Sony has lost over $3 billion on the PS3

[satviewer2000]

Sony has lost over $3 billion on the PS3
Mario and Master Chief seen hi-fiving.

By Ben Silverman

Think you paid too much for your Playstation 3? Don't expect any sympathy from Sony.

In the company's fiscal 2008 annual report, Sony revealed that they've now lost roughly $3.3 billion (that's billion with a B) on the Playstation 3 since its launch. That breaks down to $2.16 billion in 2007, followed by a notably smaller but equally daunting $1.16 billion loss in 2008.

The reason? Pricing the console below its production cost. That's right - that hefty $599 you paid for the PS3 back when it first launched was significantly cheaper than the cost of producing it in the first place, and while the retail price has come down some, the losses keep piling up.

Investors have reason to sweat. In a statement, Sony claimed "the large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered." They went on to note that they've invested a great deal of money into R&D for the console, a sum they might not be able to recoup if the PS3 "fails to achieve such favorable market penetration."

Sony fanboys should take heart, however. Losing money on hardware is relatively common in the video game biz, as companies routinely lower prices to sell more units and thus stimulate software sales. Sony's game division saw a 26% sales spike last quarter, a trend they expect will continue on the strength of strong exclusives like the recently released Metal Gear Solid 4 and the upcoming sequel Resistance 2.

But will it be enough?

[budz]

I read Sony will be releasing in the USA downloading of movies via PS3. Wonder if they're trying to make money that way. Who knows!

[guns1inger]

The PS3 was also Sony's spearhead for BluRay into the home. They knew it would outsell any standalone BluRay player. Over here the PS3 accounts for over 80% of the total number of BR players sold.

Microsoft were smart when they based the XBox on a standard PC in a fancy case, but I bet they don't make much money on 360 hardware units.

[brassplyer]

I guess they'll really be hosed if kids were to start reading, going outside to play, learning to play a musical instrument or any of the thousand things they could be doing besides playing video games en masse, huh...

[Xylob the Destroyer]

Not really news, and nothing new for sure.
They lost money on every single PlayStation that they sold for the first 4 years...
They lost money on every single Playstation2 that they sold for the first several years too.
Same reason both times -- selling the hardware for far below what it actually cost to manufacture it.
That's not where revenue comes from anyway.
They make their $$ from licensing and software.

You didn't think they let people make games for the PS3 for free did you?

[SingSing]

They lost money on every single PlayStation that they sold for the first 4 years...
They lost money on every single Playstation2 that they sold for the first several years too.
Same reason both times -- selling the hardware for far below what it actually cost to manufacture it.

Aren't these all anti-competitive business practices ?

[BoilerUp]

I guess they'll really be hosed if kids were to start reading, going outside to play, learning to play a musical instrument or any of the thousand things they could be doing besides playing video games en masse, huh...

Or if kids were to own a wii like most people I know with a gaming system do.

[RLT69]

Aren't these all anti-competitive business practices

Maybe but every game console manufacturer sells their console at a loss. Microsoft loses money on the Xbox.

It's nothing new. They make the money on the games.

[Des]

Quote:
Aren't these all anti-competitive business practices



Maybe but every game console manufacturer sells their console at a loss. Microsoft loses money on the Xbox.

It's nothing new. They make the money on the games.

Ink jet and laser printer manufacturers too.

[SCDVD]

When you take a subset of a company's overall business strategy, it can be misleading and manipulated to paint a shortsighted picture. Sony's strategy with the PS3 was a good one as far as it went. But in my opinion, they mishandled other part of their overall BluRay strategy. Their plan of opening the market with aggressively priced hardware was an important first step. But they blew it in their overall business strategy which has hurt BluRay's performance in the market. They should be pricing BluRay titles somewhat above DVD prices, not substantially above. Their obsession with copy protection schemes has also hurt them. Since Sony is such a large company with many different business units playing local CYA games, it makes it very difficult for them to orchestrate an effective overall business strategy.

[jagabo]

They lost money on every single PlayStation that they sold for the first 4 years...
They lost money on every single Playstation2 that they sold for the first several years too.
Same reason both times -- selling the hardware for far below what it actually cost to manufacture it.

:evil: Aren't these all anti-competitive business practices ? :?:

Anticompetative business practices aren't illegal unless you're a monopolist.

[SingSing]

Sony is a monopolist on game console with bluray.

[RLT69]

They should be pricing BluRay titles somewhat above DVD prices, not substantially above. Their obsession with copy protection schemes has also hurt them. Since Sony is such a large company with many different business units playing local CYA games, it makes it very difficult for them to orchestrate an effective overall business strategy.

Which Titles are substantially higher on Blu-ray?

All prices from Amazon.com:

Ratatouille is $4 more on blu-ray
Cars is $4 more on blu-ray
Planet Earth is $5 on blu-ray
Blade Runner (Five-Disc Complete Collector's Edition) is $3 cheaper on Blu-ray!

So the notion that Blu-ray is substantially more isn't true.

Hollywood demands copy protection. So you can't blame Sony alone for copy protection when you have Universal, Disney, Warner, Fox all crying about pirated movies and all demanding that ANY medium used for distributing Movies has copy protection.

[Ai Haibara]

SCDVD's probably referring to the average price of a Blu-Ray title in a regular store/mall. Not everyone goes straight to Amazon (or another online retailer) for their video purchases.

Re: selling consoles at a loss: Wasn't Nintendo making at least a slight profit on each Wii sold, now, though?

[SCDVD]

They should be pricing BluRay titles somewhat above DVD prices, not substantially above. Their obsession with copy protection schemes has also hurt them. Since Sony is such a large company with many different business units playing local CYA games, it makes it very difficult for them to orchestrate an effective overall business strategy.

Which Titles are substantially higher on Blu-ray?

All prices from Amazon.com:

Ratatouille is $4 more on blu-ray
Cars is $4 more on blu-ray
Planet Earth is $5 on blu-ray
Blade Runner (Five-Disc Complete Collector's Edition) is $3 cheaper on Blu-ray!

So the notion that Blu-ray is substantially more isn't true.

Hollywood demands copy protection. So you can't blame Sony alone for copy protection when you have Universal, Disney, Warner, Fox all crying about pirated movies and all demanding that ANY medium used for distributing Movies has copy protection.

RLT69, What is your interest in BluRay? BluRay discs ARE substantially more than DVDs. Go to any store and it's obvious. When I see someone rummage through Amazon on a mission to find a few "examples" to prove the point when these "examples" are actually exceptions to the overall market, I have to ask myself, what are they really up to? Surely this person isn't stupid so they must be up to something. What's your reason to spin it like this? Either you are the most outrageous BluRay fan boy or you're an insider in some way. What is your relationship to Sony / BluRay? You weren't the guy in charge of root kits were you? I know he's out of a job now and I have been wondering where he would show up.

Regarding copy protection, I didn't say the problem was that Sony used copy protection, I said they were OBSESSED with copy protection and as a result, they have caused some very frustrating problems for people. For example BR+ is so whacked up that some players on the market can't even play these discs properly. These guys need some psychiatric help en masse or their market is going to erode away. After they tube BluRay, perhaps you can consult with the management at Sony and help them explain to the stockholders why they blew it.

[orsetto]

Agreed, the whole "Sony losing billions on misfired PS3 Blu Ray strategy" story is old news. But it still holds a kind of car-crash fascination for people on all sides of the BluRay/HDDVD mess, for many reasons.

Most of the comments anyone could make re this "billions-lost" issue have already been made, I would only add that its a mistake for Sony die-hards or BluRay fanboys to dismiss this as "oh, so what, they did the same thing with PS1 and PS2". There are significant differences in the PS3 story: it was a much bigger gamble and the loss will be much harder for Sony to amortize. When they took a hit on PS1, they were still riding high as a company and had a good idea they would make an eventual killing with a great product. When they took a hit on PS2, mainly to get the original DVD format mainstreamed, they were still earning megabucks from PS1 and had "moral support" from the entire Hollywood, computer and CE spectrum. DVD was almost certain to succeed as a format, stoking the market with subsidized PS2 players jacked up Sony's ancillary income from format license fees. Win-win-win.

But by the the time they got around to PS3, Sony was just another money-bleeding Japanese conglomerate. There was no "killer" hook to BluRay, it did not offer anything really new to excite consumers or create huge opportunities for computer vendors or other CE mfrs (to be fair, the same could be said of HDDVD). So the PS3 had to rely more on gamers than previous launches, and Sony got blindsided here by the unexpected rapid success of the Wii. Altogether the PS3 launch was a complete PITA for Sony, nothing went really right. About all they accomplished was to seed every gaming household with a "stealth" BluRay player, which may pay off in the long run but is not accomplishing much for them now. Sony needs BluRay disc sales to take off in a big way, and they just aren't. The trend is upwards but not in a quick enough time frame to suit Sony. People with big DVD libraries don't feel any particular compulsion to re-buy everything in BluRay, especially with upscaling standard DVD players getting better and better. So BluRay will stand or fall on Hollywood new release sales, the prospects for which are still a bit cloudy. With 3.3 billion in the tank, Sony is not waiting patiently this time: they're anxious.

[PuzZLeR]

Regardless. There is one thing that is in blu-ray's favor - it technologically supersets DvD. So blu-ray players, in theory, can cannibalize the DvD player market.

The short term solution would be to sell "DvD players that play blu-ray" as a feature to an incumbent established standard NOT "blu-ray players that play DvDs" that screams the intrusive tune of "new format" to a market already averse.

The PS3 would be better off as a "complete game/movie machine" than a "game machine with a blu-ray player". If Sony executes this effectively, then they can bank and be patient with the long term as the transition takes effect.

[PuzZLeR]

I guess they'll really be hosed if kids were to start reading, going outside to play, learning to play a musical instrument or any of the thousand things they could be doing besides playing video games en masse, huh...

Well, no sarcasm, but a declining interest in video games is a concern for video game companies among this youthful base - but not because of books or other hobbies, but from hormones that start developing at a certain age.

The companies have recognized this, and that's why they started developing ads and games for "social" and "party" type of events...

[brassplyer]

[quote="RLT69"]

Hollywood demands copy protection. So you can't blame Sony alone for copy protection when you have Universal, Disney, Warner, Fox all crying about pirated movies and all demanding that ANY medium used for distributing Movies has copy protection.

I have to wonder how much revenue copy protection actually saves for copyright holders. International pirates determined to make a buck learn to break the methods and my understanding is countries like China make only superficial efforts to do anything about bootlegging.

Online & brick/mortar retailers have large selections of used titles.

Realistically, how many times are you going to watch a movie?

And ultimately, they only lose money if the buyer of a bootleg would have actually bought the real item in the first place.

[Xylob the Destroyer]

...The PS3 would be better off as a "complete game/movie machine" than a "game machine with a blu-ray player". If Sony executes this effectively, then they can bank and be patient with the long term as the transition takes effect.

That was in fact their original and early marketing scheme.
They wanted consumers to know that the PS3 would be the "hub" of their entertainment center. You won't need your DVR, DVD, cable box, VCR etc...
This plan failed miserably. Mostly because it alienated and turned-off gamers, hardcore and otherwise.
I think most consumers are unaware of this because this "campaign" was aimed directly at the gaming community and didn't get to the masses.
Their marketing is just plain shite...
'Let's come up with a plan that would work really well on the casual gamer and perhaps non-gamer market and then instead of using it on them we'll force it down the throats of the gamers! Then when that doesn't work we'll go mainstream with the marketing that focuses solely on the hardcore gamers so that the masses have no idea what PS3 does other than play games! YEAH!! THIS WILL BE AWESOME!!!!"

...Realistically, how many times are you going to watch a movie?...

Many!

Thanks for asking though.
I know that just on this forum I'm not alone in that area.

[orsetto]

I have to wonder how much revenue copy protection actually saves for copyright holders. (...)
And ultimately, they only lose money if the buyer of a bootleg would have actually bought the real item in the first place.

Exactly the points Hollywood refuses to address. Video stores have been supplying the studios with reams of data over the last 25 years that directly contradicts their pig-headed aggressive anti-copy stance. Hollywood bases its entire argument on the notion that EVERYONE prevented from making a casual copy would immediately go out and buy the same title. Bunk. Human nature does not work this way and Hollywood refuses to come up with realistic business plans that incorporate typical consumer behavior. Not to mention reign in their utterly ridiculous production/advertising budgets.

With standard DVD now very attractively priced, sell thru to the consumer is higher than its ever been: much more than in the days of VHS. But of course, according to the trades, thats bad news because prices are "flat". Please: kiss my ass. There are a thousand other industries that would kill to have DVDs awful, terrible, flat, "declining" fortunes. The casual rental copier copies for two reasons: to postpone viewing without incurring a late fee, and just for the thrill of having done it. This person will never, ever be persuaded to buy those same titles so in essence there was never a sale to lose in the first place. And the industry still collects the rental fee anyway so income IS generated from that copier. Ask anyone who owned or worked in a video store, and they'll tell you many MANY renters rent with the specific intent of copying: it is actually the incentive for renting. Hollywood should factor this into their projections, but they don't: they insist they "lost money" from these renters. Uh-huh.

Meanwhile demand for used DVDs has never been higher, to the extent that several studios have now put clauses in their contracts with Blockbuster and other chains that forbid the selloff of surplus rental discs. The studios would rather take them back and destroy them at the end of rental demand, so they can prop up catalog sales of new inventory for a couple dollars more. Consumer demand and sales interest is not declining: far from it. Hollywood speaks with a greedy forked tongue.

[jaxxboss]

They will lose more when the software equal to HDAdvance gets figured out I know a guy who knows a guy with a friend of a neighbor that hasnt bought a piece of software for his PS2 in years and he has hundreds of titles.
I dont condone it, Im just saying.

[yoda313]

That was in fact their original and early marketing scheme.
They wanted consumers to know that the PS3 would be the "hub" of their entertainment center. You won't need your DVR, DVD, cable box, VCR etc...
This plan failed miserably. Mostly because it alienated and turned-off gamers, hardcore and otherwise.
I think most consumers are unaware of this because this "campaign" was aimed directly at the gaming community and didn't get to the masses.

Actually I like the media functionality of the ps3. It supports vob playback which I am suprised about.

However I like the XBOX 360 better in terms of layout. The "blade" layout is a little cleaner looking to me personally.

I like the ps3 for dvd playback since the fan noise is much quiter than the xbox 360. HOWEVER the xbox 360 has perfect support for 4:3 letterboxed dvds. The ps3 can only do proper filling in hdmi if you set it to 480p which makes the disc look pretty shabby. The 360 on the other hand allows proper stretching without distortion while still upscaling. AT LEAST over the vga hd cables, I don't have a hdmi xbox 360 so I don't know if that would be the same issue or not.

I think the media functions are a necessary addition to the game consoles. I don't think it has or ever will be a "must buy" aspect of them. I think for high def gamers the extra capability is great. For the Nintendo Wii it doesn't matter since it doesn't even play audio cds and is only 480p. It is not designed to be a media center by any stretch of the imagination. Sure you can do audio and video via sd cards or orb media via a net connection. BUT those aren't as robust as the ps3 and 360 offerings.

[PuzZLeR]

...The PS3 would be better off as a "complete game/movie machine" than a "game machine with a blu-ray player". If Sony executes this effectively, then they can bank and be patient with the long term as the transition takes effect.

That was in fact their original and early marketing scheme.
They wanted consumers to know that the PS3 would be the "hub" of their entertainment center. You won't need your DVR, DVD, cable box, VCR etc...

Sure they did to some level, but they did emphasize the blu-ray component too. Their whole initial campaign was centered around the fact that they waited about a year after their competitors to release their answer to XBox 360 and Wii in order to "future proof" the PS3 as much as possible, and one of their bragging points was the blu-ray player.

This plan failed miserably. Mostly because it alienated and turned-off gamers, hardcore and otherwise. I think most consumers are unaware of this because this "campaign" was aimed directly at the gaming community and didn't get to the masses.

Yes, blame can be set on wrong market targets. But I do believe "format" was a concern for the average consumer, even outside of the gamer's circle.

The PS3 faced a much bigger challenge than the PS2 via other reasons:
-Blu-ray was in a format war at the time of the PS3's launch, unlike the PS2's DvD, which was eagerly accepted.
And as Orsetto touched on:
-The DvD was a huge advancement over the VHS, the previous video delivery format which helped the PS2 immensely, unlike the PS3's blu-ray which isn't nearly as revolutionary over DvD.
-Wii surprised everybody by actually exceeding sales expectations, unlike the PS2's competitor, the Game Cube, which cornered itself into a youth niche.

...Realistically, how many times are you going to watch a movie?...

Usually once or twice, except RoboCop 1 which verges on over 1000 times. But I agree, that such a movie is indeed a minority. Thanks as well for asking.

[PuzZLeR]

They will lose more when the software equal to HDAdvance gets figured out I know a guy who knows a guy with a friend of a neighbor that hasnt bought a piece of software for his PS2 in years and he has hundreds of titles.
I dont condone it, Im just saying.

This type of stuff, in variant forms, has been around since the 80s and it has had little negative impact on the gaming industry. The reason being is that such technology usually is introduced when a console matures and the next generation is emerging. In fact, at this point in the product cycle such wares can actually be beneficial as it stimulates interest in the next technology.

As well, the biggest appeal in video game purchases has always been in the latest and greatest in the new games - the new fads, the new boxes, the new machines that run it, not older stuff which sells in bargain buckets.

Not to shoot off pirate chat, but such technologies for older games are IMO great for the industry, however I agree with you that if such technologies become level with current video game systems and games, then it would be devastating to the industry.

[yoda313]

brassplyer wrote:
...Realistically, how many times are you going to watch a movie?...
Usually once or twice, except RoboCop 1 which verges on over 1000 times. But I agree, that such a movie is indeed a minority. Thanks as well for asking.
_________________

Um for Star Wars I'm in the several 1,000 times rank by now, since I was 4 for the original episode 4

And actually now that I have my xbox 360 setup as a media center extender it is fun using it for watching tv and listening to music from my pc. The quality is just fine and quite easy to use.

I am suprised though that it seems like the same divx file plays better in the 360 than the ps3. However that may be due to my vga cable versus the hdmi cable on the ps3. I still don't know for sure if its the processing of the hardware or the cable connection that is making these distinctions between the two consoles.

[jagabo]

brassplyer wrote:
...Realistically, how many times are you going to watch a movie?...
Usually once or twice, except RoboCop 1 which verges on over 1000 times. But I agree, that such a movie is indeed a minority. Thanks as well for asking.
_________________

Um for Star Wars I'm in the several 1,000 times rank by now

You're saying you've watched that film roughly every other day for the last 30 years?

[yoda313]

Well not exactly. But lets just say I have seen it PLENTY of times and yes I have plenty of versions of it on dvd (the two official releases) and a few versions on vhs.

[Seeker47]

Sony has lost over $3 billion on the PS3
At least In part: Bad Karma, coming home to roost, for rootkits and years of other very bad corporate behavior ?

I have to wonder how much revenue copy protection actually saves for copyright holders. (...)
And ultimately, they only lose money if the buyer of a bootleg would have actually bought the real item in the first place.

Exactly the points Hollywood refuses to address.
. . .
With standard DVD now very attractively priced, sell thru to the consumer is higher than its ever been . . .
The casual rental copier copies for two reasons: to postpone viewing without incurring a late fee, and just for the thrill of having done it.

Much more the former than the latter, I think. Most people will only have the time or the interest to watch something once, and scant interest in building or maintaining a library of (mostly routine viewing) titles. Even the favorite classics I've bought (Criterion editions, and the like) will only be played perhaps once every 3 or 4 years. And there are still a number of other options, besides buying new and overpriced titles: borrow them, Tivo or record them off cable (wherever and for as long as this remains possible); buy them used at fractional prices, from eBay, Amazon, Half.Com, etc.

This person will never, ever be persuaded to buy those same titles so in essence there was never a sale to lose in the first place. And the industry still collects the rental fee anyway so income IS generated from that copier.
. . .
Meanwhile demand for used DVDs has never been higher, to the extent that several studios have now put clauses in their contracts with Blockbuster and other chains that forbid the selloff of surplus rental discs. The studios would rather take them back and destroy them at the end of rental demand, so they can prop up catalog sales of new inventory for a couple dollars more. Consumer demand and sales interest is not declining: far from it. Hollywood speaks with a greedy forked tongue.

Quite so. But this won't work either. They have supposedly cracked down on Academy screener disks -- several times, already -- yet you can easily find them in the used bins at ***** much of the year. (Don't want to say more here, but it's no secret -- right out in the open, in some well-known local shops.) Do you suppose they'll be much more successful in suppressing the regular discs from the rental market ?

[NICEBUD]

Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ah ahha ha ha ha ha ha This FANTASTIC NEWS . You know the old saying "what goes around comes around " You reep has you sow ".
This is along time coming.Long may they continue LOOSING YOUR MONEY.So come on all you Fony fanboys.Give them your hard earned cash to keep this format going that nobody realy needs.
.