Film-Tech Forum ARCHIVE: Sony has lost over $3 billion on the PS3

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Posted by Mark Gulbrandsen (Member # 72) on 06-26-2008, 11:29 PM:

Ha! This doesn't surprise me a bit [Big Grin]

Link To Article

Think you paid too much for your Playstation 3? Don't expect any sympathy from Sony.

In the company's fiscal 2008 annual report, Sony revealed that they've now lost roughly $3.3 billion (that's billion with a B) on the Playstation 3 since its launch. That breaks down to $2.16 billion in 2007, followed by a notably smaller but equally daunting $1.16 billion loss in 2008.

The reason? Pricing the console below its production cost. That's right - that hefty $599 you paid for the PS3 back when it first launched was significantly cheaper than the cost of producing it in the first place, and while the retail price has come down some, the losses keep piling up.

Investors have reason to sweat. In a statement, Sony claimed "the large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered." They went on to note that they've invested a great deal of money into R&D for the console, a sum they might not be able to recoup if the PS3 "fails to achieve such favorable market penetration."

Sony fanboys should take heart, however. Losing money on hardware is relatively common in the video game biz, as companies routinely lower prices to sell more units and thus stimulate software sales. Sony's game division saw a 26% sales spike last quarter, a trend they expect will continue on the strength of strong exclusives like the recently released Metal Gear Solid 4 and the upcoming sequel Resistance 2.

But will it be enough?

Posted by Mike Heenan (Member # 392) on 06-26-2008, 11:43 PM:

What ever happened to HD-DVD? Oh yeah, they lost the format war. [Smile]

Posted by Kurt Zupin (Member # 2751) on 06-27-2008, 01:06 AM:

Mark it amazes me that you hate Blu-Ray and PS3 so much. Look back in time and every gaming system has lost money hand over fist. Its part of the game, they make all the money back on the gaming side of it. XBox is the same way, the PS3 system could of easiley went for well over a $1000 but then they wouldn't of sold that many. They said from day 1 that they would be taking a loss on the system. Nothing new here.

Just like Mike said, what ever did happen to your precise HD-DVD [Wink]

lol

Posted by Joe Redifer (Member # 3) on 06-27-2008, 02:10 AM:

This isn't uncommon. Most game systems are prices way below what they cost to make. They make up the deficit in software sales. Microsoft has also lost billions (with a B) on their Xbox 360. They lost a ton on the original Xbox as well, and they also announced about 5 years ago that they did not expect to make a true profit until the 3rd Xbox console was available. Only Nintendo sells their consoles at a profit, but their technology is over 10 years old now so that is easy.

Posted by Paul Mayer (Member # 355) on 06-27-2008, 02:31 AM:

That Yahoo article had one take on Sony's present situation - here's Japan Today's take on it (from the same Sony press conference):

quote:
Sony counting on core devices, video content services to win back electronic leadership

Friday 27th June, 07:22 AM JST

Sony CEO Howard Stringer unveils his company’s mid-term corporate strategy.

Photo and story by Taro Fujimoto

TOKYO —

Sony Corp on Thursday unveiled its mid-term corporate strategy through fiscal year 2010 with a pledge to focus on realizing profitability in TV and game businesses by investing more resources into its core devices and mobilizing video content services through its online network. As potentially profitable markets, the group will bring more products and content services to BRIC countries (Brazil, Russia, India, China).

“When Sony is united, Sony is unbeatable”, said Howard Stringer, chairman and CEO of Sony, stressing the achievement of the group’s 2005 revitalization plan as a result of financial and organizational restructuring. The company achieved a 5.4% increase in electronics segment operating margin in FY 2007. He added, “We must continue to remain focused on profitability.”

Sony has rebounded from a bottom in 2005 by exiting or downsizing 15 product categories, reducing 10,000 global workers and shutting down 11 manufacturing sites, reducing annual expenses by 200 billion yen.

Stringer said the success of Sony’s Blu-ray disk in the DVD format competition had “positive implications for hardware, software and game businesses.” Sony expects a big synergy effect of the connectivity between products and video services as an interactive entertainment business.

In the autumn, Sony will start a U.S. streaming service that uses the Internet to deliver feature films and TV shows directly to Bravia TVs, without using satellite or cable distribution systems. Stringer called it an industry first. That service will start with “Hancock” from Sony Pictures, which is becoming available before it comes out in DVDs, Stringer said.

Meanwhile, Ryoji Chubachi, president and CEO of Sony’s electronics division, said Sony will strengthen its core businesses such as television, computers, digital camera and videos, mobile phones, Blu-ray related products and semiconductors/component technologies. The new corporate strategy aims at creating 1 trillion yen in revenue in these businesses.

Kazuo Hirai, representative director of Sony Computer Entertainment Inc (SEC), said SEC will aim to realize profitability in the game business by FY2008 by launching an online community service “PlayStation Home” and 3D graphic information service “Life with PlayStation.” For cost reduction, SEC will work on downsizing of chips and reduction of the number of components as well as introducing new game titles.

Sony said it will double revenues in BRIC countries to 2 trillion yen by FY2010 where the company will market its electronics products and video services.

Outlining its financial strategy, Sony will try to annually keep 5% operating margin as the baseline and to target annual ROE (return on equity) of 10% by end of FY2010. The company sees ROIC (return on invested capital） as a fundamental framework for capital investment evaluation over its businesses. Stringer said, “It is important to demonstrate in the market that we are disciplined and focused.”

To achieve the new mid-term corporate strategy, Sony will invest 1.8 trillion yen into its core businesses: entertainment and network services, LCD and OLED panel production, imaging devices and other core component development, and system LSIs for video games.

Asked about the development of innovative products with an eye to Apple Computer’s products, Stringer said that Sony’s products, such as the OLED display, which was commercialized by the company for the first time in the world, are “as exciting as iPhone and iPod.”

Chubachi explained that Sony is eager to accept open source technologies by saying, “We no longer develop products within a closed environment. Although we will develop our own technologies in the competitive area, in non-competitive areas such as Linux, we will need open technologies more. This will be good for efficient and speedy product development.”

Posted by Louis Bornwasser (Member # 3063) on 06-27-2008, 04:39 AM:

Sounds like another SONY launch with no follow-through! WoW! You would thik they would learn. Louis

Posted by Frank Angel (Member # 248) on 06-27-2008, 04:55 AM:

quote: Joe Redifer
This isn't uncommon. Most game systems are prices way below what they cost to make. They make up the deficit in software sales.

And it's not done only in the gaming market. Printer manufacturers sell ink jet printers for under $100, which is maybe two or even three times less than it costs to manufacture them; then they sell you the ink cartridges (over and over and over) at five times what it costs to manufacture them.

Posted by Steve Guttag (Member # 268) on 06-27-2008, 06:42 AM:

Kodak used to GIVE away "Brownie" cameras to Boy Scouts way back...knowing that they would get you on the film and processing. It is called a loss-leader and it really isn't news.

While it may be part of their "imaging"...I would suspect the loss known as SXRD will get the plug pulled completely...it is already gone from the consumer division.

Posted by Bobby Henderson (Member # 840) on 06-27-2008, 09:26 AM:

That news is over a month old. Mark must have been "lurking" at Blu-ray.com to see the latest redundant thread posted about it.

As others have mentioned, it is nothing new for any new video gaming platform to lose tons of money in its first years. Microsoft lost a fortune on both XBox and XBox360 before getting either platform to break-even status, much less into the black.

One thing hurting the PS3 is a general lack of exclusive "must have" games. The best titles on PS3 have usually been available for XBox360 as well.

Metal Gear Solid 4 was released a couple weeks ago. Some gaming critics have characterized it as the first great PS3 exclusive game and the best looking game available for PS3. Most XBox360 and PS3 games output 720p. MGS4 is able to run in 1080p. PS3 certainly needs more exclusive hit games.

Sony released a new 80GB PS3 package with MGS4 bundled. The initial shipment of 75,000 systems in the United States sold out almost immediately. A friend of mine was trying to find one of these systems but ultimately had to settle for a 40GB PS3 instead.

Meanwhile, lots of people have been buying PS3 consoles for the main purpose of playing Blu-ray movies. Sales of PS3 have been helping the Blu-ray format achieve some surprisingly good numbers on rate of adoption compared to DVD. The Blu-ray format is 2 years old. Comparing sales figures with DVD when it was 2 years old, Blu-ray is out-pacing DVD by 3 times in the United States and more than 6 times in Europe. Those figures are from an article published a few days ago by Video Business.

Obviously, Sony needs to get more people to use those PS3 consoles to play games. MGS4 is at least a step in the right direction. Gran Turismo 5: Prologue is a great looking teaser for a game that may not arrive until 2009.

Posted by Mike Heenan (Member # 392) on 06-27-2008, 12:23 PM:

What is the difference between the 40gb and 80gb PS3, other than the obvious? I'm eventually going to get one for it's Blu Ray capabilities, but not really as a gaming console, so would it even matter which one I get?

Posted by Bobby Henderson (Member # 840) on 06-27-2008, 01:06 PM:

Blu-ray playback is identical on either model. It's very good. And while Panasonic drags its feet on getting the DMP-BD50 to market, the PS3 remains the only BD Live! capable Blu-ray player currently available.

The 80GB PS3 has these features which are not on the 40GB model:

* Twice the hard disc space
* Emulation for PS2 and certain PS1 games
* Super Audio CD capability
* Four USB 2.0 ports instead of two
* Three flash card slots (Compact Flash, SD/MMC, Memory Stick)
* Bundled PS3 game (MotorStorm or MGS4)

If you don't need the extra USB ports, flash card slots, PS/PS2 game emulation or SACD capability then a 40GB model would do just fine.

Apparently the process of upgrading a PS3 hard disc is pretty simple. The system is compatible with most 2.5" SATA notebook hard discs. The system has a built in backup/restore utility that can work with external hard discs, attached USB thumb drives or flash cards. Going from 40GB to something like 160GB or 250GB would be pretty simple.

Posted by Mark Gulbrandsen (Member # 72) on 06-27-2008, 05:45 PM:

quote: Mike Heenan
What ever happened to HD-DVD? Oh yeah, they lost the format war.

Yea, but its doubtful they lost 3 billion dollars in the process. [Big Grin]

Mark

Posted by Mike Heenan (Member # 392) on 06-27-2008, 05:57 PM:

Considering that Blu Ray is supposedly going to overtake DVD sales in a few years time, its probably safe to bet Sony made the right choice "blowing their wad" and "losing" 3 billion dollars in the process. Only time will tell of course... HD DVD/Toshiba may not have lost 3 billion dollars, but suffice to say, whatever they lost they'll not be able to make up with subsequent sales of future product, because there is no future product coming [Wink]

Posted by David Stambaugh (Member # 1102) on 06-28-2008, 11:11 AM:

Toshiba's losses on HD-DVD come in somewhere around $1B US, depending on whose report you want to believe.

Posted by Geena Phillips (Member # 3726) on 06-28-2008, 03:31 PM:

Joe: Have you PLAYED the Wii? There's nothing "old" about that technology. Now, did Nintendo decide that changing the entire nature of videogaming was more important than having 1080p video? Yes, they did. And it seems to have worked out okay for them.

It's Sony and Microsoft which are giving us more of the same, by featuring a gaming experience that is virtually identical to what came before, albeit with higher-resolution graphics. Don't get me wrong, the XBox 360 and PS3 are machines with amazing capabilities... it's just that almost none of those capabilities are about gaming.

Posted by Joe Redifer (Member # 3) on 06-28-2008, 05:09 PM:

I have the Wii. All of the technology inside of it is very old. The friggin' Power Glove for the NES which was featured in the spectacular 1989 Fred Savage movie The Wizard uses nearly the same exact technology. The Wii is also less fun to play than the PS3 or the Xbox 360 unless you are playing with grandma.

Posted by Bobby Henderson (Member # 840) on 06-28-2008, 06:22 PM:

quote: Geena Phillips
Now, did Nintendo decide that changing the entire nature of videogaming was more important than having 1080p video?

I wouldn't say Nintendo revolutionized the world of video gaming with the Wii. Both XBox360 and PS3 are still selling well in spite of the Wii's success. Even the PC gaming platform is still advancing. In the past, a new generation of gaming console would come along and lay waste to its competition -kind of like what Playstation did to the Sega Dreamcast or what the original Nintendo NES did to Atari, ColecoVision and any other console out at that time in the late 1980s. That isn't happening now.

The Wii is a hit because of two things: low price and the Nintendo brand image. Nintendo understands the core demographic of their market and pitched the Wii very well to capitalize on that. It's an admirable example of marketing -even better than anything Apple is doing to sell its products.

The motion sensitive controllers are a nice ad point, but it's hardly "revolutionary" technology (it's been around for quite a while). The PS3 controllers have some motion sensitive features to them, but that isn't the main selling point for the PS3.

Mario and the trademark Nintendo whimsy in many of its games will sustain the Wii only for so long. It's not a great thing for non-exclusive games like Guitar Hero III to be among the most popular titles for the Wii.

One big drawback I see with the Wii is that it was designed primarily for use on old TV sets. It does not work well with HDTV monitors. That's going to spell trouble for the Wii in the long run. Some may think native 720p or 1080p HD support isn't a big deal. Well, it becomes a big deal once you have a good quality HDTV monitor. Standard resolution 480i/480p stuff tends to look like ass.

quote: Geena Phillips
Don't get me wrong, the XBox 360 and PS3 are machines with amazing capabilities... it's just that almost none of those capabilities are about gaming.

I'd call that statement inaccurate.

The processing power of the PS3 was principally designed with high resolution gaming in mind. It's only incidental all that processing power enables the PS3 to load Blu-ray movies faster than just about any standalone BD player and breeze through lots of multimedia files with ease.

Posted by Joe Redifer (Member # 3) on 06-29-2008, 01:26 AM:

At the risk of turning this into a gaming thread:

-Guitar Hero on the Wii is in mono. MONO! I am not fond of music games, but if I HAD to play a Guitar Hero game it sure as hell wouldn't be the Wii version.

Posted by Tom Mundell (Member # 4555) on 06-29-2008, 08:13 AM:

There is actually a corrected disc which plays in Pro Logic II just fine. I received mine from Activision several months ago. I have no idea which version is on store shelves though, I would hope the corrected version but I wouldn't be surprised if a few of the original discs are still floating around.

Posted by Scott Jentsch (Member # 1681) on 06-30-2008, 05:54 PM:

I think Sony is playing the long game with the PS3, and it shows with how they are approaching things.

By pricing the console below cost, they are counting on future sales to offset the difference. This is common in the gaming industry, so no big surprise there.

By bundling in the Blu-ray drive, they built in lots of disc capacity for the future, and they tied the success of the PS3 and the success of the Blu-ray format together.

By buying out Warner Bros. and/or Fox to seal the deal against HD DVD, they shut down their biggest current threat to the Blu-ray format. I suspect that Sony has also been subsidizing Blu-ray production costs to encourage movie releases on the format in spite of problematic yields (I don't know if that continues to be an issue or not).

By releasing Bonus View and BD-Live on the PS3 to the point of exclusivity in the market, it makes the PS3 the only choice for the informed public looking for the best Blu-ray experience now and in the future. Those people are now potential buyers of PS3 games, which makes the circle complete.

The long-term view is the right one, so long as the market responds in good enough numbers in the time Sony has to absorb the investments they have made and continue to make in order to achieve success.

As much as I wanted HD DVD to succeed, I have to admit that Sony is doing a lot to make the PS3 and the Blu-ray format a success. It's a big gamble, but if they succeed, it will have paid off.

Posted by Bobby Henderson (Member # 840) on 06-30-2008, 06:56 PM:

Sony is releasing another firmware update (version 2.40) on July 2 to add more gaming features that customers have been requesting for a long time (full XMB media bar functions in game, in game messaging, gaming trophies, etc.). Some of this is an answer to some of the unique bells and whistles on XBox360.

The 2.40 update comes on the heels of another firmware update (2.36) that was released just a couple of weeks ago. Since buying my 80GB PS3 in January, it seems like the PS3 firmware has been updated 4 or 5 times -most of those updates being issued to add or improve features to the PS3.

quote: Scott Jentsch
By buying out Warner Bros. and/or Fox to seal the deal against HD DVD, they shut down their biggest current threat to the Blu-ray format.

The Warner Bros. pay off rumor has never been substantiated. Representatives from Warner Home Video repeatedly denied every taking any sort of a pay off for their turn to BD exclusivity. Warner Bros. has maintained their move to BE exclusivity was a result of trying everything else they could to get consumers to upgrade to high definition movie disc players. WB supported both Blu-ray and HD-DVD better than any other studio and even distributed movies on the unique "TotalHD" dual format disc. None of it worked. So they picked the format they thought had the best chance of success to get the "war" finished.

Fox never considered going with HD-DVD due to its lower quality copy protection. Fox wasn't going to support any HD disc format until Sony and Panasonic further improved the copy protection scheme in Blu-ray.

quote: Scott Jentsch
By releasing Bonus View and BD-Live on the PS3 to the point of exclusivity in the market, it makes the PS3 the only choice for the informed public looking for the best Blu-ray experience now and in the future.

I think that situation is totally incidental and not the result of any deliberate moves from Sony. The real problem is all the other consumer electronics manufacturers being far too conservative in their BD product development pipe lines. It's their own fault they fell way behind PS3.

I think those companies counted on home theater fans having the good taste to buy a more expensive standalone BD player rather than a gaming console. Maybe they figured the PS3 was more at home in a kid's bedroom than having a legitimate place in a home theater equipment rack. Either way companies making standalone BD players (including even Sony) have been stuck for the last several months playing catch up with PS3.

High priced standalone Blu-ray players will continue to have a difficult time competing against PS3 unless they can fully demonstrate superior performance to the PS3. And not just on image quality and audio streaming options either. They have to beat the PS3 on disc load times and utilize Bonus View and BD Live features with more speed and stability. A fancy brand name and gold trim on the product isn't going to be enough to justify the high price premium.

Most standalone players are only going to become competitive with the PS3 when their prices get down to low enough levels where the 40GB PS3 seems expensive by comparison. I don't know what that price would be for sure, but prices under $200 would be a good target.