There’s lots of clamour on the Internet right now about the PS3 and it’s dismal sales, lots of people are saying that Sony needs a price cut, others are saying that Sony can’t afford to do that right now. So who is correct and what can Sony do?
Well, while I may work in the games industry, it’s as a lowly programmer at an independant developer, so I’m not privy to all the information (and even if I was alot of what I’m going to be speculating about would be confidential), but here’s how I see it.
Sony has two choices, as described above, they can either keep the price the same and ride it out hoping that things don’t get any worse, or they can cut the price and hope that the increased sales will help turn things around.
1. Keep the price the same.
Okay, this seems like a really bad idea, they’re losing marketshare in the largest market in the world (America), not just to the Wii (Microsoft is as well) but to the XBox 360, so we’ll play a what if game here, what if Sony continues to lose marketshare.
Firstly they wont lose a lot of third party support, from a developer stand point a PS3 port is a fairly cheap option, certainly cheaper than doing a Wii version of the same game, profit from PS3 games is similar to Xbox 360 on a per unit basis (i.e. they make a similar amount per PS3 unit sold as an Xbox unit sold), so the PS3 will retain a lot of games, they wont get exclusives, but they’ll still get a lot of third party games on the system.
Secondly, the PS3 isn’t totally irrelevant, it has lots of nice features and some really nice first party exclusives, just like the Gamecube last generation, people will still buy a PS3 for the big games they want to play, it’s just they are unlikely to pick one up on speculation or the strength of future titles.
2. Drop the price and hope for increased sales.
This sounds like just the sort of thing Sony needs to do, a cheaper console would be more competative with the Xbox and would help stop their market share from falling, however Sony doesn’t have much wiggle room on price, they aren’t making a profit in America on the console and to really have any effect they would have to drop at least $50 off the price, so lets look at what they can do.
2.1. Suck up the loses
In better financial times this is exactly what Sony would do, they would take the financial hit and drop the price, but given that they’re hurting financially and are having to lay off 16,000 employees, and are raising the price of their other consumer electronics, they simply cannot afford to do this.
2.2. Try to claw back the money on the software sales
Okay, we know that Sony makes money on games sold on the PS3, surely they can make enough money off of the games to cover the loses on the console? Normally you would be right, but right now the attach rate on the PS3 is between 3 and 4, this means that for every PS3 sold, they sell 3-4 games, so we’ll take 4 as an example and a $50 price cut, the licensing fee for a game is probably about ~$10 a unit, so that means that they make ~$40 extra per PS3 from software sales, okay, so this means that they can cover $40 of the cost of the cut, but Sony is probably already figuring that into the price of the PS3 since it’s a loss leader, so they would need to increase this cost, so lets look at what happens if they do that.
2.2.1. Increase cost of licensing, increase price of games.
A $5 increase in license costs would probably equate to a $10 increase in the price of games, so now PS3 games would cost $70 while Xbox 360 games would still cost $60, instantly this leads to a problem where PS3 games would cost more for the same game, given the choice consumers would buy the xbox version over the PS3 and people looking at the console would see a $350 console with more expensive games and buy the Xbox.
2.2.2. Increase cost of license, publishers make less profits.
Okay, now we maintain the price of the games the same, $60 on each platform, except the publishers make less off of each PS3 games sold. As I said before the publishers view the PS3 as a cheap port, but I said cheap, not FREE, given the current sales ratio of Xbox to PS3 of about 3:1, this means that the Xbox makes 75% of the profits on sales, if the PS3 version doesn’t cost much to make then it’s worth doing, however if the cost benefit is reduced publishers will simply decide to drop the PS3 version, and this is the last thing Sony needs, all the time it’s getting the same big games they can sustain, once publishers start dropping the PS3 version the snowball effect will begin and before long the PS3 will lose most of it’s cross platform games as well as exclusives.
There is another problem with increasing the licensing fee, one that cannot be overlooked and would cause an even more catastrophic effect than either of the two above, can you guess what it is? That’s right, Microsoft would probably reduce their licensing fees to coincide with Sony’s increase, we know that Microsoft got into the console industry because Sony was a threat to their business (Microsoft wants to be the box attached to your TV for media playback and Sony were stepping into that exact field). Microsoft have incredibly deep pockets and have already shown this generation just how far they’re willing to go to stop Sony. If Microsoft reduced their license fee, while sony increases theirs then the profitablilty of doing a PS3 port is effectively removed and PS3 ports would be cancelled almost immediately, Sony would go from having good support to virtually none overnight, which would effectively kill the PS3.
3. What else can sony do?
Sony needs to get imaginative with their cost cutting to get the price down, firstly Microsoft has had great success with the Arcade (’tard pack) SKU, it’s cheaper than the Wii and is part of the reason for the great resurgence in the Xbox this year, Sony needs to cut everything it can out of the PS3 to reduce the cost, so here’s a few ideas.
3.1. PS3 Lite
Firstly take the PSU out of the case and make it external, this will reduce the size and heat of the machine. Next remove the Wireless (leave ethernet in), we’re talking the cheap, ‘tard, pack here. Next simplify the case, remove anything that adds manufacturing cost that doesn’t affect the machine (like rotating PS logos). Replace the slot load Blue-ray drive with a cheaper tray or top-load drive (like the PS2slim uses). Switch from expensive 2.5″ drives to cheaper 3.5″ drives (okay so that’s a size increase, but not much and it’s cost we need to reduce). Finally remove the blu-ray player from the OS, and instead offer it as a download on the Playstation Store, the license fee for blu-ray playback has to be adding to the cost of the machine.
There you have it the PS3 ‘tard pack, the cut down, not as sexy looking, but functional as a games playing PS3, that could retail for $299-$350 without removing the core of the system (games,networking,downloads and installs), they could even go as far as removing the HDMI socket from the lite since there’s like licensing costs involved with that (HDCP support springs to mind)
Okay, I think I’ve covered as much as I can here, for now Sony is just going to have to stick with the price they’ve got, and they really need to concider a redesign, make all the consoles look alike and making a cheaper version with some of the more expensive options cut out.
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good morning, good writing.
You have certainly been very busy writing up this great post, It was very interesting to read. Can’t wait to see what you write about in the next month
Nice Post. Im thinking of getting a new TV but im not sure if I should get LCD or Plasma , what one do you think is better?