Sony could be losing much more than $130 on every console sold
We know that the PS3 is an expensive system to make. Sony lost hundreds of dollars on each system sold, as the technology offered in Sony's home console is far more expensive than what it sells for in retail stores. Even now, over a year after the launch of PS3, Sony continues to lose money on each system. While Sony internal data suggests that the loss is $130 per system, a closer look by The Guardian shows that it may be much more."On Sony's own figures, the games division made a loss of $130 for each PlayStation 3 shipped. Let's assume that it's making pots of money on the PSP and the PlayStation 2: the PS2 is now hugely profitable and still sells more games than anything else. These two platforms could easily have made a profit of $1.2bn in the year. In that case, the total PS3 loss would have been $2.4bn shared between 9.24m PS3 consoles, or $260 per PS3 -- including any attached Sony games."
While this is deduced from anecdotal evidence, it's clear that Sony is still losing quite a bit of money on each system sold. Perhaps it really is wise to forgo getting a large install base for now ... until Sony can reduce the costs of manufacturing even further.
[Via Next-Gen]
Reader Comments (Page 1 of 1)
Galley @ May 15th 2008 2:37PM
WTF? I thought they had recently broken even on production costs.
Lars @ May 15th 2008 3:04PM
The problem with these figures is that none of them are official. And even if they cut MANUFACTURING cost to $400, they still have packaging costs, distribution costs, etc.
NineT9 @ May 15th 2008 3:06PM
They might lose that much on the consoles...but...
How much do they make off every game sold?
How much do they make off the game developer using BluRay discs?
How much do they make off selling BluRay movies?
How does the image of BluRay winning effect Sony?
With BluRay winning, BluRay movies, the PS3...how does this effect sales of their HDTV Line up?
Its all part of Sony's plan to dominate, and in the end...They will win, they always do.
Its not a bad thing, im just saying... they are smart.
Jimbo @ May 15th 2008 3:38PM
They did or are about to break even by most expert analysis on the manufacture of the PS3. They've been pulling a profit as a division for months now (not even counting the money the blu-ray victory will bring in, which is counted towards a different division).
Sony sells more games and more consoles than anybody. They were making a loss for a short time, and are no longer (which should be kinda scary for the competition). One of Sony's core competencies is their ability to scale down the cost of production fast.
In short, there is simply no way this article is accurate. The headline, the reasoning, all of it seems aimed at tarnishing the PS3 image, and if you look at all the other stories on this site, it's clearly a trend. Basically, to this site, the PS3 = murder, rape, bankruptcy and failed promises. What in the hell is going on here? It's almost as though this site has a financial stake in Microsoft, a company that has been found liable for market manipulation and unethical business practices many times.
Can the editors confirm that this site and this site's parents have no financial stake in Microsoft, and have recieved no consideration from Microsoft? I would bet good money they cannot make that confirmation, and I suspect the pattern of attacking the PS3 on this site is deliberate FUD of the most dishonest sort.
marauder800 @ May 15th 2008 3:53PM
@ Jimbo
I don't see anything in the article that can be considered an "attack". Who among us thinks that the PS3 console turns a profit when you consider Sony is selling the 40GB for around $250-$300 into the supply chain? Nevermind that the figures are derived from Sony's books, it's a goddamn conspiracy I tell you.
Nate @ May 15th 2008 2:43PM
http://playstation.joystiq.com/2008/01/11/ps3-production-costs-cut-by-half/
"Due to the removal of various components from the PS3's innards, coupled with smaller chip size, Sony has been able to cut the production cost of the PS3 by half since last year. Each console can now be produced at $400 a unit"
Organic_Shadow @ May 15th 2008 2:57PM
PSP is profiting. PS2 is profiting. They ARE talking about Sony's GAME DIVISION as a whole, so if PS3 is being produced and sold at $400 then there's no way they are losing money on it.
That's just hardware. Sony profits from game sales too- where the real money is at.
As a neogaffer put it- you can smell the M$ sea men on the guardian's breath.
Lordtombot @ May 15th 2008 2:58PM
They should makes some money back with the sale of at least three retail games per console.
Big P @ May 15th 2008 3:03PM
Seems like somebody got the tenses wrong. The $130 figure they get was based on the results from last fiscal year (not present data).
It could well be they are breaking even now, even if they had lost a ton during 2007 (early part of last fiscal year).
Mike @ May 15th 2008 3:09PM
I dont think you fully understand Accounting. If their inventories have been shrinking, profits would drop because the costs are spread over fewer units. This might be the case if they havent begun production of the new 80GB and they wanted to show a larger loss. Companies would rather show a large profit in one year rather spread it over many years. You also have to consider how the inventory is measured. Whether they use FIFO, LIFO, or Weighted Average.
There are many factors that could change profit when considering the cost of inventory which means that these estimates might not be very accurate. The current cost of consoles being produced wouldn't be reflected in these statments because they have yet to be sold.
Sorry to burst your bubble :/
Jerry @ May 15th 2008 3:21PM
stinkin bean counters
The Sound @ May 15th 2008 3:31PM
Wouldn't this have been from last fiscal year, when the price was for a lot of the time $600 and cost almost $900 to make?
So then that's where the loss must be coming from, if it is true that they are breaking even at $400 on the 40 gigger. If you do some crazy math, then that would most likely be where the $130 figure comes from.
That and the price drop had an effect on it too.
why not the LS2LS7? @ May 15th 2008 4:14PM
It's pretty tough to do an analysis like this. This is because you don't know there the money comes from or goes to. For example, how much of this comes from the PSP?
How much is money being spent, only to be recovered in a later quarter? Some of those "losses" is money spent to develop Resistance 2 right now. This money will be recovered with Resistance 2 comes out.
For a great example, look at GTA IV. As of April 22, 2008 it was a HUGE money pit. Clearly a huge drain on Take Two. As of April 30th, 2008, it was a gold mine.
You have to look longer term to see how this stuff comes out, you can't just go quarter by quarter.
massive_98 @ May 15th 2008 6:35PM
We cannot forget about hidden costs that come along with Playstation 3. They have to pay for servers, advertising,customer service, software engineers, game devolopers who don't pull their weight(like London Studios).
This is some very bad research and journalism done by those folks.
Philip @ May 16th 2008 1:05AM
Its not like sony has backup with Music, movies, cell phones, tv shows, pc games, cell phone games, camcorders, computers, home entertainment, car audio, gps, and TV's, and many other electronics that bring in money for sony... lets face it sony can't lose!!!
Bibbly53 @ May 16th 2008 1:43AM
I don't believe articles like this.
Frankly it's buisness suicide to accept such a grandiose loss.
They could make more money per console if the price was hitched higher, but that would take a hit to the number sold.
No way is this a loose loose situation.
It can't be.
I'm sorry, I just don't find that the electronics market is as groceries.
'Making up losses in other departments with other products'
I just can't see that.
The only thinkable reaction to that, if I actually found it to be true, would be a turn around of both tact and of course place at the top of the hill. Crown included.
If the market is like the groceries racket then, hey, 13-23%+ gain every week is pretty kick ass losses. lol Wall tennis.
Carney @ May 16th 2008 9:20AM
Sony's taking a page from Microsoft's playbook. Take huge losses for years if necessary on the product you're positioning to become dominant in future, to a degree that your competitors just can't afford if they want to keep up. Fund that with revenue you're milking from the last product you made dominant.
Microsoft did that with DOS -> Windows -> Office -> Internet Explorer. They've stumbled with MSN and Windows Media Player, but overall it's a pretty smart strategy.
Christian @ May 16th 2008 9:48AM
Microsoft didn't exactly do that Carney. MS sold Dos + windows + office at a profit, always have done! IE and Media Player were always free but they were based on MS services they wish to role out due to their dominance on the desktop.
The only time they've taken a huge hit supplying a product to make it entrenched is theier game machine stratergy.
Gimboa @ May 16th 2008 10:58AM
Marauder, I can accept that my theory that this site is not legitimately promoting the PS3 sounds far-fetched at face value, but if you look over the site I think the case is easily made.
As for your assertion that these numbers came from Sony's books... they didn't. In fact, they completely go against the numbers reported by Sony. Do you see any link to any hard data? No. It quotes a three paragraph blog that itself contains no hard data beyond the overall losses of Sony's gaming division over the past two years (yes, the same gaming division that is now making a profit). That blog just cites another blog. They took the entire loss, divided it by the number of PS3s, and say that's the loss on each PS3. It's laughable. Obviously Sony has other costs, such as those for developing software, a store online, acquisition of technology, other technology for the PSP, etc etc etc.
The blog asserts that the PS2 sells more games than anything else (this isn't actually true) and guesses that it had a huge profit margin. While I'm sure the PS2 does make a lot of money, there is no citation for this figure. It's made clear that he pulled the number out of thin air. But it's this number that is the basis of this entire article. You claim these are the hard facts from Sony's books. You're a liar. Your commenting history shows you are pretty hard on the PS3, and not so hard on the 360, so perhaps you just aren't open to my POV.
Also, your assertion that Sony parts with PS3s for $250 - $300 into the supply chain betrays your lack of knowledge. Profit margins for retailers of PS3s are around $5, not $100. Sony is getting very close to all the money a customer pays for a PS3.
Note also that market investors have concluded that Sony is probably close or even beyond profitability. These stories have been widely circulated and are based on real research. This story attempts to discredit investor-level research with the most lousy piecemeal blog snippet it could find.
This story is FUD. Plain and simple. Fact is, Microsoft has been convicted of crimes relating to abusing the marketplace. Many times. It's not really paranoia to think they would do it again. Websites like this one are expensive, and with the advent of ad-blocking software, it's apparent that the viral approach is necessary to turn a profit. Every major blog and newspaper online does this. It's not usually a problem, but this site clearly has an identity crisis where it see its role as spreading dishonest and unfounded rumors about a product when it represents itself to readers as biased in exactly the opposite direction.
You claim that taunts that the PS3 is clearly losing money on each system sold and Sony should forgo even attempting to build up a large userbase aren't attacks? The real story about the PS3's profitablity, the one based on real numbers, is precisely the opposite! This site is linking the PS3 to murder and rape, for God's sake. 360's are involved in violent crimes too (google it), but you would never see it mentioned on 360fanboy. Citing Microsoft's defense of PS3 buyers against Sony's "failed promises," claiming that even great PSN updates are awful, etc, etc etc. The news this year is terrific for the PS3 and yet the tone of this site is that the PS3 is dreadful (I noticed from your comment history that you think Motorstorm is the only 2008 game of merit, so perhaps you are just extremely biased yourself). Meanwhile, the 360's own managers are talking about all these supply problems, and there is a bit of a pause in 360 AAA exclusives, yet the 360fanboy site is acting so favorably.
I'm not really as upset as the length of this post might indicate... I really just don't like dishonesty in journalism. All these claims I believed about the PS3... that is was unreliable, that the blu-ray drive was an idiotic idea that would be a huge failure, that MGS4 couldn't possibly afford to be exclusive, that the PSN would be unreliable compared with XBL... all that stuff turned out to be lies. But I've noticed there is a series of websites that churns out this stuff consistently, and I'm very suspicious.
Bibbly53 @ May 16th 2008 10:59AM
Dear: NineT9
I'm opinionated, paunchy, and I believe that I'm astonishing in all ways reliquary. Please be advised I talk out of a sphincter and not a glass, bottle, or can.
Thank you.
NineT9 asked:
How much do they make off every game sold?
I answer: Fabrication costs on 1 BluRay encluding paint, print, package, and write - My guess? 1 Dollar.
NineT9 asked:
How much do they make off the game developer using BluRay discs?
I answer:
This question is sort of circumventing the fact that all video games are made on computers and exported into a developer console. BluRay discs show up during the publishing and printing endgame towards the due date. Prep and prime for release. But to answer in respect of my very close personal friend Paunce,
about four points on major stock exchanges every four months. Depending on releases in other major areas of SONY and subsidiary companies, contracts, etc.
NineT9 asked:
How much do they make off selling BluRay movies?
I answer:
1 Dollar. Truthfully, it only costs 1 Dollar to put those things up on shelves. The rest of the price is to pay for fabrication, shipment, storage, and of course ordering of the product. Businesses are for making money.
NineT9 asked:
How does the image of BluRay winning effect Sony?
I answer:
Market value mostly. And another tiara for the crown case in the room of The Atriarch.
NineT9 asked:
With BluRay winning, BluRay movies, the PS3...how does this effect sales of their HDTV Line up?
I answer:
Although they own BluRay (for the most part) and make televisions, this may not sway people to buy MORE SONY products. In fact, it may increase the amount of PS3's sold and the HDTV sales may simply bell jar, as expected, over the course of the next twelve to twenty years. lol NEXT.
PS3-User Indevious-Emo @ May 24th 2008 2:53AM
It is true, indeed that Sony make's its money of games by a huge profit. In Australia a single PS3 Game can range from $100.00AU Up to $150.00AU depending on what game you buy.
However microsoft in other words, makes there money of there cheap nasty console and off the game and off the Pay to Play online system they have going which is a scam indeed.
And also you must remember SONY doesn't just produce a PS3, they Produce PSP, PS2, PS ONE, AND AUDIO/VISUAL products such as MP3's and hifi systems.
Sony dropping price of a console that costs more to make than to sell is very generous unlike microsoft, that charge you poatage costs to send a 360 to get fixed.
Sony has supported its gamer's and fans over many years now, and im pretty sure its just a little give and take and soon HOME will be out, (Love you SONY)