Sony losing money on every PS3 Slim sold

[scweb13]

Sony losing money on every PS3 Slim sold

Sony's Kaz Hirai has said that the company will make a loss on every slim PlayStation 3 console it sells.

The unit was officially revealed last week, and is due for release in the first week of September priced USD 299 / EUR 299 / GBP 249.

"If you're just talking about the hardware alone, the quick answer is yes," Hirai told The Times Online, when asked if Sony will lose money on the slim as it has on the original PlayStation 3.

"That makes good headlines, but I don't actually know that that's the true nature of the business that we're all in, whether it's PlayStation, Xbox or the Wii. I think the better indicator is to look at the business as a whole platform, to ask: are you profitable in terms of the hardware, software and peripherals. And the answer to that question is yes on a gross profit level since the last fiscal year," he said.

Hirai also said that while Nintendo has recently been praised as a company that has managed to bring videogaming to a mainstream audience, Sony originally broke down that barrier with the PlayStation 2.

"The most successful console is still the PS2 and it's still going strong. I think that's the console that really broke the barrier from videogames being just for videogamers into more of a mass market on a global basis.

"Nintendo's obviously done a great job in following that mass acceptance," he offered.

Sony still losing money of ps3 slim hardware

The Times Online had a sit-down with Sony Computer Entertainment boss, Kaz Hirai, after the big Gamescom show last week in Cologne. You remember, the event that saw the official launch of the PS3 Slim. The Q&A is an interesting read in whole, but the answer that stands out comes in response to a question about whether the lower-priced $299 PS3 Slim will be sold at a loss relative to its cost to manufacture. "Yes," was the quick answer from Kaz. That's a surprise for two reasons. First, the PS3 Slim benefits from more efficient 45-nm manufacturing processes used on its smaller, less power-hungry Cell processor. Also, just last month Sony's CFO told investors that manufacturing costs of the PS3 had dropped by "about 70%, roughly speaking" -- that comes to about $240 based on original manufacturing estimates of $800 when the PS3 launched back in 2006. Regardless, a console being sold as a loss-leader is nothing new in the gaming industry and, as Kaz points out, will almost certainly be offset by looking at the PS3 as a platform that includes the hardware, software, peripherals, and services.

[Pelican170]

I think everyone knows this. Its the same as the regular ps3 losing money...

[bhampton]

I don't really understand the point of selling stuff that you lose money on.

I do love my PS3 though... It's awesome!!....

-Brian

[Blu Titan]

Originally Posted by bhampton

I don't really understand the point of selling stuff that you lose money on.

I do love my PS3 though... It's awesome!!....

-Brian

It's a business decision. They look at the loss per PS3 Slim unit against the revenues added by having an additional PS3 Owner. Juist because they lose money on the console itself does not mean that each console sold results is a net loss.

[fatediesel]

Originally Posted by Blu Titan

IT's a bsuiness decision. They look at the loss per PS3 Slim unit against the revenues added by having an additional PS3 Owner.

Exactly, especially with the PS3 as they are making money on Blu-ray licensing in addition to PS3 game licensing. This was an even bigger factor during the format war but it is still important to try and get people to switch from DVD to Blu-ray. In addition it is common for companies to lose money (at least initially) on game systems because they will recoup the money with game purchases. The PS2 initially lost money for Sony and the Xbox and Xbox 360 initially lost money for Microsoft.

[king_patrick_7]

They probably loss a lot less money on this than the older PS3s...


The reason they take a loss is because they make so much money on games, controllers, headsets, psn downloads, blu rays, etc... that it will (hopefully for them) generate an overall profit in the end

[kjacobs03]

I'm sorry, I'm having a hard time understanding this. If the Slim costs $240 to produce, how is selling it at $299 selling it at a loss?

[Astrakan]

Originally Posted by kjacobs03

I'm sorry, I'm having a hard time understanding this. If the Slim costs $240 to produce, how is selling it at $299 selling it at a loss?

That's the consumer price. Stores pay Sony less than that and then add a certain amount to make a profit.

KM

[scweb13]

Originally Posted by kjacobs03

I'm sorry, I'm having a hard time understanding this. If the Slim costs $240 to produce, how is selling it at $299 selling it at a loss?

Retailers do not buy at the same cost they sell at.

[megapixel]

That's really a shame, I was under the impression they could start making a profit due to the 70% less manufacturing cost.

Retailers do not make a big margin on the consoles themselves.

[benricci]

Originally Posted by kjacobs03

I'm sorry, I'm having a hard time understanding this. If the Slim costs $240 to produce, how is selling it at $299 selling it at a loss?

Um, retailers don't pay $299 for the console. It's called business

[PA_Kid]

Does cost to produce include packaging and distribution or just the system itself?

Store margins are notoriously thin on consoles so I doubt it is as simple as Sony selling the slim at $230 to retailers so they can have a ~$70 profit. But if the 240 is just the build cost then there are other associated shipping, distribution, and packaging costs that probably put that number much closer to the $299 mark - meaning that they have to take a small loss on each one to still provide an acceptable profit margin for retailers.

[McGarnigal]

Retailers pretty much dont make any console money either.. they also get it form controllers accesories and games...

[king_patrick_7]

Originally Posted by McGarnigal

Retailers pretty much dont make any console money either.. they also get it form controllers accesories and games...

they also make alot from people who buy extended warrenties and such

[saprano]

Heh, we knew this already scweb. did you really have to post this? its just going to turn into an argument.

[Pelican170]

If it makes people feel better, the xbox was selling at a loss as well...

[PA_Kid]

Originally Posted by saprano

Heh, we knew this already scweb. did you really have to post this? its just going to turn into an argument.

Actually the first time it got posted it got shot down by many (including Max) saying that it was untrue - in this case Kaz was quoted as saying yes, it's true (though we have no idea how much of a loss it is - could be 0.50 for all we know.)

[Sponge-worthy]

Originally Posted by bhampton

I don't really understand the point of selling stuff that you lose money on.

Ever heard of giving away printers in order to sell toner? Or, giving away razors in order to sell blades?

Both M$ and Sony sell consoles at a loss in order to recoup on accessories, retail software, and DLC.

Why do you think DualShock 3s are $50? Why do you think a little wi-fi card for the Xbox is $100?

[scweb13]

Originally Posted by saprano

Heh, we knew this already scweb. did you really have to post this? its just going to turn into an argument.

Was there already a post/thread on the Slim selling at a loss? I didn't know, if there was. I do remember the fatty selling for a loss and that it had just made it to the point were it wasn't anymore. And then the price cut hit.
Besides, I just saw this news on Engadget today.

[ZedsDead]

Well I have a friend that works at Target, and when the new PS3 came out, they were paying one dollar less than they were selling it for. I'm not sure about the new one, I will have to ask him. This isn't all that uncommon on certain items for retailers.

For example, when I worked at home depot, we paid about .10 or so more for 2x4 lumber than we sold it for. The reasoning was the store saw large profit margins on all the peripheral items that often get sold along with the lumber. I'm sure the video game industry is no different.