PS3 Price drop in 07?

[Groundbeef]

Perhaps some good news for those looking for a PS3. An analyist thinks that Sony may drop the price in '07.

I would imagine that right now its a staring game between MS and Sony, although MS has a bit more wiggle room for dropping the retail price.

Anyway, no anti-sony rant here, just thought you all might like this one:

http://biz.gamedaily.com/industry/feature/?id=15103

[icarus]

Its great to hear you say something about the PS3 without bashing it... ya Prices have already started to drop up here in Canada... its already gone down about 50 bucks, at london Drugs...

[Groundbeef]

Its great to hear you say something about the PS3 without bashing it... ya Prices have already started to drop up here in Canada... its already gone down about 50 bucks, at london Drugs...

Yeah, I musta had a mild stroke. Still reeling from it. BTW your "price drop" in Canada will be short lived. Sony has no official statement other than they are not raising prices, but it appears many retailers are raising the price to offset the currency difference
between the US and Canada.

[icarus]

well thats a shame... but whatever by the time final fantasy 13 comes out, the PS3 will have come down in price a bit more than 50 bucks, so i can wait, since thats pretty much the only game that i really want right now

[kexodusc]

Yeah, I think I read the other day that these things typically see a price drop every 6 months or so. That's good - now, if Microsoft drops the price on XBox 360 to counter I might be interested...

As for wiggle-room - when it comes to pricing wars and product-basket strategy, "wiggle-room" really is a non-issue at decision making time. Often price cuts on loss leaders are necessary to minimize aggregate losses (or maximize aggregate profit) if it leads to a boost in synergistic products. PS3 and XBox 360 will both get cheaper to produce over time too.

I'm not even so sure XBox 360 has the most wiggle room in the future. Right now they do, but right now only considers today's cost structure. The BluRay component must account for the biggest difference in cost of these units - If BluRay manufacturing costs fall by 30%, 40%, or even 50% a year early on like DVD, CD, VHS, and other new consumer electronics before them, PS3's future costing structure would probably see a larger % decrease each successive year. Whether Sony passes that on in price cuts is another question. Demand and supply are still the biggest influences here I think.

[Groundbeef]

Yeah, I think I read the other day that these things typically see a price drop every 6 months or so. That's good - now, if Microsoft drops the price on XBox 360 to counter I might be interested...

As for wiggle-room - when it comes to pricing wars and product-basket strategy, "wiggle-room" really is a non-issue at decision making time. Often price cuts on loss leaders are necessary to minimize aggregate losses (or maximize aggregate profit) if it leads to a boost in synergistic products. PS3 and XBox 360 will both get cheaper to produce over time too.

I'm not even so sure XBox 360 has the most wiggle room in the future. Right now they do, but right now only considers today's cost structure. The BluRay component must account for the biggest difference in cost of these units - If BluRay manufacturing costs fall by 30%, 40%, or even 50% a year early on like DVD, CD, VHS, and other new consumer electronics before them, PS3's future costing structure would probably see a larger % decrease each successive year. Whether Sony passes that on in price cuts is another question. Demand and supply are still the biggest influences here I think.

But the 360 uses many more parts "off the shelf" than the PS3. Many of its components are designed specifically for the PS3.

For example, the 360 uses a standard DVD-Rom Drive. Blu-Ray will not be nearly as inexpensive as an off the shelf DVD-Rom drive for the forseeable future.

The 360 uses a standard albiet powerful graphics accelerator, while the PS3 uses a custom made graphics accelerator from ATI. Because it is designed speciffically for the PS3, the only volume discounts and production experience gains will be from increased PS3 sales. The 360 will enjoy lower costs sooner as the graphics chip is used in other computer related graphics cards.

As far as "wiggle room", currently MS holds the cards on this one. It is making a small profit on each unit. Theoretically if MS cut the retail price of the premium unit it could compete with the Wii.

This however, could backfire as consumers may decide that the price discrepancy between the PS3 and the 360 is too much. It may appear that the 360 is "cheap" or not as tech capable. I think that MS will wait out Sony before dropping prices. It has already been over a year and MS hasn't cut it yet, although they are doing some bundle deals with games included and such.

[kexodusc]

But the 360 uses many more parts "off the shelf" than the PS3. Many of its components are designed specifically for the PS3.

For example, the 360 uses a standard DVD-Rom Drive. Blu-Ray will not be nearly as inexpensive as an off the shelf DVD-Rom drive for the forseeable future.

The 360 uses a standard albiet powerful graphics accelerator, while the PS3 uses a custom made graphics accelerator from ATI. Because it is designed speciffically for the PS3, the only volume discounts and production experience gains will be from increased PS3 sales. The 360 will enjoy lower costs sooner as the graphics chip is used in other computer related graphics cards.

As far as "wiggle room", currently MS holds the cards on this one. It is making a small profit on each unit. Theoretically if MS cut the retail price of the premium unit it could compete with the Wii.

This however, could backfire as consumers may decide that the price discrepancy between the PS3 and the 360 is too much. It may appear that the 360 is "cheap" or not as tech capable. I think that MS will wait out Sony before dropping prices. It has already been over a year and MS hasn't cut it yet, although they are doing some bundle deals with games included and such.

You're right about the standard DVD-Rom drive being cheaper for the foreseeable future - but at the same time, DVD-Rom drives aren't gonna get much cheaper than now. DVD players fell, what, 90% in 5 years? Next year's PS3's are almost certain to be cheaper to build than this year's. This will narrow the gap by some amount between PS3 and XBOX 360. Who knows how much though?

The bundles thing is pretty common to see - adding things while protecting the base price. Those additional games or controllers or both are extremely cheap to throw in a box. In a few years it'll probably Final Fantasy and Metal Gear or something vs. Halo 3 and Knights of the Old Republic. Sweeeet.

The ATI/off the shelf stuff isn't much of an advantage really - and price advantages from volume discounts and production advancements will be equal for either..when you get into the millions of sales numbers, you've already exhausted price cuts - ATI doesn't sell millions of any one of its graphic card models. PS3 could very likely be it's highest production unit unless a single onboard graphics processor has a great run a single year on a few motherboards.
Most of those proprietary components are derivatives of existing components and share in production advancements, components, and technology anyway. They don't re-invent the wheel to make something proprietary, just tweak existing units. Making them smaller, cooler, more reliable, etc.

I think it does pose less risk to XBox 360 in the long run though, as we've already seen - finding critical components for production isn't easy if a supplier can't meet your demand for whatever reason.

Your missing the point on "wiggle room". How much profit you make on a unit today has little affect on competitive pricing strategy.

In a fixed cost loaded industry, prices are set to maximize revenue, and the cost on each unit has no effect on price at all. This is why salaries in pro-sports have no effect on ticket prices. In a variable cost industry with heavy fixed costs like electronics, prices are adjusted to maximize marginal revenue which should maximize profit. Even if price cuts lead to Sony losing billions (which I think is possible for PS3), they'll drop the prices willingly taking a huge loss provided that decision minimizes the aggregate loss on Electronic Gaming operations as a whole. Put another way, if matching XBOX 360 price means Sony sells enough PS3 to lose 6 Billion dollars, they'll do it, if not matching XBOX 360's price meant losing 6 Billion and one dollars. Or whatever number you want to plug.

There's a lot of guesswork involved and companies miss the boat often enough. There's also implicit collusion. Microsoft has the least to gain from a pricing war if their making profit on each unit, and currently outselling PS3. I don't think they're eager to give up a cash flow just to put a squeeze on Sony just to boost the ego by gaining a bit of market share at the expense of profit. If they could see a monopoly in the gaming industry's future, maybe, but that's not going to happen. Demand elasticity produces diminishing returns from price cuts, too. It behooves both Sony and Microsoft to keep their prices high enough as long as possible to make money, but low enough to lure market share. I'm thinking the difference in price will shrink, but XBOX will always be cheaper. It's up to the consumer to put a value on the PS3's supposed advantages.

I read an article yesterday from The Yankee Group market research firm that predicts Sony will sell 30 million units by 2011, with 44% market share, to XBOX 360 27 million units and 40% market share, despite the early lead XBOX 360 enjoys. It talked about the price pressure Microsoft will put on Sony, quite a bit. I'm sure it can be found via google, Yankee Group is pretty well known. That's a huge victory for XBOX 360, IMO, and positions MS to overtake Sony next time around.

[Groundbeef]

You're right about the standard DVD-Rom drive being cheaper for the foreseeable future - but at the same time, DVD-Rom drives aren't gonna get much cheaper than now. DVD players fell, what, 90% in 5 years? Next year's PS3's are almost certain to be cheaper to build than this year's. This will narrow the gap by some amount between PS3 and XBOX 360. Who knows how much though?

Well right now the spread is at least $250 per unit. MS makes ~$75/unit and some estimates are as high as ~$200+ per unit loss for Sony. I don't think that spread will be eliminated in 1 year.

I think it does pose less risk to XBox 360 in the long run though, as we've already seen - finding critical components for production isn't easy if a supplier can't meet your demand for whatever reason.

Or you can't produce your own parts to meet demand. IE the blue laser diode problem w/ SONY.

Your missing the point on "wiggle room". How much profit you make on a unit today has little affect on competitive pricing strategy.

That is an overly simplistic statement. Because we are discussing multi-billion corporations loss per unit is less of an issue. However, there are plenty of operations/companies large and small where pricing plays a major component of strategy. Not every product in a company line can be sold as a loss for the sake of market share.

In a fixed cost loaded industry, prices are set to maximize revenue, and the cost on each unit has no effect on price at all. This is why salaries in pro-sports have no effect on ticket prices. In a variable cost industry with heavy fixed costs like electronics, prices are adjusted to maximize marginal revenue which should maximize profit. Even if price cuts lead to Sony losing billions (which I think is possible for PS3), they'll drop the prices willingly taking a huge loss provided that decision minimizes the aggregate loss on Electronic Gaming operations as a whole. Put another way, if matching XBOX 360 price means Sony sells enough PS3 to lose 6 Billion dollars, they'll do it, if not matching XBOX 360's price meant losing 6 Billion and one dollars. Or whatever number you want to plug.

Again, it is easy to armchair CEO. However, investors are not happy with the current pace of Sony earnings. I am aware that the stock price is going up, but this follows plenty of low points. The gaming division has been reshuffled due to the poor launch.
Sony Investors are not going to stand by idly as the company fritters away profits. (Or MS investors I would add). These decisions are not made in a vacum. The job of the corporation is to return maximum return for investors. Loosing money for the sake of loosing money is not a sound business practice.


Your sports analogy is also a bit off. Prices do go up to support the salarys. The ticket prices do not flucuate like fuel or milk, but at some point costs will go up for the consumer. Much of team overhead is supported with revenue sharing, sponserships, naming rights, licensing deals, etc. But if your theory is spot on, then teams ought to be giving tickets away. After all, if costs don't matter, you ought to give them away.

There's a lot of guesswork involved and companies miss the boat often enough. There's also implicit collusion. Microsoft has the least to gain from a pricing war if their making profit on each unit, and currently outselling PS3. I don't think they're eager to give up a cash flow just to put a squeeze on Sony just to boost the ego by gaining a bit of market share at the expense of profit. If they could see a monopoly in the gaming industry's future, maybe, but that's not going to happen. Demand elasticity produces diminishing returns from price cuts, too. It behooves both Sony and Microsoft to keep their prices high enough as long as possible to make money, but low enough to lure market share. I'm thinking the difference in price will shrink, but XBOX will always be cheaper. It's up to the consumer to put a value on the PS3's supposed advantages.

I don't see any collusion. Please explain your rational of MS vs Sony. How is that MS has more to lose as they are currently making money? Somehow it would be more adventageous for Sony to lose more money per unit than MS to not make quite as much? Perhaps in bizarro world. If anything MS in a better position to compete on price, not the other way around.

I read an article yesterday from The Yankee Group market research firm that predicts Sony will sell 30 million units by 2011, with 44% market share, to XBOX 360 27 million units and 40% market share, despite the early lead XBOX 360 enjoys. It talked about the price pressure Microsoft will put on Sony, quite a bit. I'm sure it can be found via google, Yankee Group is pretty well known. That's a huge victory for XBOX 360, IMO, and positions MS to overtake Sony next time around.

I'll look it up. Sounds interesting.

I have said it before, and I'll say it again. Every point in market share that MS gains is a direct loss for Sony. MS only has up to go, and Sony can only go down. Wii will also be a major fly in the ointment for Sony.

[Groundbeef]

Heres a kick in the teeth for US consumers. Sony is mulling a SECOND price cut in Japan. But not in the US, Europe or eleswhere.

http://news.yahoo.com/s/ap/20070131/..._te/japan_sony

[kexodusc]

That is an overly simplistic statement. Because we are discussing multi-billion corporations loss per unit is less of an issue. However, there are plenty of operations/companies large and small where pricing plays a major component of strategy. Not every product in a company line can be sold as a loss for the sake of market share.

Once you make your bet and build the PS3 production machine, you're locked it, then it does become very simple...a simple race to maximize profit or minimize losses...if (and that's a big if) it's a price cut and taking a loss on the hardware to boost profit on the software and accessories, then so be it...I agree, MS is likely to make more money, especially now - but Sony's pricing here on in will have more to do with marginal revenue than cost considerations - unless, the unlikely scenario of Sony shutting down PS3 altogether becomes the most profitable solution. All the pissed off investors in world won't change this - they can fire the whole corp and put new people in there...they're going to do whatever minimizes the loss just the same.

Loosing money for the sake of loosing money is not a sound business practice.

Nobody's suggesting that. This is simple business strategy though - the bulk of cost to date were from R&D, not raw material production costs...Sony's pricing strategy here on in will reflect what Sony thinks will make the most money for it long-term. That could mean a price cut on the hardware to recoup losses elsewhere. Maybe they won't have to. I doubt it though. Again put simply, if the losing money on each sale of PS3 boost sales, which increases software support, accessories, etc, enough that the price cut becomes more profitable than not cutting prices, Sony will do this. There's breaking point there too though. I'm not suggesting Sony will drop to $200 and lose $400 per unit - that would be too far...but this is the way business works. The best example I can think of is the last 6 years of North American car manufacturing. They were forced to cut prices (through huge rebate/discount programs) just to minimize losses. GM started it to put pressure on Ford - Ford grudgingly followed suit simply because they were faced with a decision of losing some money or losing more money by doing nothing.

Your sports analogy is also a bit off. Prices do go up to support the salarys. The ticket prices do not flucuate like fuel or milk, but at some point costs will go up for the consumer. Much of team overhead is supported with revenue sharing, sponserships, naming rights, licensing deals, etc. But if your theory is spot on, then teams ought to be giving tickets away. After all, if costs don't matter, you ought to give them away.

I don't think you understand here. Ticket prices are set to maximize revenue. That means make the most money from the fans (with consideration to supporting revnue streams from beer, hot dogs, merchandise, parking etc). If salaries are lower, ticket prices won't change. The profit just goes up. Likewise, if salaries increase, but market demand does not, the price is still set to maximize revenue. Raising prices here without increased demand would lead to less revenue - since the payroll is reasonably fixed not maximizing revenue is a bad decision. Unless you're not in the business to make money, but I don't know of any owners like that. There's "some" correlation between salaries, and demand, but only when salaries translate to superior performance. This is the case some of the time...but definitely not most of the time. Too often fans blame rising salaries as a driver of ticket price escalation. Salaries at best account for a portion of the demand, but only by whatever degree additional salaries increase demand for tickets.

I

don't see any collusion. Please explain your rational of MS vs Sony. How is that MS has more to lose as they are currently making money? Somehow it would be more adventageous for Sony to lose more money per unit than MS to not make quite as much? Perhaps in bizarro world. If anything MS in a better position to compete on price, not the other way around.

MS is in a better position to make more money in a pricing war. But when I said "implicit collusion" it didn't mean they were teaming up and cheating the free market. Just that they're both smart enough to know that it's mutually beneficial to not rush into a pricing war. If XBOX 360 structure is as good as you say, they could cut costs $200 now, and really screw SOny over...think of the billions Sony would lose, the market share, etc. Except this isn't the optimal scenario for MS right now, either. They'd like the market share, but not at the expense of hundreds of millions of lost profit.. A price war hurts both and benefits nobody at this point. We're more likely to see slow tweaking for some time.

I have said it before, and I'll say it again. Every point in market share that MS gains is a direct loss for Sony. MS only has up to go, and Sony can only go down. Wii will also be a major fly in the ointment for Sony.

Yeah, I don't think anyone's ever argued with that logic. Wii will hurt MS and Sony both I suspect - we can't just assume only Sony will lose ground to Wii..I agree, MS will gain market share. I doubt anyone at Sony believed otherwise. I doubt you'd find anyone in Sony who'd put money on PS forever being the market leader, either. Funny thing here is Sony could possibly win the console war and lose money, while MS loses but makes a mint...

Whatever the final outcome, I'm guessing the market share is close between the two...I could see MS taking over this time around, but find it more likely it's a generation away. But neither company is going to be dominate like we've seen the last few generations.

[icarus]

thats hurts.... but is intersting that they are planning to break even at the end fo their next fiscal year.