Sony May Lose Money on the PS4

[R3P0]

Heres an interesting article posted by IGN a few days ago detailing how Sony is paying in USD for parts for PS4 but because the dollar is strengthening Sony may end up paying more then if they had paid in Yen.

Sony may be winning the race for positive buzz and consumer goodwill over its rival Microsoft in the months leading to the release of PS4 and Xbox One, but interesting choices the company made in recent years may hinder the company from making heavy profits once the console’s out the door.

As we reported last week, Sony turned a very modest profit in the last fiscal quarter. However, Bloomberg reports that the U.S. dollar’s rise against the Japanese yen may end up hurting Sony’s PlayStation division’s ability to deliver a strong performance on the balance sheet.

“Those currency related losses [from the quarterly report] are poised to deepen as analysts project a further 10 percent rise in the dollar by the end of Sony’s year in March, based on 74 analysts’ estimates compiled by Bloomberg,” the news agency notes, stating later that, “While the weaker yen will lift the value of sales abroad for the new PlayStation 4, margins will be crimped as parts and production are paid for in dollars.”

Sony originally “agreed to pay suppliers in U.S. currency to reduce costs as it made plans to challenge Microsoft in the U.S. video-market.” This was a move designed “to shield its PlayStation game unit from a strengthening yen,” but now that the dollar is on the rise, the move is “backfiring.”

Sony has good news to look at, though, even apart from its exceptionally strong pre-order numbers. 70 percent of Sony’s revenue comes from markets outside of Japan, meaning the company is only partially reliant on sales measured in a weakened yen.

And, as Bloomberg notes, the PlayStation 4 will cost £349 in the UK and €399 in the rest of Europe. That also spells good news for the company, considering £349 is equivalent to $541, and €399 is equivalent to $532. The PS4 will only cost $399 in the US.

Finally, Bloomberg confirms that while the PlayStation 3 contributed to Sony’s monumental losses directly after the launch of the console – amounting to somewhere in the region of $3.5 billion – the company doesn’t anticipate anything similar to happen to PS4, primarily because “the amount of investment” in the console “is much, much smaller,” according to Sony’s Masaru Kato.

While PlayStation 3 didn’t turn profitable until nearly five years after it launched, Sony’s Andrew House stated that the company “will not generate anything like the losses [Sony] did for the PlayStation 3.”

[MikeCL]

Yeah using non custom hardware saved them a crapload of money.

[Derb]

Offer,



Problem solved.

[Elandyll]

Sooo ... The PS4 "may" (or may not) lose "some" (undetermined) money on every PS4.
Wow. That's great information journalism right there

[Clark Kent]

This is nothing new and true for almost business venture by a large, multi-national company. Sony would definitely be hedging their currency risk in a situation like this to limit their exposure.

[Shin-Ra]

Source link?

This was the derpiest bit that stood out to me.

And, as Bloomberg notes, the PlayStation 4 will cost £349 in the UK and €399 in the rest of Europe. That also spells good news for the company, considering £349 is equivalent to $541, and €399 is equivalent to $532. The PS4 will only cost $399 in the US.

Sales tax, how does it work.

[Derb]

Originally Posted by shin-ra

source link?

This was the derpiest bit that stood out to me.


Sales tax, how does it work.

Convert everything. PS4 costs $400-450 Global. If there is a tax in a country higher than 20% disregard this message.

[Mavrick]

All hardware costs the company money from the get go, some never make money, thats why when MS was asking for outside companies to make the original xbox everyone told them where to go because there's no profit in it. The profit is in licensing software.

The rare exception is Nintendo, but even in recent years they haven't been able to make a profit on hardware.

[Anthony P]

It is amazing what people find interesting. Yes currency conversions can be a money making/losing deal, but who really cares unless there is a major change in a short period of time it does not really change anything. Also, like Mavrick, said most consoles are sold at a loss, so that idea is nothing new.

[Icemage]

Misleading article is misleading?

First, Sony has lost money at the launch of every one of their consoles. They know the money isn't in the one-time investment in hardware, but instead the continued sales of software (and now PS+ subscriptions).

Second, EU pricing includes roughly 20% value added tax, and the US pricing doesn't reflect 6-10% sales tax, so the pricing differential isn't anywhere near as stark as the article suggests.

EDIT:

At current conversion rate of 1.33 EUR to 1 USD:

$399 USD = 300 EUR

300 EUR + 20% tax = 360 EUR

Then calculate separately for US sales tax of maybe 7% average = $28, which is an additional 9 EUR

Total comparative cost is about 369 Euros, versus the actual cost of 399 Euros. Still higher, but not nearly as high as suggested.

The British pound conversion is similar. 1.55 USD to 1 GBP.

$399 USD = 255 GBP

255 + 20% VAT = 307 GBP

$28 sales tax you'd pay in USA = 18 GBP

So UK pricing after tax, would be about 325 GBP, versus the actual cost of 349 GBP.

[Insomniac01]

Originally Posted by Elandyll

Sooo ... The PS4 "may" (or may not) lose "some" (undetermined) money on every PS4.
Wow. That's great information journalism right there

You sir just made my day and summed up how I fell about the majority of (so called) video game 'journalism'.

[RaijinUT]

Sony will need to pay Duty on every PS4 brought into the UK too.

The average percentage for UK duty is between 5 and 9 per cent, but it can be as low as 0 per cent or as high as 85 per cent. Duty is based on the value of the item.

Plus Sony needs pay the Airfreight charges to get the item there... and those will not be cheap this time of the year. If shipping from Asia it will be between $4.00 - $5.00 per kg. Figure that cost alone to be around $40 per console.

[Matt S]

well, I am gonna do my part to make sure the PS4 is soon profitable. half dozen games already preordered, not including accessories etc

[Anthony P]

Originally Posted by Icemage

Second, EU pricing includes roughly 20% value added tax, and the US pricing doesn't reflect 6-10% sales tax, so the pricing differential isn't anywhere near as stark as the article suggests.

yeah I just don't bother with that any more, the people with their head in the sand don't want to understand that no matter how much it is repeated.

There is also the possibility of other fees (for example here the retail price is the same as the US, and there will be taxes that need to be added like you said, but a few years ago Quebec added an environmental handling fee (charged by the merchants- which in this case is 3.74) to any electronic device based on the price of the device , does the EU have such (in this case-hidden) fees or duties that are included in Sony's MRSP for EU and UK, I know there is WEEE in Europe but not sure how , money wise, it applies?

Also for an article that is supposed to be about losses on conversion rates, it makes sense for Sony to hedge against the Euro or Pound so that if the USD drops they won't lose on todays exchange rate

and lastly rounding the number.

[Anthony P]

Originally Posted by RaijinUT

The average percentage for UK duty is between 5 and 9 per cent, but it can be as low as 0 per cent or as high as 85 per cent. Duty is based on the value of the item.

Duty and other fees can definitely exist. Though by the MRSP it is not that much higher than anything we see on this side of the pond.

Plus Sony needs pay the Airfreight charges to get the item there... and those will not be cheap this time of the year. If shipping from Asia it will be between $4.00 - $5.00 per kg. Figure that cost alone to be around $40 per console.

well I am guessing they are made in China (or some other Asian country like everything else) so the freight might not be any different than sending it here. So it should not play a role in the difference between pricing.

[Derb]

Originally Posted by Anthony P

yeah I just don't bother with that any more, the people with their head in the sand don't want to understand that no matter how much it is repeated.

Indeed, because reality shows only a $10-$15 US sales advantage per unit.

[Maximus]

Originally Posted by RaijinUT

Sony will need to pay Duty on every PS4 brought into the UK too.

The average percentage for UK duty is between 5 and 9 per cent, but it can be as low as 0 per cent or as high as 85 per cent. Duty is based on the value of the item.

Plus Sony needs pay the Airfreight charges to get the item there... and those will not be cheap this time of the year. If shipping from Asia it will be between $4.00 - $5.00 per kg. Figure that cost alone to be around $40 per console.

No duty on technology items any more. The EU lost their case with the WTO in 2008.

Sony won't pay anywhere near that for shipping. Plus most will come on boats via the Suez. The only possible hold up that would require air freight is if the situation in Egypt gets significantly worse. Finally the finished box doesn't weigh 10kg, around half that.

[Blu Lemmy]

Sony will more than likely pay around $5 per unit on shipping, depends on dimensional weight. I import alot of product from Asia for my job and $40 is way way off the mark....