NO PS3 Price Drop In 2007 Says Sony!

[Groundbeef]

Well forget about the price drop gents. Today Sony announced that they were:

"BIZ: But don't you feel pressure from the realities of the market and people who maybe don't want to spend $600? Do you feel there is pressure to drop the price this year?


PH: Absolutely no pressure at all. I think that the reality of the market is that there's a great deal of software people want to buy, there's a great deal of software coming that will stimulate further activity in the market. We're very comfortable with the plan."

Yep that right, Sony has no pressure to lower prices....

Heres the thread, and enjoy its a real good read.

http://biz.gamedaily.com/industry/fe...d=15342&page=1

[audio_dude]

sony is planning to fail here... they shoulda done without the blu-ray drive and the cell processor...

[Woochifer]

Obviously, it might have something to do with controlling the losses that they sustain with each unit that they sell. At this juncture, it might be a worse scenario for them to lower the price before the production costs go down to more acceptable levels. Plus, at this stage (less than 3 months in, and before the European launch) a price rollback might actually backfire by pissing off the people who already bought their PS3s, and creating a perception of panic in the market. The comments in that interview are not surprising.

In actuality, the PS3 sales charts that I've seen don't look that different from the early PS2 sales. The critical phase will be whether Sony can sustain any kind of sales momentum before the holiday season. If they can maintain existing sales levels, then I don't think you'll see a price reduction until well into next year. If they don't, then they might be in a rough place and have to bite the bullet with a price reduction before the holidays. In any case, a price reduction in 2007 would be a huge departure from past precedent where the first price reduction would occur more than 18 months in. (The PS2 price went down from $300 to $200 about 20 months after introduction)

[kexodusc]

Yeah, Sony's been up this creek before. I'm sure there's no some pressure to drop the prices but PS3's actually recovered surprisingly well, and most of that pressure is just from people who really want to buy a PS3 when it's cheaper.

I watched a bit on Bloomberg TV on Friday (or maybe Thursday,whatever) that spoke of the PS2 releasing it's last big title this month, some sequel to another hit. It basically stated that Sony's been graduating the introduction of PS3 to continue to reap the profits of the PS2, which are still substantial and expect to start to begin the "retirement" process(inventory liquidation, large production scale back) as it was put for PS2 around in fall this year, around the time when a larger influx of PS3 games is scheduled to hit. Likely in time for the holiday season.
The interviewee used an analogy of a department store opening several months in advance of it's "Grand Opening" function. As far as Sony is concerned PS3 is only 3/4 launched so far, so they're not too concerned. Time will tell if they should be.

Then they went all techno-babble talking about long-term upgrade abilities of the machine, and that's where I tuned out...

Mid 2008 should be the period where we'll start to see whether Sony is on track for PS3. Early adopters rarely pick winners. Mini Disc, anyone? Sega?

[Groundbeef]

Obviously, it might have something to do with controlling the losses that they sustain with each unit that they sell. At this juncture, it might be a worse scenario for them to lower the price before the production costs go down to more acceptable levels. Plus, at this stage (less than 3 months in, and before the European launch) a price rollback might actually backfire by pissing off the people who already bought their PS3s, and creating a perception of panic in the market. The comments in that interview are not surprising.

Whats ironic about the "no pressure to lower price" comment is that price pressure DID force them to cut prices 20% in Japan. Don't think that doesn't go unnotticed on the boards. Also, there is rumor that ANOTHER price cut is in the works for Japan. Keep in mind that Japan is Sony's backyard, and they are getting the snot beat out of them by Nintendo. MS is a bit player, but its picking up some incremental gains with some Japanese centric games.

So don't be fooled by the bravado about no price cuts. People are clammoring for them, but Sony may not be ready (or can afford) to give them.

[kexodusc]

So don't be fooled by the bravado about no price cuts. People are clammoring for them, but Sony may not be ready (or can afford) to give them.

Again, Sony will make whatever decision they think leads to losing (making) the smallest (largest) amount of money. If that means cutting prices, they'll do it when they think the time is right. All the posturing for reporters by a CEO's and etc is just bravado as you say.

I think we're overreacting the article a bit too. The guy says Sony feels no pressure. He could be lying. But would any company exec, ever say anything different?

"Oh yeah, for sure we're feeling a lot of heat and we think if we dont' cut prices we're going bankrupt." Last thing he's gonna do is send out red flags in the investment world. He's just chosing his words carefully. That's why 99% of these articles aren't worth the cyberspace they occupy.

By no means does the "no pressure" comment mean that Sony won't decide to cut prices with or without pressure. The truth is always somewhere in between the doom and gloom the drama-chasing electronic gaming media reports and the can't-miss sure-bet future Sony keeps BS'ing everyone. You dont' need pressure to cut prices.

[Groundbeef]

Again, Sony will make whatever decision they think leads to losing (making) the smallest (largest) amount of money. If that means cutting prices, they'll do it when they think the time is right. All the posturing for reporters by a CEO's and etc is just bravado as you say.

I think we're overreacting the article a bit too. The guy says Sony feels no pressure. He could be lying. But would any company exec, ever say anything different?

"Oh yeah, for sure we're feeling a lot of heat and we think if we dont' cut prices we're going bankrupt." Last thing he's gonna do is send out red flags in the investment world. He's just chosing his words carefully. That's why 99% of these articles aren't worth the cyberspace they occupy.

By no means does the "no pressure" comment mean that Sony won't decide to cut prices with or without pressure. The truth is always somewhere in between the doom and gloom the drama-chasing electronic gaming media reports and the can't-miss sure-bet future Sony keeps BS'ing everyone. You dont' need pressure to cut prices.

No, but remember that this is the company that justified the $600 for the console by suggesting that people should get a second job if they felt the price was too high.

I'm not suggesting that CEO's or other company mouthpieces should say anything different. But just word it differently, "At this time, a price drop is not in the works" or "While we are considering a drop, its just not the right time." Along those lines.

[kexodusc]

No, but remember that this is the company that justified the $600 for the console by suggesting that people should get a second job if they felt the price was too high.

I'm not suggesting that CEO's or other company mouthpieces should say anything different. But just word it differently, "At this time, a price drop is not in the works" or "While we are considering a drop, its just not the right time." Along those lines.

Well, nobody ever accused Sony of being tactful...what did you expect?

[Woochifer]

Whats ironic about the "no pressure to lower price" comment is that price pressure DID force them to cut prices 20% in Japan. Don't think that doesn't go unnotticed on the boards. Also, there is rumor that ANOTHER price cut is in the works for Japan. Keep in mind that Japan is Sony's backyard, and they are getting the snot beat out of them by Nintendo. MS is a bit player, but its picking up some incremental gains with some Japanese centric games.

So don't be fooled by the bravado about no price cuts. People are clammoring for them, but Sony may not be ready (or can afford) to give them.

Well, keep in mind that the price cut in Japan occurred before the console even launched over there. So, this is not a case of the console getting out into the market at the higher introductory price, and then Sony getting into a panic when they see the sales results. I doubt that any price cuts will occur anywhere before the console even launches in the European market.

While the spin in that interview is pretty transparent, I see some elements of truth to what he's saying. Sony is obviously taking a long-term view of the market with the PS3 (as well as Blu-ray), and in an ideal world I'm sure they would have preferred to introduce Blu-ray well before launching the PS3. But, that's the state of the market that they're playing in.

People clamoring for the price cuts are mostly the casual gamers (for one thing, I'm certainly not going to spend $600 or even $500 on a PS3), and as kex mentioned, the price cuts will come in due time. But, like I said, a price cut in 2007 would represent a huge departure for Sony from their past patterns, and I would only see this happening if the PS3 sales show a serious dropoff in the next few months.

If anything, I think the "price cut" that we'll see for the PS3 in the short-term will be a larger supply of the $500 base model reaching stores. To this date, I've only seen the PS3 in stock at 3 stores in my area, and only the $600 version.

[Groundbeef]

Well, keep in mind that the price cut in Japan occurred before the console even launched over there. So, this is not a case of the console getting out into the market at the higher introductory price, and then Sony getting into a panic when they see the sales results. I doubt that any price cuts will occur anywhere before the console even launches in the European market.

Not likely, as the price of the PS3 in England is over $750 USD because of taxes and the like. And in Austrialia, the price for the premium is almost $900 USD. Good luck selling that little gem. To be fair the 360 is like $700 USD, but still, your looking at almost a grand to play games. I'll buy a computer thank you very much.

People clamoring for the price cuts are mostly the casual gamers (for one thing, I'm certainly not going to spend $600 or even $500 on a PS3), and as kex mentioned, the price cuts will come in due time. But, like I said, a price cut in 2007 would represent a huge departure for Sony from their past patterns, and I would only see this happening if the PS3 sales show a serious dropoff in the next few months.

Yep, I cant agree more. When the early adoptors are done buying, it will get interesting.

If anything, I think the "price cut" that we'll see for the PS3 in the short-term will be a larger supply of the $500 base model reaching stores. To this date, I've only seen the PS3 in stock at 3 stores in my area, and only the $600 version.

Not likely, as Sony loses more on the $500 model than they do on the $600 model. Don't forget that the added the HDMI, and a couple of other things.

Interestingly enough, Sony has now abandonded the hardware solution for backwards compatiblilty for PS2 & PS1 games in the European model. They are going to use software emulation like the 360. Most are speculating that it is a cost cutting measure. Sony has also indicated that many more games are NOT compatible with this solution, and that they will be focusing on PS3 play, and will address the issue as "time permits".

So I guess backwards compatiblity isn't really all that important afterall?

[kexodusc]

So I guess backwards compatiblity isn't really all that important afterall?

I never thought it was, I didn't even know if PS3 or XBox are backward compatible or not. I'm still not really clear. Doesnt' matter. If you've got old games, you've got the old system. I dont' know many people who own Halo and don't have an Xbox. I dont' think the "resale" of the old hardware factors into the decision process at all for gaming either. Most people are just gonna keep the old consoles around I suspect. Or they'll be like me and wholesale them off for some new games.

I think we'll see price cuts in the form of bundles from both companies to increase the value, before we see any raw price reductions in the hardware. Maybe a slight combo of both. But throwing in a few controllers and a couple of $2 games increases the costs by what, $10?

I think it's worth mentioning that whatever Sony or 3rd party companies estimated Sony loses on every PS3 is inaccurate 1 second after it's printed. Every day the profitability on these machines goes up for these companies. It's safe to assume Sony has more room for quicker improvement than Microsoft, partly because it's newer and a year behind, and partly because BluRay is enjoying unexpected early success which will definitately impact future projections now. So the idea of Sony pushing the $500 system a bit earlier or deciding to go ahead with a price cut isn't completely far fetched. The more I look at PS2 and Xbox sales history though, I'm inclined to think that everything is sort of going as planned for these companies.

I think Sony had a 6million target for units shipped by March end. If that comes in at less than 5 million, then we can start re-evaluating the cost cut pressures.
Sony held to that target though, unlike XBox 360, which lowered it's 2007 target at the end of January.

[Groundbeef]

I never thought it was, I didn't even know if PS3 or XBox are backward compatible or not. I'm still not really clear. Doesnt' matter. If you've got old games, you've got the old system. I dont' know many people who own Halo and don't have an Xbox. I dont' think the "resale" of the old hardware factors into the decision process at all for gaming either. Most people are just gonna keep the old consoles around I suspect. Or they'll be like me and wholesale them off for some new games.

That was a bit of sarcasm on my part. I never thought it was a big deal either, but for the fact that Sony, and its legions of fans put the beat on MS for "not being fully b/w compatible". And now they are going the same route as MS, and indicating that 'well perhaps b/w compatiblity isn't really all that important after all.

I think we'll see price cuts in the form of bundles from both companies to increase the value, before we see any raw price reductions in the hardware. Maybe a slight combo of both. But throwing in a few controllers and a couple of $2 games increases the costs by what, $10?

No, I think that a controller would add more than $10, and games are about $35 for new games.

I think it's worth mentioning that whatever Sony or 3rd party companies estimated Sony loses on every PS3 is inaccurate 1 second after it's printed. Every day the profitability on these machines goes up for these companies. It's safe to assume Sony has more room for quicker improvement than Microsoft, partly because it's newer and a year behind, and partly because BluRay is enjoying unexpected early success which will definitately impact future projections now. So the idea of Sony pushing the $500 system a bit earlier or deciding to go ahead with a price cut isn't completely far fetched. The more I look at PS2 and Xbox sales history though, I'm inclined to think that everything is sort of going as planned for these companies.

I disagree, it takes several hundred thousand, if not more than a million to start to see economy of scale, and experience curve gains. Its not a constant downward slope of decreasing cost structures. In fact, in the beginning costs were increasing due to the rush on production, and air freight (usually shipped by boat), and a host of other issues. The point remains however, that the $500, and $600 models are almost identitcal except the lower price model has a smaller H/D, and no wireless wifi onboard. The incremental cost between the higher and lower is negligible ($25-$35 approx). So Sony is losing about $65 (approx) MORE to sell the cheaper unit. They will never push the low unit after flogging the premium for so long. But hey, at least with the expensive unit they include the HDMI cable! Oh wait, I forgot, even with the more expensive unit, you only get the COMPOSITE cables to play your TrueHD machine...hahahhahaha

I think Sony had a 6million target for units shipped by March end. If that comes in at less than 5 million, then we can start re-evaluating the cost cut pressures.
Sony held to that target though, unlike XBox 360, which lowered it's 2007 target at the end of January.

Yep, I agree. But MS is still outsellin the PS3, and thats with units sitting on the floor all over the US, so you can't blame it on lack of hardware!

[kexodusc]

No, I think that a controller would add more than $10, and games are about $35 for new games.

What? I've seen new games sold for less than $35 cdn. There's no way the marginal cost of a video game is $35. Gotta be far far lower to MS. It's what, basically a bit of silicicon and some paper? Controllers are pretty cheap to build too.

I disagree, it takes several hundred thousand, if not more than a million to start to see economy of scale, and experience curve gains. Its not a constant downward slope of decreasing cost structures. In fact, in the beginning costs were increasing due to the rush on production, and air freight (usually shipped by boat), and a host of other issues. The point remains however, that the $500, and $600 models are almost identitcal except the lower price model has a smaller H/D, and no wireless wifi onboard. The incremental cost between the higher and lower is negligible ($25-$35 approx). So Sony is losing about $65 (approx) MORE to sell the cheaper unit. They will never push the low unit after flogging the premium for so long. But hey, at least with the expensive unit they include the HDMI cable! Oh wait, I forgot, even with the more expensive unit, you only get the COMPOSITE cables to play your TrueHD machine...hahahhahaha

I guess it depends how you look at it. In absolute terms, you're right early on it economies of scale aren't achieved on a per unit basis. But companies don't account for costs like this. Activity/average based costing comes into play - so over time each subsequent unit becomes cheaper by some degree. That's all I'm getting at here. What Sony lost on PS3 in December is likely to be much higher than what it will lose next December...who knows by then it could be profitable. And measuring profit on these things is extremely difficult, one cannot reduce it to simply the cost of hardware and sale price.

Yep, I agree. But MS is still outsellin the PS3, and thats with units sitting on the floor all over the US, so you can't blame it on lack of hardware!

Think this has more to do with accessibilty and built up momentum. I can't name 1 PS3 game off the top of my head. Why the hell would I buy a PS3? I think the trend to watch is the degree in which Xbox 360 outsells PS3, quarter to quarter. Right now it's by roughly 3-1 assuming the march targets hold. Before Christmas it was much higher. At some point it will equal, and then it will reverse. Then we'll see how well both sustain or increase their momentum, especially considering there's a market of over 1 billion people PS3 hasn't even opened it's arms to yet.
I'm more curious to see how long the Wii impresses people. I kinda think the novelty will wear off fast.

[Groundbeef]

What? I've seen new games sold for less than $35 cdn. There's no way the marginal cost of a video game is $35. Gotta be far far lower to MS. It's what, basically a bit of silicicon and some paper? Controllers are pretty cheap to build too.

It depends upon the game, and the studio that makes the game. Keep in mind its not the ABSOLUTE cost of the unit (silicon and paper as you put it) but the intellectual cost, distribution, packaging, marketing, advertising. Keep in mind the actual cost for a license is secret, but it is speculated around $5.00/game. Capcom has stated that they need to sell approx 500,000 units to make profit on a new game for the 360. So, there are some built in costs. Same thing for controllers. I realize that they retail for around $50USD, but a manager friend at GameStop told me they only make about $5.00 per unit sold(wireless), and even less on new games. Thats why they are in the used game market, where they can make about 50% margin.

I guess it depends how you look at it. In absolute terms, you're right early on it economies of scale aren't achieved on a per unit basis. But companies don't account for costs like this. Activity/average based costing comes into play - so over time each subsequent unit becomes cheaper by some degree. That's all I'm getting at here. What Sony lost on PS3 in December is likely to be much higher than what it will lose next December...who knows by then it could be profitable. And measuring profit on these things is extremely difficult, one cannot reduce it to simply the cost of hardware and sale price.

And suppliers are not paid on piecemeal either. I would imagine that supplies are contracted for specific quantities (as in, if orders exceed X units, price is Y, and so on).

Think this has more to do with accessibilty and built up momentum. I can't name 1 PS3 game off the top of my head. Why the hell would I buy a PS3? I think the trend to watch is the degree in which Xbox 360 outsells PS3, quarter to quarter. Right now it's by roughly 3-1 assuming the march targets hold. Before Christmas it was much higher. At some point it will equal, and then it will reverse. Then we'll see how well both sustain or increase their momentum, especially considering there's a market of over 1 billion people PS3 hasn't even opened it's arms to yet.
I'm more curious to see how long the Wii impresses people. I kinda think the novelty will wear off fast.

It hasn't worn off yet. But as more HDTV's are sold, I think that the graphical shortcomings will become more and more apparent. For the motion sensitive games that may not be a problem, but there are plenty of games that are cross platform (Madden for example) that are not as polished as the PS3 or 360. For that reason, it may lose its luster faster.

[kexodusc]

And suppliers are not paid on piecemeal either. I would imagine that supplies are contracted for specific quantities (as in, if orders exceed X units, price is Y, and so on).

Normally it's pretty straightforward like you imply, but Tech based manufacturing is whole 'nuther animal when it comes to procurement contracts. Bleeding edge stuff you can reasonably assume to get cheap, fast. But by the midstages of the product life cycle it's a crapshoot. Chances are your supplier is out of business or no longer sells what you need. ATI/AMD I would think is pretty safe, Sony will probably have advantage buying BluRay components by virtue of its electronics division, but any other goofy chips in those things could be a pain later. I dont' know enough about this industry, but a lot of simple electronic devices get IC upgrades quite frequently just because the newer ones are cheaper than original chips design called for when their needed. In this respect contracts are often one time and short term in nature. Sometimes you buy in huge bulk, say 40 million chips, and take your chances that prices don't drop below the best deal you get.
Much like XBox sold at a loss early on, sometimes suppliers sell at a loss too hoping to get it back over the life of a renewable contract. I really don't know how anyone outside Sony can accurately estimate costs, on these things. Reasonable best guesses are one thing, but there's just too many variables. When I worked at Honda we used to analyze the pricing/and total cost of ownership costs for a number of scenarios, or even try to predict our own. We were more often wrong than right, which I found out later was pretty normal in the industry.

It hasn't worn off yet. But as more HDTV's are sold, I think that the graphical shortcomings will become more and more apparent. For the motion sensitive games that may not be a problem, but there are plenty of games that are cross platform (Madden for example) that are not as polished as the PS3 or 360. For that reason, it may lose its luster faster.

So could we see 2 or 3 years down the road a new Nintendo Box a few years before Sony and MS then?

[nightflier]

PH: Absolutely no pressure at all. I think that the reality of the market is that there's a great deal of software people want to buy, there's a great deal of software coming that will stimulate further activity in the market. We're very comfortable with the plan."

I remember when IBM had that same attitude with technologies most people don't even remember (MCA, Token Ring, OS/2, etc.). It took a few years, but eventually they got out of those market sectors entirely. Yes Sony has to keep up appearances to keep the stock price up, but every member of their board of directors knows such a statement is flat-out false and would eventually become economic suicide. No, this is a statement meant for the general public, the hoi polloi that buys the products and perhaps the rabble that owns just a few shares. For the consumer, the message is that there's no point in waiting for a price drop - buy one now.

I also think that the price in Europe is going to be a huge problem. The euro-gamers may have more real money to spend than Americans, but they are a lot more judicious about how they spend it and they tend to keep using stuff that we here have long since thrown in a landfill.

Sony has a real problem on its hands and it cannot afford to loose this competition with Microsoft.

[Groundbeef]

Much like XBox sold at a loss early on, sometimes suppliers sell at a loss too hoping to get it back over the life of a renewable contract. I really don't know how anyone outside Sony can accurately estimate costs, on these things. Reasonable best guesses are one thing, but there's just too many variables. When I worked at Honda we used to analyze the pricing/and total cost of ownership costs for a number of scenarios, or even try to predict our own. We were more often wrong than right, which I found out later was pretty normal in the industry.


So could we see 2 or 3 years down the road a new Nintendo Box a few years before Sony and MS then?

Yes, predictions are notoriusly incorrect, but the fact is that they get you thinking. If you have no idea of what may occur, there is no way to plan for contingencies.

As far as a Nintendo in a couple of years with a new machine? I doubt it, but who knows for sure. I think that in a couple of years it is going to look very long in the tooth. It is not HD now, can't play DVD movies even, and has low processing power vs the current competion. Don't get me wrong, it is very popluar now, but again as HD takes hold, and more people experience next gen gaming, the Wii wont hold up as well. (IMHO).

[AmpItUP]

Wow, I wonder just what is Sony thinking?!

[AmpItUP]

Wow, I wonder just what is Sony thinking?!

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