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Playstation 3 Missing Break-Even After Almost 4 Years. How Long Can It Go On?

Bnet: I've often scratched my head over Sony's (SNE) Playstation 3 business strategy - the expectation that it could wait an extended period of time while selling the system at a loss. Some information from December that had missed my attention until now suggests that even after nearly five years, the company is still losing money on every unit out the door. Given the fiscal realities of the division and the company, I wonder if it could - and should - be put on the chopping block.

The research firm iSuppli did a teardown of the 120GB hard drive PS3 last month and calculated a materials and manufacturing/test cost of $336.27. Mind you, this is the unit that the company has been selling for $299. That apparently, though, is an improvement because the previous version sold for almost $50 less than the cost.

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OGharryjoysticks3192d ago

There's a saying "don't look a gift horse in the mouth"

So now I'm scatching my head why someone would complain about a good deal for consumers.

Granted the Wii has been making a profit on each system sold since day one, but I don't know about the 360. And even if the 360 is even on production costs or maybe making a little extra with each system sold, the extended warranty they implemented to avoid the lawsuits has cost an absolute fortune making it a moot point.

Nineball21123192d ago

I agree with you, but I also agree with the author in that fact that it's amazing that Sony can still do this.

The PS3 is apparently a loss leader for them, meaning that they accept losses on every PS3 in order to:

A. Keep/Grow market share
B. Generate revenue from sources related to the PS3 or
C. Enter a new market.

I, obviously, don't think it's C, so it must be A or B OR maybe I'm just missing something.

Anyways, I paid quite a bit more for my PS3 (Got the 80 Gig Motorstorm bundle) and I've always thought it was well worth the money. *shrug*

Simon_Brezhnev3192d ago

dont quote me on this but i remember reading the Playstation family made over 5 billion in 2009

hay3192d ago (Edited 3192d ago )

I sense a bashing factor here. Customers receive more than they pay for, and it's still bad.
* poke at fanboyish argument that PS3 is a money losing horse *

hoops3192d ago

Even with the warrenty MS is still making a profit from each Xbox360 sold now. Obviously if they did not have to give out the warrenty they would have been in the black a full year sooner

nycredude3192d ago

This guy needs to get a clue of how the business is run. Hardware is only the vehicle. The meat and potatoes of this business is SOFTWARE and content! Cell phone companies don't make any money of their phones giving them away! Cable companies don't make any money of their boxes, Direct tv don't make any money of their dishes and boxes.

Christopher3192d ago

The reason is clear: competition.

It's the exact same reason that Microsoft is losing money on each unit sold as well. I mean, really, $299 for an elite plus two free games? It should be fairly obvious why they're doing this.

StanLee3192d ago

You're right but the software has been underperforming as has hardware sales. That said, who gives a fcuk, we don't work for Sony and they're committed to a life cycle of 10 years. They'll eventually see a return on their investment in the PS3, big time.

anh_duong3192d ago (Edited 3192d ago )

around 4yrs??? are you sure??

ps3 released in NOVEMBER 11 2006 in us/japan and march in 2007.. so i would say just around 3 yrs..

funny how 5yrs headline suddenly becomes 4yrs and now 3yrs hahahaha..

stupid author.. another update is needed...

SixTwoTwo3192d ago (Edited 3192d ago )

In EU the PS3 is 299 euros which equates to $420.27
In JP the PS3 is 29990 yen which equates to $328.94
http://www.xe.com/

So if it costs them $336 to manufacture a PS3 then they lose $36 on every PS3 sold in NA. Lose $8 on every PS3 sold in JP. But they earn $84 on every PS3 sold in the EU, their strongest market.

AssassinHD3192d ago (Edited 3192d ago )

It is hard to take the author seriously. He can't even perform a basic math function. November 2006 to January 2010 is only 3 years and 2 months.

Edit: I see the author updated his timetable to "almost 4 years". Apparently he thinks it is "almost November". So not only is he unable to perform a basic math function, but he also has difficulty reading a calendar. My 6 year old daughter can read a calendar.

ReBurn3192d ago (Edited 3192d ago )

The PS3 is in its 4th year at retail and Sony were burning through cash in R&D well before launch date. So the author isn't really off with the 4 year number. Sony has been spending cash on the PS3 platform for probably more than 5 years.

The valid point is that sooner or later the payback has to come. I'm sure it will. Profits from the PS2 are helping to offset any hardware loss the PS3 is encountering and at some point equilibrium is reached when the product reaches an economy of scale. As long as software/peripheral/PS2 sales make up any loss on PS3 hardware the PS3 as a platform remains viable until equilibrium is reached.

anh_duong3192d ago

AFTER almost 4yrs is a bit different from INTO its 4th YEAR.

so if the ps3 was launched on the 21st January 2007 you would say that the ps3 is "missing break even after almost 4 years"???

of course not.. stupid author..

3192d ago
hmmmm3192d ago

Yes well that would all be true >IF< Sony received the whole $299 when you buy a PS3..but we all know it is not true, they get much less than $299.

ThanatosDMC3192d ago (Edited 3192d ago )

Weird... why does he care about how sony does business. Is he the one losing/gaining money???

@ Jammy

They're selling 360s at Japan for less than $10.

gaffyh3192d ago

Over 1000 degrees, easily.

PS3 is doomed, as always...

For success. :)

JsonHenry3192d ago

I see the uses of the PS3 outlasting those of the 360.

Long after gaming has moved on to the next generation I will have ZERO use of my 360. With Netflix, streaming media, internet browser, and a much more open platform for adding new content and uses via the ability to install another OS on the PS3 I see it outlasting the 360 in terms of its overall usefulness.

An example - I will need a Blu-ray player, media streaming device, and internet browsing ability (with the use of a KB+M) in the next 3-4 years when my children are finally old enough to have that sort of thing and know how to use it in their own bedrooms. Games will be dirt cheap for the system and I don't have to pay an online fee to let them use these streaming/online services like I would with the Xbox.

And since I already own a PS3 I have everything my kids "need" to have their own form of entertainment in their bedroom without adding any additional cost to me.

3192d ago
KingME3192d ago (Edited 3192d ago )

It's funny how this guy writes an article with a lot of good solid points, and since the points can't really be argued, some people are bringing up the 360, the 360 warranty, and other 360 comparisons.

How about addressing the point at hand...THE ARTICLE. Even if the 360 isn't making that much more of a profit, the point still remains that the PS3 isn't. That what the topic of discussion is about, not the 360.

Guido3192d ago

You have one company that sells a console knowing that it is faulty being made with cheap hardware so that they can make a profit at the expense of upsetting its user base. Next you have a company that sells a gimmick console using last gen graphics and lacks in quality control for the games released all for the sake of profit. Lastly you have Sony, a company that sell the most power packed console using the best tech and hardware and all this at a loss to the company. Now tell me, what company has the consumer in mind when making that sale?

If you have not figured it out, it is Sony. Not MS, not Nintendo. Sony is the only one that sells us a console that has everything and all for a loss to them knowing that in the end, happy consumers will continue to turn to them generation after generation.

blahgasm3192d ago

What good points does the article make? The PS3 has been out for 3 years, not 5 or 4 years. Using the numbers in the article, there are places that the PS3 has broken even or is sold for a profit, notably Europe as both the Pound and the Euro are stronger than the Dollar.

The article is poorly researched and poorly written. Also, the reason people are bringing up the 360 is because the author claims the 360 has been profitable for some time now, which is debatable.

camachoreloaded88063192d ago

you'd all be laughing and pointing your fingers, saying their business strategy is stupid and whatnot.

3192d ago
FragGen3192d ago (Edited 3192d ago )

Sometimes it's hard for business analysts to understand a business strategy that doesn't extend further than one quarter out because publicly traded businesses have almost all of their metrics setup as quarterly and communicate everything in those terms...

BUT a really viable megacorp that is going to survive and continue to dominate on a global scale (like Sony or Microsoft is capable of) has to have a more complex long term strategy a lot of times that requires taking a beating on one front to get a position that's going to serve you long term. A lot of people don't get this if they do not understand or share the long term strategy or are not used to thinking that way.

For example, Sony may be (quite rightly) thinking that if PS3 sales can entrench PSN in the home for the future, the losses are more than worth it many times over. They're an investment/subsidy from the company to the consumer to generate brand loyalty, etc, which is going to generate MUCH cash.

Hopefully, the investment will pay off... if it does they will look brilliant in 5-10 years, if not everyone will call it a debacle. Such is the way of competition!

TotalPS3Fanboy3192d ago

And make money back from the softwares, royalties, Home, PSN games, movies, accessories, etc.

IdleLeeSiuLung3192d ago (Edited 3192d ago )

"So now I'm scatching my head why someone would complain about a good deal for consumers." -DIRTYHAIRYJOYSTICK

Because a business that is in the red (loses money) won't last long and will eventually go bankrupt. Competition is better for consumers than a short term deal!

The good news is that both Sony and especially MS (at this stage) is investing into the brand. Sony had the brand and now lost it, but MS is gaining recognition.

Both though have huge losses, Sony due to the massive cost of their console and MS due to the high failure rate. Seems like Nintendo is the only one with a sensible business strategy.

SoapShoes3192d ago

This guy obviously doesn't work at Sony and has no clue as to how they operate. I distinctly remember Kaz saying that the hardware was still losing some money on the slim, but through other revenue(accessories,games,etc) they would be making money. Plus the PS2 and PSP make them money. I know the gaming division was in the red for awhile after PS3 launched, but have been in the black now.

RussDeBuss3192d ago

from the look of these comments its a stupid article so i won't give it a hit, but the way i see it

- ps3 enabled sony to win the format war and blu-ray is now THE hd format

- having blu ray and hdmi as standard from day 1 encouraged people to upgrade to hd tv's, chance of them being sony

-ps2 is still selling now, and probably making them a load of profit on each one, ps3 is still young and when once the ps4 is out, ps3 will be making profit, and if they get motion control right will be a better upgrade option than a wii2 or wii hd.

-money can be made from software and video store

-many people believe that ps4 will be based on beefed up ps3 tech so costs won't be as high

edgeofblade3192d ago

I don't think this author gets that the point of the PS3 was never to make money on the hardware.

wicko3192d ago

They are not selling 360's for 10$... they are buying them back for 10$ kind of like how EB will buy your console for in-store credit.

Some of you hit the nail on the head: it's about software sales in the end. Also, there is a lot more to cost than just the hardware. Distribution, marketing, software upkeep, etc..

Highatus3192d ago

Here's a crazy thought. Maybe Sony look over the Playstation brand as a whole and derive any losses from that to investors? Sure they may lose some on the PS3 but could easily be made up from PS2, PSP and their exclusive game revenue.

baum3192d ago

The PS3 is not even 3 years old in Europe, and is barely 3 years old in America, not "almost 4". More garbage passing off as journalism.

Whoever wrote this is a dipsh1t.

masterg3192d ago

The PS3 has been out 3 years and 2 months in the US. It has been out 2 years and 10 months in Europe. How in the world is that almost 4 years.. (and he had originally wrote 5 years, my god)

Sony said that the PS3 was profitable over a year ago. Profitable meaning if you take the loss of a PS3 and add the royalties from game sales the console was making profit. That profit is even bigger now with the costs being down and game sales being up.

The $336.27 it is estimated to cost is just that. An estimate. Sony has always been the kings of hardware and who knows it might even cost $50 less.

All in all this article is garbage.

Arnon3192d ago

I guess some of you must think that consoles suddenly pop into existence the day they are sold to retailers :/

There's a LOT of R&D that goes on before a console is sold, and I guarantee you that they started losing money 1-2 years before the PS3 was released to the public.

Anon19743192d ago (Edited 3192d ago )

First off, the PS3 is making money as a platform and has been for some time. Kaz already confirmed this. The author asks "Why would Sony do this," and the answer is clearly because "They make money doing it." The rest of the article is rather moot.

Secondly, the only reason that the PS3 isn't making money on the hardware already is due to foreign exchange. Just before the current economic crisis, the Sony games division started churning a profit. Suddenly, everything's in turmoil and the yen appreciates against the Euro and US dollar by 25% at times, and the impact is still felt. That has deeply cut into revenue streams for all Japanese electronics makers.

Is that Sony's fault? Of course not. Of course currency fluctuations are always a consideration, but no one could have predicted what transpired. Once the Euro and US economies start picking up steam again, their currencies will be worth more over seas and those foreign dollars coming into Japan will actually be worth something. Increasing sales, strengthening economy, Blu-ray win and the PS3 at the forefront of 3D tech. The future certainly looks bright.

In contrast, analysts just last Sept commented that Microsoft is still taking a loss on 360's at the current pricing levels and the bulk of their sales come from the US - so fx rates aren't responsible, plus they still have the ongoing costs due to the 3 year warranty/faulty systems. At the current rate that Microsoft Entertainment is making money, it will take another 15-25 years to break even from what they lost since the 360 launched, and 360 sales are slowing.

So who should really be concerned here, Sony or Microsoft?

LesterCorncrake3192d ago

If the PS3 was "PUT ON THE CHOPPING BLOCK" i would consider myself an ex gamer.

i could never go back to that slag of an xbox, once you have had both systems you dont wanna fcuk with a certain machine anymore.....Cough ! xbox ! Cough.

GarandShooter3192d ago

@ Arnon

Money spent on R&D by a company is an investment in the company and its future and is not a loss. It's previously earned PROFITS that are reinvested into a company.

And yet you scoff at other's understanding of business principles...

vhero3191d ago

Well they do make money back from a lot of other revenues and MS are in the same boat every time the break even they lower the cost in order to stay on top of PS3 and it's working for them. As they know they can make the money back from Live and downloads etc..

Commander TK3191d ago

slow people. Sony said back in September that a PS3 costs $240 to manufacture. So they make $59 + dollars on every PS3 sold. Not to mention that the PS3 is more expensive in several countries.

Anon19743191d ago (Edited 3191d ago )

Sony corporate CEO Nobuyuki Oneda said in a conference call that the costs of making a PS3 had dropped 70%. It cost $800 to make at launch, so that's roughly $240 today.

So, according to Sony they're making $60 a console.

+ Show (37) more repliesLast reply 3191d ago
Johnny Rotten3192d ago (Edited 3192d ago )

well it feels pretty good to know that the tech I paid $550 for is still worth it's price tag :)

Most companies/manufacturer's rely too heavily on obsolescence rather than trying to make something equally of value and quality.

Sarick3192d ago (Edited 3192d ago )

You have to realize not all tech cost as much as it sells for. Take for instance in 1990 an 80 megabyte HDD was high tech and apparently cost over $100 to manufacture. Now days you can buy one for next to nothing.

The real stopping block with hardware and software is material cost. Tech prices are often offset to cover future R&D. Prices in tech are regulated to make a profit. So when it comes down to it that $100 item might cost $10 to manufacture.

This is where people get confused. They see hardware being sold at wholesale and assume each piece cost the amount set by the tech industry. Although I do admit some chips and tech do cost a lot to make they are producing them above production cost. The only thing holding these prices down is competition and consumer complacency.

When a manufacture mass produces a product the cost associated with it are reduced. This reduction isn't directly translated into lowering the cost of the items produced. A lot of times the manufactures mitigate overall loses by inflating the prices of tech.

The effect is simple. The demand on the product is high so the price is set high. The actual cost that is associated towards the product is inflated. When the consumer makes a purchase they're buying the set prices of that tech. Since these prices are mostly regulated by supply and demand little is left for actual value.

In these cases the manufacture is making a profit or recovering from R&D losses using inflated prices. In the background most tech cost are so highly inflated that the market becomes disassociated with actual production value. This is why you have people thinking that a product cost $100 when in reality may cost only $10 to produce.

Also, If you take a manufacture that is producing something in house where they make their own chips, lasers and boards the production cost are often lowered even farther. This is because a middle man has been moved from the equation. These benefits also help lower the manufacturing cost.

So the next time you tear down something and attempt to measure it's retail market value. Don't forget to research the true cost of the parts in real value. I can guarantee you most of the time you'll be over estimating individual parts that have inflated values. Basically the manufactures and tech industry for the most control what the customers pay even if it cost much less to produce. Yea, they need to make money too.

The only thing here is the average Joe is oblivious to how much part really cost to produce. As long as the customers perceive value in the product being sold and the competitors allow it, there is little leniency placed towards realistic production cost.

Johnny Rotten3192d ago (Edited 3192d ago )

Good post and I completely agree. For over half a year now I've been digging into the electronics world and learning how to solder,make circuits, and program some stuff with the use of micro controllers, and in doing so I realized components are dirt cheap! but at the same time it also opens your eyes up just how overpriced most things are.

I can't really say too much about about "set prices" except that if I'm going to pay good dollar for something I want the quality in return. I'm doing alright in life but I need to work hard to get there and harder to stay there, so in other words I can't afford to pay for things twice :)

Sarick3192d ago (Edited 3192d ago )

That's good to hear, I'm glad you responded. My comment towards you was a positive reinforcement that perceived value often relates to consumer complacency. I'm glad you've experienced the cost of components first hand engineering your own projects.

We both know that most components are very cheap. Even though they're cheap to us they're still inflated. Compared to the large production lines at a factory we still don't have the opportunity to compete with the bulk rates they receive when purchasing or producing their products.

People who are told that this product cost X amount to make normally can't anticipate the true production cost. The reason isn't for the lack of intelligence but for the lack of information. Since tech prices fluctuate, and material cost are very volatile it isn't easy to estimate them. The fact is only the manufacturer of said products knows in detail what the true cost is. They could be getting a product that cost $100 retail for $1 to $150 although, the latter is highly unlikely. I'm sure Sony knows the true profits and loses best.

I also assume it could be a positive to Sony when they hear customers making statements that their console is being sold at a loss. This is especially the case If they're making a profit through the hardware or software. After all it's a always a good sign when consumers perceive higher value in a product that cost much less to produce.

timotei3192d ago

Who's going to save the PS3?

Karooo3192d ago (Edited 3192d ago )

...

4point7BillionLoss3192d ago

sony thought they could sell the PS3 at a loss in the short term, and that games sales would make up for it in the long term.

Big mistake. no one buys ps3 games.

Karooo3192d ago

MW2 sold 6.5 million, uncharted 2 now almost 3 million whats that you pathetic liar?

and the ps3 is break even this year so fck off.

hoops3192d ago

Consoles in general lose money on hardware and make it up on accessories, servie (online) and the biggest portion of the profit: SOFTWARE
These companies rely on software sales to offset hardware losses except for Nintendo.
This is why Software sales are more important then hardware sales in general

hatchimatchi3192d ago

I think they'll start to turn a profit on systems sold sometime this year. As far as breaking even, I have no clue. I really doubt sony would ax the SCEA, they know there is money to be made and the ps4 is definitely not coming out for quite sometime.

It seems like they learned from their mistakes with the launch of the ps3 and in 2009 they definitely made an effort to rebrand themselves and it worked wonders if you ask me.

Hopefully sony doesn't pour too much money into 3d tech because I really don't see it taking off like some people think it will. At least not right off the bat. There are too many consumers with fairly new HDTV's and I can't see them running to the store to buy the same tv with 3d capabilities for a higher cost than that of their "old" HDTV.

hoops3192d ago

3D won't take off for a few years....not until we see new consoles.
ALmsot all the HDTV's bought even up until last year do not support this technonlogy. Its not just refresh rates of 120hz, its 120Hz input signal. Many HDTV sets right now do not have that, let along ALL Blu-Ray models not annoucned recently do not support 3d movies (stand alone players)

nycredude3192d ago

Dude FYI there are way more consumers who haven't purchased an HDTV and is waiting on the sidelines to pick one up than there are consumers who have just purchased an HDTV. Hi Def revolution has jsut begun!

RealityCheck3192d ago

@ hatchimatchi

I agree with your sentiment, hopefully Sony doesn't sink too much money pushing 3D so soon. Or else I could see them loosing more money then they did with the PS3 so far.

A lot of enthusiasts already got their HDTV and most are not 3D compatible. On top of that, those that have stayed on the sideline so far have done so mostly because of cost so even if they make the jump to HD soon, they will be getting cheaper models which of course won't support 3D.

Finally there is the issue of content. You thought in the early days of HD there was not enough content? Well there is even less real 3D content now and while they are shooting a bit more it's still a minority.

So for all these reasons the uptake on 3D will be even slower than Blu-ray was.