Why Sony risked it's gaming division for Blu Ray

[saprano]

I found this from sombody at ps3forums.com. this article is old, its from 7/2007 but its a very good read and its makes A LOT of sense check it out-

Gaming analysts such as Roger Ehrenberg are looking at the Sony $100 price cut on its Playstation 3 gaming console announced at the E3 conference this week and assume that Sony marketing made the move to attack Microsoft's lower-priced XBox 360 console. Roger takes Sony to task for this strategy as follows:


So now you're forcing Microsoft to lower its prices and trying to re-define the console wars at the high-end of the market. Sure, higher volume, lower margins, pressing for share. Makes sense. But it doesn't address the larger issue - you are now fighting Microsoft for a smaller piece of the pie.

Sure, the pie has been expanded because the Nintendo Wii is drawing in new buyers - specifically casual gamers - into the console market. But even more than that, the Wii is taking sales away from both Microsoft and Sony due to its fun user experience and low price point (less than half that of the 60GB PS3, even after the price cut).

This analysis would be true if Sony's goals were the same as Microsoft's and Nintendo's. The trouble is that they aren't. Sony's short-term Playstation 3 battle plan (and by short-term I mean two to three years) isn't that much about gaming. It's about who can get the lowest manufacturing costs for two key entertainment technologies that Sony hopes to lead in the next five years. More on that in a minute.

A little quiz might shed some light on the overall Sony puzzle. Think about the answers to the following questions:

1. Which next-generation optical disk technology currently has sold more drives to date? HD-DVD or Blu-ray?
2. What movie studio releases movies exclusively on Blu-ray technology?
3. What company currently has the largest market share of the LCD HDTV market by revenue?

The answers to these questions are:

1. According to a recent article in the Wall Street Journal (subscription required), approximately 103,000 Blu-ray players have been sold to date, but 3.6 million Playstation 3s (according to VGChartz.com) containing Blu-ray disc players have been sold as well worldwide. Only 310,000 or 0.3 million HD-DVD players have been sold, even including XBox 360 add-ons. Blu-ray movies are also outselling HD-DVD movies by a ratio of about 2 to 1.
2. Sony Pictures releases the high-definition versions of its movies exclusively on Blu-ray disks. That means that its future DVD revenue stream is tied to the success of Blu-ray for the time being.
3. Sony's Bravia line recently became the best selling LCD brand on a revenue basis, despite being third on a unit basis.

So now the picture should be getting clearer. By bundling Blu-ray drives into the Playstation 3, Sony has been able to ship almost 4 million Blu-ray players, more than 10 times the number of HD-DVD drives sold to date. That means that Sony is driving down the manufacturing cost of Blu-ray players because it is making them in higher volumes. That was the crux of the blue laser shortage last year -- Sony was making a boatload of Playstation 3s and suppliers couldn't keep up. Now they can. Playstation 3 sales are subsidizing lower cost Blu-ray high-definition movie players while ensuring that consumers have more of those players than any competing high-definition format. And conveniently, Sony gets a royalty payment for every Blu-ray player and disc, regardless of whether it makes it or not. So if Playstation 3 can establish Blu-ray as the dominant high-definition movie playing platform in the market, Sony Electronics wins big.

The second factor here is that Sony Pictures sells movies exclusively on Blu-ray disks. Blu-ray high-definition player deployments expand the market for Sony Pictures' high-definition movies on disc, making Sony Pictures' more valuable. And since DVD sales now are a bigger money-making business than box office sales for movies today, that has a huge effect on Sony Pictures' future. If Toshiba's HD-DVD were to become the standard, on the other hand, Sony Pictures would be just another studio.

Third, while Playstation 3s work just fine on ordinary TVs, PS3 games and Blu-ray movies look best on high-definition TVs. Playstation sales naturally generate some pull-through of high-definition TVs, and because consumers tend to stay in-brand with most bundled purchases, that drives some number of Sony HDTV sales. And since Sony HDTVs sell for some of the highest average prices of any of the flat panel makers (and therefore generate significant profit), those sales contribute significantly to Sony's revitalization of its traditional consumer electronics business. Don't think HDTV is that big a deal compared to next generation gaming? Think again: current projections by Parks Associates estimates that the HDTV market is worth $36 billion this year and growing 71% a year. The gaming business including all games, on the other hand, is only worth $13 billion currently.

Now Sony sells its Playstation 3 hardware at a loss currently, just as Microsoft does with its XBox 360 system. Both companies need a subsidy from some other part of the business to do that over any long period of time. For Microsoft, that subsidy comes from 1) the sales and licensing of games (which aren't enough to keep XBox from losing more than six billion dollars over the last five years) and 2) Windows and Office profits, which are also being tapped for other initiatives like Microsoft Live and Zune development. For Sony, the subsidy comes from 1) ongoing profits from Playstation 2 and PSP sales, 2) the sales and licensing of multiple platforms of games, 3) the royalties from Blu-ray movies and disks as noted above, and 4) some incremental sales of HDTVs as noted above. With DVD movie revenues projected to exceed $50 billion in 2009 and those being just one of four factors, Blu-ray success will solidify those subsidy streams for the foreseeable future. And since Blu-ray player and disk manufacturing will be 10 times larger in volume than HD-DVD, there's little question that Blu-ray will gain huge manufacturing cost advantages and higher profits over time. The result: Sony's Blu-ray strategy means that costs to manufacture the Playstation 3 itself will eventually come down substantially, despite it today having much higher parts costs than its competitors. And that positions Sony's PS3 to be significantly ahead of its competitors in the gaming business two to three years hence, when Microsoft and Nintendo will have to retool and relaunch their platforms to gain high-definition storage for games.

The bottom line: Sony's PS3 serves multiple Sony goals, only one of which is being the big platform in the the gaming console market. It doesn't have to outsell the Nintendo Wii or the XBox 360 for it to be successful; it only has to establish itself as a viable high-definition platform for next-generation developers, gamers, and movie watchers. With the DVD movie business several times larger in value than the gaming business today, setting a standard in next generation DVDs will reap bigger rewards than next-generation gaming for years to come -- and will give Sony a subsidy war chest for gaming that even Microsoft will struggle to match.

here is a link to http://ps3forums.com/showthread.php?t=126828 and a direct link to the story http://blackfriarsinc.com/blog/2007/...-cut-isn-about enjoy

[Slackr89]

they risked the ps2 with dvd and ps1 with cd. it only seemed fitting to have a new format for the ps3.

[Anthony P]

I agree with Slackr89,

Look at the PS1, it introduced CD for gaming and it was actively around for 5years and then second place for a few more (and I think still available in some parts of the world.

Look at the PS2, it introduced DVD for gaming and it was actively around for 5 years and it is still available

Look at Nintendo's other consoles, look at xbox very short lived never at the tech forefront. The xbox came out a year after the PS2 and the 360 a year before the PS3 and the xbox was stopped before the 360 came out.

Sony has always introduced consoles that are before their time in functionality and power but that have a long life span. Adding a BD drive does help BD, but it is just as important to gaming if Sony wants to continue their 5-10 year plan (5 years of being the main system and 5 years of overlap with the replacement). The DVD is already at the limit of what is good enough for gaming, the console needed the next level.

[EvolutionCherry]

Thats what I like about Sony. They think 10 years from now rather then 2 - 5 years from now. In the end like they were with the other two PS consoles, they will come out on top.

[Canada]

X Box 360 has a game called Lost Odyssey it's on 4 disks that is less than one 50 gig Blu Ray.

Can you even imagine how many DVD's it would take for Metal Gear Solid 4 probably more than 6!

[mightypen]

Originally Posted by Anthony P

Look at the PS1, it introduced CD for gaming

No, that would be Sega. Or the CD-I.

Sega

[player2006911]

Originally Posted by mightypen

No, that would be Sega. Or the CD-I.

Sega

no sega rushed the saturn to market incomplete and left developers with 6-4 months to make games before launch

[Seboist]

Originally Posted by player2006911

no sega rushed the saturn to market incomplete and left developers with 6-4 months to make games before launch

Sega made a CD drive add-on for the Genesis/Megadrive that predates the Saturn.

http://en.wikipedia.org/wiki/Sega_CD

[jd213]

NEC/Hudson's TurboGrafx CD add-on predated the Sega CD by a good while, unfortunately it did even worse in the US than the Sega CD did since it was so expensive. Shame too, as it did well here and there were a lot of great games that were released only in Japan. The Sega CD (or Mega CD in Japan and Europe) was actually developed to compete with the PC Engine (what TurboGrafx was called here), and not the Super Famicom/Nintendo.

[dpomp]

Originally Posted by Seboist

Sega made a CD drive add-on for the Genesis/Megadrive that predates the Saturn.

http://en.wikipedia.org/wiki/Sega_CD

although sega may have been the first to the scene with cd's for games, sony was the one that actually made it a hit with the ps1. before that, pretty much all the mainstreet game systems were on cartridges. i know there were some that played cd's but the fact is that none of them really hit it big like the playstation

[MOONPHASE]

Originally Posted by Canada

X Box 360 has a game called Lost Odyssey it's on 4 disks that is less than one 50 gig Blu Ray.

Can you even imagine how many DVD's it would take for Metal Gear Solid 4 probably more than 6!

yup and Blue Dragon is 3 discs

[Mystique]

That was an interesting read.

[Petra]

It's a huge risk. It's not JUST a no-name gaming division. It's a gaming division that carries a brand name, one of the most recognized brand name in the last decade, PLAYSTATION.

If it's just a no-name gaming division, sure, but to risk the death of one of the most recognized brand-name out there....

[Dragonraine]

Originally Posted by Anthony P

I agree with Slackr89,

Look at the PS1, it introduced CD for gaming and it was actively around for 5years and then second place for a few more (and I think still available in some parts of the world.

Look at the PS2, it introduced DVD for gaming and it was actively around for 5 years and it is still available

Look at Nintendo's other consoles, look at xbox very short lived never at the tech forefront. The xbox came out a year after the PS2 and the 360 a year before the PS3 and the xbox was stopped before the 360 came out.

Sony has always introduced consoles that are before their time in functionality and power but that have a long life span. Adding a BD drive does help BD, but it is just as important to gaming if Sony wants to continue their 5-10 year plan (5 years of being the main system and 5 years of overlap with the replacement). The DVD is already at the limit of what is good enough for gaming, the console needed the next level.

Ah Sony revionist FUD.

1, PS1 was HARDLY the first system to use cds. It was predated YEARS earlier by the TurboGrafx 16 and the Sega CD, as well as PC gaming. Hell the Sega Saturn was out before the ps1 and it used CD's as well!

2. DVD was available for gaming on PC before the ps2 shipped. In fact, dvd drives were standard at that time. Not every game shipped on a DVD, but then again, neither did every ps2 game.

[xtop]

Originally Posted by Dragonraine

Ah Sony revionist FUD.

1, PS1 was HARDLY the first system to use cds. It was predated YEARS earlier by the TurboGrafx 16 and the Sega CD, as well as PC gaming. Hell the Sega Saturn was out before the ps1 and it used CD's as well!

2. DVD was available for gaming on PC before the ps2 shipped. In fact, dvd drives were standard at that time. Not every game shipped on a DVD, but then again, neither did every ps2 game.

the ps1 was the first console to widely use it. i'd hardly call turbografx, sega cd, or the saturn (not to mention a few other failed systems of the era) a success.

it was available, but again..not widely used. standalone dvd players were still pretty expensive at its launch. not like blu-ray and the ps3 today, but the ps2 still helped move the format along

sony didn't risk anything with the ps1 and cd's and the ps2 with dvd's tho. they totally risked the company with blu-ray and the ps3

[Dragonraine]

Originally Posted by xtop

the ps1 was the first console to widely use it. i'd hardly call turbografx, sega cd, or the saturn (not to mention a few other failed systems of the era) a success.

it was available, but again..not widely used. standalone dvd players were still pretty expensive at its launch. not like blu-ray and the ps3 today, but the ps2 still helped move the format along

sony didn't risk anything with the ps1 and cd's and the ps2 with dvd's tho. they totally risked the company with blu-ray and the ps3

Well thats my point, they used an ESTABLISHED tech for these systems, it wasnt brand new like BD was for ps3. There was no gamble at all in using CD as it had been used for years previously, and for dvd, it was the same, just bigger storage space, and already tested on PC.

[xtop]

Originally Posted by Dragonraine

Well thats my point, they used an ESTABLISHED tech for these systems, it wasnt brand new like BD was for ps3. There was no gamble at all in using CD as it had been used for years previously, and for dvd, it was the same, just bigger storage space, and already tested on PC.

gotcha, just making sure we're on the same page

[PS3 Blu-Ray]

see Ill never agree with Sony risk their gaming on Blu-Ray. Truthfully, if blu-ray got smoked by hd-dvd, and blu-ray stopped, so what, I wouldn't give up a PS3 if blu-ray died, big deal, with the games coming that we see, and yet future games would have sold regardless of the blu-ray. Sony sales haven't blown up yet, why? Well Sony hasn't put out anything really that was popular on ps2 that made it so huge, were is Socom, God Of War, Gran Turismo, Syphon Filter, Shadow of the Colossus, Final Fantasy, Tekken, Killzone, etc, none of those games were released at launch, what was launched was games nobody ever played or wasn't sure were good, like Resistance, Motorstorm, then came games like Lair, Folklore, Heavenly Sword, etc, games nobody ever played. Watch what happens when the titles on ps3, that were big on ps2 come out. It's not like games would have stopped on PS3 if blu-ray lost

[scoobiesnackarff]

Hate to have to be the voice of reason here but why not. Firstly, Sony legally couldn't refuse Microsoft the opportunity to use Blu if Microsoft was willing to pay the licensing fees. Secondly, how does this hurt Blu-ray again? More people buying blu is a bad thing? Look at how few people bought the HD external drives for the 360, do you honestly think millions are going to choose not to buy the PS3 just so they can buy an external drive that would cost the same price as a stand alone? If anything, this helps the PS3 as people can once again see that the 360 costs more in the end for what you get on the PS3. Realize that Blu will be the cash cow for Sony longer than the PS3 if indeed blu takes off. So to conclude, Sony couldn't refuse Microsoft a license and neither should they have.

Alan

[Dragonraine]

Originally Posted by scoobiesnackarff

Hate to have to be the voice of reason here but why not. Firstly, Sony legally couldn't refuse Microsoft the opportunity to use Blu if Microsoft was willing to pay the licensing fees. Secondly, how does this hurt Blu-ray again? More people buying blu is a bad thing? Look at how few people bought the HD external drives for the 360, do you honestly think millions are going to choose not to buy the PS3 just so they can buy an external drive that would cost the same price as a stand alone? If anything, this helps the PS3 as people can once again see that the 360 costs more in the end for what you get on the PS3. Realize that Blu will be the cash cow for Sony longer than the PS3 if indeed blu takes off. So to conclude, Sony couldn't refuse Microsoft a license and neither should they have.

Alan

They wont, but the problem on this board is that some of the people are not here for BD, they are here as blind sony fans. They feel that their own personal "war" with MS should carryover into the business world, of which they are woefully underinformed. Sony and MS work together alot in the business world, yet the blind fans on here think that they are locked in some kind of life and death struggle for the geek dollars.