A short time ago Sony Computer Entertainment executive Ray Maguire was quoted in response to a question about a PlayStation 3 price cut. "Well the pressure comes from the consumers obviously and so therefore there's always pressure on price," admitted Maguire, "but you know we have a business to run, and we have to make sure we're doing the right thing for the shareholders as well."
I am sorry, what? I know I am not a CPA, a high ranking business analyst, nor a senior executive at a multi-billion dollar company, but I can do basic math. Microsoft recently had some major price cuts on their hardware and has seen a big hardware surge in North America and especially Europe as a result. So let’s break out some hypothetical numbers shall we?
Let’s say Sony reduces the cost of their standard 80GB unit from $399 to $325, I know this is a big drop but work with me on this. Let’s assume with this price change they are no longer making $75 per unit on the console, but in fact break even on it.
Again this is all me making up numbers, but bear with me. Let’s assume that Sony at its current price point could sell 1 million PlayStation 3 units over the holiday season. At my suggested price point, they could push 3 million units over the same period. This would be a net loss of 50 million dollars for Sony on hardware sales.
Looks gloomy and that certainly would not be doing the right thing for shareholders…but wait, according to the NPD the PlayStation 3’s attach rate is 4.6 pieces of software per console sold. Let’s make another assumption and say that Sony makes $15 per game sold.
Article comments
— go to most recent comments1 - i agree
i agree. i cant pay $400 for a game system but at $325 i could buy a game with the $75 dollars i saved. alot better looking deal
2 - Nathaniel Edwards
I find the 1 million consoles sold jump to 3 million consoles a bit steep. Was that number coming from anywhere? I wouldn't personally think that they could sell three times as many consoles with a 75 dollar price cut. Otherwise, this seems fair.
3 - You areright
You aren't a CPA.
SONY is LOSING money per console still at the current 4.6 attachment rate, did you not see the last quarterly results?...Cutting the price means losing even MORE money requiring an even HIGHER attachment rate just to break even.
The PS3 worldwide sales are already leveling out with the 360 at half the price, the Xbox price advantage will only go so far and SONY knows this...SONY will sell as much as they can at the current price levels until Spring 2009 THEN cut the price.
The fact that the price has stayed the same in the US in the face of SONY making less YEN with every Dollar sold means they are losing even more than they were at this point 6 mos ago failing some manufacturing savings.
Also, anyone in the market for one now can take advantage of $299 deals at Amazon with purchase of BD discs or $299 deals at Walmart with Gift Card or $250 deals at SonyStyle using SONY Visa.
4 - Michael Prince
@You areright
Back in January Sony was very public in the fact that they were breaking even on the PS3...since then they have removed backwards compatibility, reduced chip size and lowered blu-ray laser production costs. It stands to VERY good reason that 11 months later they are making money on the console...in fact even though Sony's quarterlies were not great the PS3 made money for Sony...it was other divisions that pulled their projections down...Also the newest (today) attach rates show the PS3 above 5 per console.
@Nathaniel
I was pulling the 1-3 million jump out of my head...BUT I still think it is a feasible number based on the quality of software and holiday blu-ray releases. A $325 dollar console/blu-ray player will do very well in todays market.
5 - You areright
SONY is making 18% less per dollar and 36% less per Euro compared to one year ago.
Go back and look at their financials (you system is blocking my links as spam)...SONY reduced losses at its gaming divsion but they are still making losses.
6 - G
I keep seenig people generate hits to there sites with these demands of sony to cut the price, and its quite silly. Sony has indicated that they ps3 is selling 30% higher than their own internal estimates at this point of time, which means there is no reason for them to cut the price and thereby reduce what little profits the division is already making. If someone really wants the ps3 they will either ante for the current price or keep on waiting like they have.
There is no NEED for sony to cut the price
7 - Confused argument
This writer seems confused.
Fact: SONY's Gaming division did NOT make a profit this quarter..the made less of a loss but not a profit. Relying on links to Kotaku (known for their great insight into finances I'm sure) instead of going to the actual quarterly reports is unforgivable.
Fact: SONY is dealing with the American and Euro currencies both falling in value vs the YEN. Cutting the price in either of those markets is not sound business practice.
Fact: The fact that this author has made VERY incorrect assumptions from the start makes the rest of the argument useless.
Lets talk a little reality here:
SONY's gaming division lost $405 Million dollar on its gaming division in the last quarter.
Lowering the price in the face of further devaluations in the EU and US currencies would be the absolute LAST thing SONY should do.
8 - Brian
I think you complainers need to get over this price issue. The PS3 isn't that expensive. If you buy a 360 and make it the same as the PS3 you'll spend more than $400. So there isn't a stripped down model. Sony did that and people cry they can't play PS2 games on it. I see no reason they need to drop the price right now. If you can't afford to spend $400 on a PS3 you can't afford to spend $300 either.
9 - Methane
at least price cutting the games from 60 to 50/45 $ will be something encourging...
10 - Shendow
So far Sony isn't doing bad with no price cuts, an 360's price cut has been shown that its not doing to much for the. Their games tin to sell better then the system now and when the PS3 coming out with alot of awesome game. Well its going to when in Dec on sell more an keep in mind the sells that I am talking about aren't sell that are talk about in some random gaming site.
P.S. Learn to wait to Dec people, Sony has some rumors that a new 40GB will come out an it might be the new white one. I own a 40GB but I be happy to sell my for a white one an keep in mind this> $199.99 360 (No HD an can't do alot of things that most people want to do/ no online) $399.99 PS3 an you get a HDD that has more then 360 comes with at being cheap and wait FREE ONLINE?? thats right FREE!! -_- you not going to say no to free money to put in your pockets, so while say no to free online play?
11 - w
ok 20 bucks a game new or otherwise . problem solved! damn i'm good!
12 - Shendow
-_- cheaper games means poorly mind games, we being paying 20 bucks for 2D games. It cost alot of money to make a game if you didn't know that.
13 - danlord
let's all just hope for the best not the worst.
14 - mookins
...Sony cannot drop the price author. If they do that, the demand would exceed the supply and they will lose more money that way.
You need to study Economics a little more. I may hate it but I know this bit.
15 - Michael Prince
I appreciate all the comments, I was pretty clear in saying that I am not an economist, but I am an educated professional (not in the financial markets obviously =-).
I still stand by my statement that Sony NEEDS to get more consoles to consumers. Think about the basic economics, even with the falling currencies more consoles = more game sold = more blu-rays sold = more peripherals sold = more potential profits.
Many of you are arguing that because of falling currencies and existing shortfalls that they should not try to increase their user base? In my industry we have to spend multi-millions building Data Centres and wait years to break even and make profit, when we launch the facilities we offer incentives to enter so we can lock in our clients and get more services from them...the same principle applies in every business.
Again I could very well be wrong as many of you believe...that is why it is an opinion article....but I don't think I am...Oh and for the record I am probably the biggest Sony fanboy out there...I want Sony to succeed and I think this is the way to do it.
16 - You areright
SONY HAS sunk billions of dollars in R&D already ...even shooting for break even on a quarterly basis they are still not recouping ANY of their 'sunk costs'.
Again...creating a larger base will just cause them to loose MORE money right now and they are not in this just for gamers..they are a large multinational CE firm with shareholders that expect PROFIT...not fanboy accolades.
17 - Nathaniel Edwards
It is true that their basic objective is just to get consoles out there so they can make the real money on games and other first-party items. There were a lot of leaps of faith with the numbers in here, but the basic premise is correct. Customer loyalty coming from people owning a Playstation is also potentially important in the future.
18 - Jonah Falcon
It's too late for the price cut. Moms buy the expensive stuff in September for Xmas.
19 - Ares
Look, if you actually think that $400 is good for a DVD player-consolethen you're drunk. Or may be you don't understand the value of a dollar. Let me help you Sony cheerleaders out, lol. Who is losing this war? Who is last place? Who cares more about business personel than consumers? Who has abandoned their own values? Who has scared away nearly all exclusive software ties? Whose name starts with an "S" and ends in "ony?" Please figure this out, as change is needed here. Something umm...different...not the same old stupid failing price, ya know. If you are still confused check and see if your tongue is caught in a blu ray slot! Thank ya very much.
20 - Clint
You essentially can get the ps3 for $299 + tax from walmart right now. They're offering it for $399 and include a $100 walmart gift card.
21 - Charles
What most people seem to forget is that although Sony can sale the PS3 for profit, it really isn't profit. They still have a lot of money to make up on Cell research and development along with Blu ray costs. One Sony official already admitted that they spent more money on the PS3 then they made in the first 6 years of selling the PS2. Honestly looking at the charts every month they need to worry about selling more games.
22 - Ray
I think marketshare is too important to pass up. The average person cannot pay $400 for a console, no matter how much value the thing has. Sony needs to get out of last place and change the perception of the PS3.
23 - Shendow
PS3 isn't in last place, it seems people don't keep try on sites that aren't 360 fanboys running it and so far its going toe to toe with the 360. Thats saying alot because the 360 came out way before the PS3.
24 - David Knowles
The thing with price cuts you need to make them count when you used need them as it not something you can keep on doing.
The moment is not right for Sony, the key reason is they have got loads of titles coming out that are big hitters that basically been dominating the headlines, LBP anyone. Plus with Killzone 2 and FF13 and probably other exclusives tiles coming soon HOME. It better for you to used games to not only increase sales but to increase attachment, the attachment rate will mean game developers taking the console more seriously and create mind share, seriously the only way XBOX has generated exclusive news is through prices cuts for the last few months. And chose to used it to blunt the sales increases that is expected through the release of the wave of exclusives Sony has coming out in the coming months, for me I think they have wasted it.
Plus Sony is using key retailers who want to blue ray sales up to counter decreasing DVD sales they are doing that by offering 100 dolors at no expense to Sony themselves.
Right now is not the time to wast the most powerful weapon in any console manufactoring arsenal.
Instead the time used is when your enemy thinks its gonna gain a sale surge, I do know like when they Gears of War 2 for example.
Shendow be honest Xbox has been leading in over world wide sales.
Ares
One who actually buy it at 400 dollars, especially with all the offers out their, you American should not have to spend above 300 to actually acquiring the console, you probably a free game with it to.
Who cares more about business than customers. Microsoft do not give a damn about their customers. If they did would not of release RROD on to the public.
In face I say Sony is about the best, Nintendo customer help service is beyond usless. And to be fare so is Sony.
In fact all the companies care more about their business than they do about their customer.
But show they care little, they are helping trying to fine cures human diseases/ what are Nintendo and Microsoft doing to humanity.
25 - Shendow
It has for awhile but the new sells charts says that their was times that the PS3 was out selling the 360 (Mostly because of MGS4) the samething is going to happen when MGSO comes out for PS3 only as well as FFVS13. The PS3 keeps on going head to head with the 360 an PS3 hasn't had any new problems like the 360.