I wonder why? ;)

Condoleezza Rice4470d ago

Kotaku are bubbling with glee hearing Sony lost some cash,not realizing that Blu Ray alone will be enough to make all that lost cash back and then some.

With the Playstation 3,the future is bright;Consumer adoption of Blu Ray will see an incredible rise in the upcoming months and years,with the Playstation 3 serving as the primary source for High Definition Content.

It's a shame the same can't be said for other Retail products.

Real Gambler4470d ago

Both Microsoft and Sony wrap bills around their consoles in the first few years, this generation and the previous one. It's about the only item you can buy, that cost more to make than what you're paying for. How cool is that. Business willing to gamble billions and we, the players save money on our consoles.

Luckily for us, they can afford it. Otherwise we could kiss our consoles goodbye.

Ju4470d ago

I don't know. They could easily have pushed the PS2 to a next level with possibly a 10th of the cost. Would probably not be competitive with the PS3 now, but would have been out 2-3 years earlier. I mean, push the EE/GS to 1GHz, add some more RAM (64-256MB), and add WiFi and HDMI, using DVD9. Done with it. At least at that point, a nice early HDef system (not 1080, but 720 should do just fine on a PS2+).

Tempist4470d ago

It could have been far worse. They did not have to just dump $1 billion dollars into it. Everyone saw that the loss was coming and it was to be expected given the items included.

All and all $3 billion over two years is nothing given that they have been reducing lossed profit. Not every system released can be a Wii or DS.

beavis4play4470d ago

and i don't mean this in any insulting way. it's just that seems like what ms was shooting for.

MikeGdaGod4470d ago

well i finally bought my first blu-ray disks so that's a good sign.

i had $50 worth of Best Buy points that needed to be used so i bought Planet Earth over the weekend. and it's a must buy for anyone that has a hdtv, it's beautiful.

prices are dropping and i believe it's time for more people to jump on the blu-ray bandwagon. if more people move in this direction, sony will be fine.

plenty a tool4470d ago

great comment eagle21...lol after the ps1 and ps2, sony were hoping for another stampede!! that's why they took the massive hit! if things continue like this, they should recoup the investment around 2012.

beavis4play: great fanboy comment! it's only the blu-ray player that seperates the console, and caused the delays! the specs are almost identical!

-----> the open zone is where you and the people who've agreed with you should be.

fanboys are ruining this site in a big way.

mikeslemonade4470d ago

People forget that the PS2 system was not profitable for 2 years and even to this day Sony said they're not making that much. Maybe 1 or 2 years ago I remember an article where Sony said they were only making $10 per system, so even now they're probably only making $50 at the most off of the PS2.

PS3 is in a similiar situation, but it is apparent that this generation profit is hard to come by because games are more expensive and they have the free online to deal with. According to Sony again the system is already breaking even in less than 2 years so that's even faster than the PS2.

CrazzyMan4469d ago

1) Dollar is WEAK.
2) Sony did MUCH more PROFIT on PSone and PS2(when $ was MUCH stronger).
3) Sony WON Blu-ray WAR.
4) Sony is a BIG company, and has MORE CAPITAL, then M$. It`s just all MONEY are INVESTED in BUISSNESS, BUT, if they wanted, they could sell and have MORE money then M$ has. =)
5) Sony will regain money with Software sales, new PSN network + again make STRONGER and RECOGNIZABLE PLAYSTATION BRAND. =) PS3 FTW!

mistertwoturbo4469d ago

Sure sony lost 3.3 billion in 2 years, but probably made 10 billion with just PS2 sales. They have plenty of money left. And if you look at 2007 they lost 2 billion, and 2008 they lost 1 billion. So they recovered from losing another billion in 2008. In 2009 or 2010 they still start to see profits.

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Silogon4470d ago

To me that sounds like Sony is about to close the doors on the ps3 all together. WOW, that' is bleak.

monks4470d ago

i really hope you are joking

sony wont give up they still have other hardware gaining profit

and i am not sure on the facts and figures but what did MS loss at the start of the 360 with the extended warranty etc

fenderputty4470d ago

You've got to be kidding me? They've reduced their losses by 50% from one year to the next. It's a fact that most consoles loose money per console at first to boost install base. Money is made on software anyway and not on the console.

MS lost money for the entire life cycle of its first console man. This is just the nature of things.

The only depressing thing about this is that, it looks like the console might not get a price drop for a while.

Bonsai12144470d ago

money in the console business is made on software anyways. (unless you're nintendo.. in which case everything you release is a cash machine)

kazuma4470d ago

well said fenderputty

barom4470d ago

In actuality, Fiscal Year 2007 sold only a fraction of what Fiscal Year 2008 sold. So they have reduced their production cost PER UNIT significantly (I'm guessing around 70%-80%). I can only imagine that will continue

Fragking284470d ago

apparently you cant read because they lost 2.16 billion last year, with half of the year left their already at 1.16 billion

iceman28854470d ago (Edited 4470d ago )

Fiscal year ends in September. So there are only about 2 1/2 months left in the fiscal year, not half a year.

Edit: I was going by the US Fiscal year, which ends September 30th. The Japanese fiscal year ends March 30th as pointed out by 2.13 below. I guess that Sony would probably go by the Japanese fiscal year being that they are a Japanese based company (I always hated economics so I have no idea how they cooperate their number between the main office and the SCEA offices and offices in the UK). Regardless, sorry for the misinformation I guess.

juuken4470d ago

....
....
....

Just NO.

Sonics0204470d ago

I guess since the PS3 has had such positive momentum lately, kotaku needs to post something to keep them down.

Superfragilistic4470d ago (Edited 4470d ago )

@fenderputty

Well pointed out. This is nothing new but the extents of the losses do mean a price cut this year is highly unlikely. which given the profitability of the 360 and Wii could become an issue if Sony's competitors cut prices. When you consider Wii's profitability since launch and the estimated break even point that MS is now approaching over the lifetime of the 360, a loss of US$244/console (based on 3.31bn/13.58m consoles) for Sony, opens the door for MS to cut their prices significantly without the concerns of a price war with Sony in the near future.

Strategically speaking, if MS wishes to regain momentum and steal some from Sony for the 360 they should go beyond the rumoured $50 price cut and go in for a fully fledged retail kill with a far larger cut somewhere near $100. They could do so with the confidence that for at least another 6-12months Sony would be unwilling and unable to financially respond.

Sony aren't in serious trouble, but clearly intend as indicated by their financial report to be fiscally conservative until those PS2 owners upgrade with MGS4 or the later Christmas holiday offerings such as Resistance 2 and Little Big Planet give the hardware a big time boost.

EDIT:

It appears this article directly contradicts Sony's own financial reports which reported the above losses not as costs on the PS3 but as losses on the entire PS3 division. http://www.gamasutra.com/ph...

This means that the actual losses may well be much larger when the estimated $1.2bn profits of the PS2 & PSP are removed from the above figures, revealing a PS3 division loss for April 07 - March 08 of $2.4bn and not the $1.2bn Kotaku claims.
See here http://www.computerandvideo...
and here http://www.n4g.com/industry...

GiantEnemyCrab4470d ago

Come on Silgon. You can only make outragreous claims like that against MS and the 360.

See stupid articles and commentors in stories like "Microsoft in "trouble""

http://www.n4g.com/industry...

getrdone4470d ago

@2.7 & 2.8
Sonys fiscal year ends in March 08, and the next one will be March 09.

RememberThe3574470d ago

@Silogon Dude who gave you bubbles? This is why you will go back to 1, because you flame.

@Everyone. As many people have already stated Sony's 2008 fiscal year ended in march. This mean they lost 2.16b form April 2006 to March 2007, then lost 1.16b from April 2007 to March 2008. They cut they're losses nearly in half in only a year. Not bad. But the 3.32 bil.? Yeah, thats not good.

fenderputty4470d ago

their losses in half, they did so while selling more consoles over twice the amount of time that the first fiscal year saw.

It's a good sign that they've reduced costs to build the machine. I would still like to see better results at getting costs down. The PS3 won't ever reach the mass market until it does so.

angel6044469d ago

you act as if 360 fans are saints, what about that first year ps3 was out and all those articles about how ps3 has failed it can never catch up or have quality titles, they should all just stop production blah blah blah

like you or the mart or pog didnt make your comments driving that knife in the wound...so cry your river somewhere else you hypocrite fool

getrdone4469d ago

For the three people that disagreed with me should really read this, and next time you three should do some research. I just wish some people would do some research before they do something stupid.
http://www.foxnews.com/stor...

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niall774470d ago (Edited 4470d ago )

heck the 360 and xbox as a hole only started making money once Halo3 was released.

This stuff is to be expected, same with the ps1, same with the ps2.

it shouldnt matter to use anyway. when you drink milk you dont care how the Cow is doing

jkhan4470d ago

Actually it wasn't the 360, it was the whole MGS that became profitable with Halo3. Before Sept 25th 2007, for the last 6 years Microsoft was bearing the burden of MGS.
As far as PS3 goes, well Sony has to blame themselves. They were all messed up when they came out. Now Sony is on the right track.

chasuk084470d ago

Yep true, i read somewhere today, i think it was the article on the xbox 720, not sure though, that microsoft lost billions of dollars when they launched the xbox and 360, so this is nothing different. Sony made over 88 billion dollars in 2007, so its not much skin of their teeth.

RememberThe3574470d ago

@1.3 I thought it was 78 bil. But what the use of arguing over 10 BILLION DOLORS!

MANCREEP4470d ago

but if you heard that cow was sick, or had mad cow disease, would you fancy a glass then? i hope not.

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Silogon4470d ago

I can't believe you see this as good news. This means no matter what Sony is going to have a hard time pulling money from investors now. No marketing, no new IP, no obtaining exclusives, none of that. this is not good.

chasuk084470d ago (Edited 4470d ago )

All companys who launch a massive product need to take risks to get their product to market. Microsoft would of lost billions aswell. But now the xbox in 3 years and the big games have been realesed theyve made big profits, and so will sony once they launch all their exclusives.

EDIT : How the hell can i get disagrees for that ! I see that the disagree trolls must be in full swing tonight.

Real Gambler4470d ago

It's a proof that the PS3 is selling well! They are already working on cost reducing it, and sales should increase. Any investors will be happy with that.

Heck, Microsoft had to set aside over a billion just to fix flaky consoles! Was it that bad? No, marketing spun it has customer support, and sure enough, you don't hear about this anymore. Did anybody said it was the end of the 360? No. One billion is only small change for those big business. Even better, there's reports that even new 360 still give the red ring. They didn't even bother to fix the new production!

Zeevious4470d ago

...in their faithlessness, and lo' before me they did bow down and I read from the holy scriptures of marketing:

SILLY WABBIT...Tricks are for kids!

Wait...
The OTHER holy scriptures of marketing:

The one that reports on 45nm PS3 chips by August, and $50-$60 Blu-Ray drives (Divine OEM costs) = a price cut and increasing profits.
The great book also says Sony's game division IS already profitable right now. These costs are planned for and factored into expenses.

LISTEN NOT to the ignorant and false prophet who takes the almighty expense scriptures out of context for malicious gain. For there is the folly of those unworthy of the presence of all who follow the third coming of the most holy.

So sayeth Kaz Hirai.

.

This has been a FanBrat test. If you where an actual FanBrat you would not be seeing this message, as you would be kneeling, trembling at the mere thought of reading from the sacred PS3 texts.

This is only a test.

kornbeaner4470d ago

yeah forget that they have Blu-ray movies and players, TVs, Stereos, PC and more product to make money on.

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niall774470d ago

$5 billion over 2 years is NOTHING to big companys like sony

its not like this hasnt happened to every system ever made.... that isnt the wii.

Kholinar4470d ago

Or any of the Nintendo systems. Or the other systems before the Saturn...

Not that it's a bad thing... though it can definitely be if you lose the gen. But it hasn't been standard for consoles. People like to say that, and I'm sure it's comforting to shareholders... but it's not accurate. http://www.actsofgord.com/P...

ReBurn4470d ago

Actually $5 billion is a big deal to companies like Sony, especially in terms of cash flow. Not many companies have a bankroll the size of Microsoft, Sony included. I'm sure they expected to take the losses in anticipation of achieving profitability later, so I'm not worried. But you can't maintain losses like that indefinitely. That's why the 40gb model was born.