Will Sony's pricey PS3 pay off?

Ever since Sony announced the $600 price tag for its next-generation video-game console in May, Stringer and his team have been busy deflecting criticism from analysts and hard-core gamers that the PS3, despite glitzy features such as a Blu-ray disc, is just too darn expensive. Potential buyers, say the critics, won't be impressed enough to haul one to the checkout counter.

That might not be such a big deal if Sir Howard & Co. didn't have such grand ambitions for the PS3. But Sony has tied nearly every piece of its expansive operations-movies, music, chips, and high-definition television-to the console's success. The company plans to use the console as a Trojan horse to dominate the living room and, by extension, much of the entertainment industry.

The machine will have an Internet connection to let users send instant messages, talk to other PS3 gamers, and surf the Web on a built-in browser. And its hard disk and slots for plug-in memory cards will make it a cinch to sift through and play downloaded music or movie files-and allow Sony to funnel buyers toward its vast library of games, films, and music.

[THELANDSOFSAND]

"EA says it's still testing the potential of the PS3"

[DC RID3R]

how sony can expect to charge 600 bucks for a machine, pushing yet another new media type, and yet it's quality build history (ps1+ps2), are notorious for the terrible laser quality?!?!?
having gone through 3 ps2's myself, having to try and load a game or cd/dvd after the 5th attempt gets f*cking irritating and is a problem i've never come across before in either the entire history of nintendo, sega, or pc for that matter, until i bumped into playstation (or a cheapo cd player)!! The only way i could solve my ps2 loading probs,was to absolutely destroy the thing!!!(great feeling)
and so, my point is, for $600, sony better on-track!!!!!

[bernie]

I've bought the two previous playstations, but this time you can forget it. Sony have made arrogant comments at consumers, increased the price beyond whats reasonable and not shown anything that resembles last years E3 fakery.
I have no interest in the inferior 'bluray' (mpeg2 compression, what year is this?) so will be buying HD DVD anyway.
Sony, get your act together and maybe I'll pick up a PS4 :)

[Marty8370]

PS3/Buray are the future.

[THELANDSOFSAND]

Betamax, Minidisc, UMD are the future.

[zypher]

well to be fair, Sony was instrumental in the adoption of both CD's and DVD's.

[SjaakHaas]

like you said: adobtion. The formats came from the low-selfesteem Philips. Sony just adobted it and treated it as their own... And every baby they try to give birth to on their own, dies.

[zypher]

um, Sony is one of three Corps. that hold the patent on CD's, and i believe one of a few more who hold the patent on DVD's. this translates into them having participated in both the development and production of said formats. do you honestly believe that either format would've been as successful as they were without Sony? besides, no matter how Beta may have failed, it was still regarded as the superior format over VHS; it was just marketed the wrong way. as far as UMD's: who cares? i saw its demise a mile away, when Sony decided to charge $24.99 per UMD. the most expensive Blu-ray DVD i've seen in Wal-Mart was for $22.96, cheaper than the most expensive HD-DVD at $24.73. however, both averaged in the neighborhood of aprox. $19. this isn't/wasn't the case with Beta and UMD, both of which sold for more than their competition. AND, as it stands right now, Sony has matched Toshiba's price for next-gen dvd players, since a low-grade PS3 cost $500 (the same as the least-most expensive HD-DVD player).

[Gamer13]

Once the PS3 games or good and next gen graphics + good online - the ps3 price will pay off.

Im getting mines at launch.

[BIadestarX]

I will probably buy a PS3; but first I rather wait till you (the hard core Sony Fanboy) are used as ginnie pigs to test all the non-tested stuff Sony is putting into the PS3(i.e blu-ray, cell, etc). Last 2 generations Sony did so bad manufacturing the PS with existing (tested) technology (CD, DVD), so unless they are very lucky the PS3 should be a disaster. So, I'm glad there are lemming-like people like you that are willing to pay $600 3 or 4 times till Sony gets it right; and then the rest of us can buy it. I thank you in the name of all smart buyers.

[Mikey_Gee]

I have the $$$ for my PS3, but you know what ... not to sure now. Worse comes to worse I may sell off my $50 pre-order.

I am on my 3rd PS2 as well......... pisses me off.

[zypher]

the problem with Sony is they are trying to make the PS3 this set-top box inspite of the fact that it is primarily a game system. for this to work they MUST realize that the overwhelming majority of PS3 purchasers are buying it as a game system, and they should cater to them. gaming should be the utmost goal for Sony with the PS3; all other features should just be treated as additional. when Sony talks PS3 they should talk gaming primarily, not how its a PC or a Blu-ray dvd player. this is where they've lost focus.

[Karibu]

Wtf is wrong with you people? PS3 isn't expensive,
PS2 was had same the price in europe. Nad now PS3 has HDD, BD and other stuff that weren't in PS2 and you still call PS3 expensive!
Get a job or something. PS3 isn't for lazy bums.

[zypher]

no offense, but this is all beside the point. it isn't Sony's or anyone elses place to tell the consumer to get a job just so that they can afford what Sony is selling. Sony needs to cater to its pre-existing and future consumers, not the other way around. the fact that they have come under attack (and in some cases rightfully so) doesn't bode too well for their future prognosis. despite the fact that i'm buying a PS3 release day i still believe that they need to change their strategy if they wish to retain the #1 spot. all thats really needed is a) a better handle on public opinion and b) realizing that games (and thus gamers) come first, not the ideas of some mind-in-the-clouds engineer whose also a company VP/CEO

[mikeeno7]

PS3 will sell through the roof for about a year i reckon, as hardcore and media nut heads rush to clamor their hands all over it. After that however, we could see a different story...

[shoota33]

Too bad xflop sold throught the roof for like two months and know they are collecting dust in the stores.

[Xconcepts]

Go get a life, your the only one besides you other 15 tags that say xflop or whatever crap you say. Your probably upset that you can't afford a 360 and you 5th ps2 is broke again. Now you have to mow 60 lawns to buy the PS3.

[PS3sux360inchWiiWii]

For system specs that were announced at E305 that have been around to almost 07 now, thats almost 2 year old and since then dubbed down tech at that... the price should be cheaper in my opinion!

[PS3sux360inchWiiWii]

Killzone = Deal Breaker

[ApocalypseShadow]

i've sat by and read your comments for awhile and i think it's time to voice my opinion.none of you are looking at the big picture.sony,micrsoft and nintendo don't care about you or your loyalty.i think i've played longer than 90% of you.sony is looking at a ten year life cycle.the ps1 sold over 100 million units.second,third system.who cares.that's 100 million systems.ps2 sold over 100 million systems.you bought it a second time,you bought it a third time.that's 100 million plus systems.billions of controllers and games.they(sony) are a business.i love nintendo but they don't think so cleary just like my first love sega.sony is trying to grow the market.beyond hardcore,beyond fanboy,beyond casual.so is microsoft.they have to go after new customers and that means putting more in the box.if you cant afford it,buy something else.that's your choice.trade something in.sell something.you can play games on it,watch hd movies,play nearly all your old games unlike that other company.and yes i have an xbox.love it.surf the internet,download content,hook up with the psp,play nearly all cd types,built in hard drive that's removeable.stop complaining that sony should concentrate on games only.that era is dead just like side scrolling shooters and 2d.both i love.stop complaining and start gaming.you'll hear more from me.(and no i don't work for any of the above companies)

[ApocalypseShadow]

i've sat by and read your comments for awhile and i think it's time to voice my opinion.none of you are looking at the big picture.sony,micrsoft and nintendo don't care about you or your loyalty.i think i've played longer than 90% of you.sony is looking at a ten year life cycle.the ps1 sold over 100 million units.second,third system.who cares.that's 100 million systems.ps2 sold over 100 million systems.you bought it a second time,you bought it a third time.that's 100 million plus systems.billions of controllers and games.they(sony) are a business.i love nintendo but they don't think so cleary just like my first love sega.sony is trying to grow the market.beyond hardcore,beyond fanboy,beyond casual.so is microsoft.they have to go after new customers and that means putting more in the box.if you cant afford it,buy something else.that's your choice.trade something in.sell something.you can play games on it,watch hd movies,play nearly all your old games unlike that other company.and yes i have an xbox.love it.surf the internet,download content,hook up with the psp,play nearly all cd types,built in hard drive that's removeable.stop complaining that sony should concentrate on games only.that era is dead just like side scrolling shooters and 2d.both i love.stop complaining and start gaming.you'll hear more from me.(and no i don't work for any of the above companies)

[THE TRUTH]

(here is some good info I got from PS3forums)

Basic Economic Principles
All companies want to make money. Sony is no exception. It is generally a safe assumption that the numerous business managers are aware of economic theories and use them to price their merchandise.

Supply and Demand
One of the most basic principles of economics is that of supply and demand. Supply and demand are often represented as two lines on a graph representing number of units (vertical) versus price (horizontal). As price decreases, demand increases. This is represented by a line that starts high on the left of the graph and drops towards the right. Many people that say Sony should lower price look no further than this. However, there is also supply. Supply is the exact opposite. It begins very low on the left of the graph and moves towards high on the right side. Put simply, at low supply price is small while at high supply price is high. This may seem a bit counter-intuitive but the graph only represents one set of manufacturing capabilities. Upgrading to a bigger plant, for example, would shift the entire supply line. However let’s ignore that for the time being.

The supply and demand lines cross each other. This is the optimum point. At this point the supply equals the demand at that price. Lowering the price means that there is more demand than supply (i.e. people reselling on e-bay for a profit). Increasing the price means there is less demand than supply (i.e. consoles left on the shelf).

So first hole in the Sony should lower the price argument is that supply would also decrease. Let’s move into the why of this.

Console Life Stages
A console initially loses money. In order to make money off a console one needs to build up a large fan base while losing money. The fan base needs to be large enough to carry the system forward until the manufacturing price drops enough that the company starts to make money. At this point the price of the console drops, opening it up to more buyers and the company actually makes money back. Eventually, if the company calculated correctly, they make back enough money to pay off their initial losses. There are three stages of console life.

Stage 1: Console sold at a loss. During this phase of the console’s life, the console costs a lot of money to produce. More than even earlier adopters are willing to pay. The company subsidizes the cost, selling consoles at a loss to get their system on the market. This is especially important for consoles as it is mostly third party products (games) that sell the console. It’s a chicken and egg scenario. Games only get created for a successful console. However, consoles don’t get sold unless there are good games.

Stage 2: Console sold without loss. During this phase of the console’s life, the console costs less money to produce and makes back money on each sale. At this point the company begins to make back the money that it lost during stage 1. The rate at which the console sells is limited mostly by the demand. Consoles with lots of great games sell faster.

Stage 3: Console sold for profit. The console finally has made back the money that it lost. Any further console sales make the company money.

Balancing stages 1, 2 and 3
The goal is to reach stage 3 as soon as possible. This is, after all, when the company makes money. There are two factors that affect this. The first is how many people want to buy the console. The more people buying the console at stage 2, the faster the company makes back its lost money. This would seem to indicate that it is in the companies best interest to sell lots of consoles during stage 1, so there is lots of third party support for the console and therefore, lots of demand for the console. (Represented by demand shifting right.) However, there is also a second factor. The more money lost during stage one, then the more money must be made back during stage 2. Thus it is in the company’s best interests to sell very few consoles at a loss so it has to make back less money.

“But wait, you just said it is in the company’s best interests to sell few consoles and lots of consoles during stage 1. That’s madness.”

This is a balancing act. There is an optimum point, where Sony arrives at stage 3 first. It is done by balancing the need to have a successful console with lots of third party support with the simple fact that Sony can only lose so much money initially. Many people that claim Sony should lower the launch ignore the second half of the equation. They only examine that Sony needs lots of third party support down the line and ignore that the more money it loses initially the longer it takes to make it back.

What’s the Company to Do?
Well the company took all this into account, created a business model and figured out exactly how to maximize their profits. This includes figuring out when to switch between stages 1 and 2 and later 2 and 3. Most importantly for launch cost, the company figures out how much money it should lose initially. Keep in mind that the company will need to make this much money back before it turns a profit.

After determining how much money the company is willing to lose, it examines a supply demand curve. The goal is to maximize the number of consoles sold while keeping the loss constant. Everyone arguing that Sony should reduce cost ignores this entirely. They say Sony will sell more units if they lower cost. This is completely wrong. Sony will sell less units if they lower cost. Here’s why.

Let’s make the following assumptions.
Meryl-Lynch’s 800 dollar per unit is correct.
Let’s ignore the two types of units and just look at the 600 dollar model.

This means that Sony is selling at a 200 dollar loss per console. Multiply this by 2 million initial units and we find that Sony has decided to lose 400 million dollars at launch. This is just launch, not the entire stage one life of the console. This is a lot of money. If Sony were to drop the cost by 100 dollars they would lose 300 dollars per unit instead of 200. In order to keep the 400 million loss constant, Sony would need to sell 1.33 million units. That’s 2/3 the units they were selling before. So lowering cost means that Sony sells less units initially.

It gets even worse. Sony must sell 2/3 the units throughout the entire stage one life of the console. However, this is 2/3s the amount that people would buy at a hundred dollars more. Price dropped demand increased. There are even more people that want to buy the console. This creates a frenzy of people buying consoles and selling them on ebay for high amounts of money. Sony has said it intends to sell 14 million units in the first year. It’s done the market research and knows that 14 million people will buy the console at the current cost. Now it only sells 2/3 this amount and only sells 9.33 million units. That’s almost 5 million people that would have bought it at one hundred dollars more that do not have consoles. Additionally, there is an enormous demand because we need to add in all the people that are willing to buy at 500 dollars.

So now tons of people that want a console don’t have one. There are 2/3 as many consoles in people’s homes as there would have been. This means less demand for third party items. This ultimately stunts the growth of the system. This pushes back stage 2 even further and means it will take longer for Sony to turn a profit.

Conclusions
The people that say, there will be more people willing to buy a console at reduced cost are correct. The people that say Sony should reduce the cost so they can sell more units are wrong. Reducing cost means less units are sold not more. Supply lowers, demand increases. I’m not going to say buy a console at launch if you can’t afford it. However, please stop writing on these forums that Sony should reduce the cost. There is only one way that Sony will announce a price drop. That’s if somehow the production cost decreased unexpectedly. This is the only scenario that will result in a price drop. If anyone has an argument for why they should drop the price beyond ‘so I can save 100 bucks’ I will be happy to hear it. Otherwise you are recommending Sony shoot itself in the foot so you can purchase 2 extra games.

[ApocalypseShadow]

that was a great read -the truth-.i knew there were more intelligent people on this site who think about the big picture.they want to make money,we want great content and systems.some individuals on this site believe that any bad comments they make are going to be read by casual gamers,resellers or real gamers.ps3 is an already soldout item and will continue to sell beyond it's release.so will wii.

[Silent]

I think PS3 price is just right. It could be worst like 799.99 to 899.99. Just think of that.
PLAYSTION 3 for 599.99 Thats a bargain!!!!

[Schmitty07]

But besides that point....I have a lot of friends who don't want to buy the 360 because it is too expensive, so I don't know what they would say about 600/500.

I guess we will just sit back and relax, and see what happens because I could really careless. As long as there is competition I'm happy.

[Jay da 2KBalla]

2 billion in its first year. Damn. All microsoft has lost is 414 million.

[SDS Overfiend]

414M is chump change compare to Bill Gates.

Video games and Hip-Hop nowadays is corperate and was out of our hands long ago. I Remember arguing over which game version was better Super nintendo or Genesis now it nothing like that anymore since sony started abusing that Exclusive rights crap cause they funds was long. If Bill gate want to get grimey he could patent online gaming features or buy but sony with his lunch money.

[Dragonopolis]

I have and Xbox 360. I paid $400 for it. If I were to go get a stand alone HD movie player I'd pay $500 for the Toshiba HD-DVD (from what I've heard in the news Toshiba is selling it below cost approximately $200 to be exact). Now I've paid a total of $900 dollars for the abililty to play games and watch HD movies on my HDTV. From the way both the HD-DVD and Blu-ray camps have been talking the price ain't coming down any time soon so my hopes for a cheap HD-DVD movie attachment coming soon for my xbox 360 is unlikely.

Let us face the facts, PS3 is a steal. Not only am I saving $300 on my Total HD Entertainment cost, I'm get the added bonus of increasing my game playing options.

Screw buying a stand alone HD movie player. I'm getting me a PS3.

Lets stop being haters and start being gamers.

Peace

[Schmitty07]

And then when Blu-Ray and HDDVD fail what will you think?