Analysts predict a $75 loss per Xbox 360 to reach the $299.00 price point

[Everlost_MI]

TeamXbox (http://www.teamxbox.com/) has posted this blurb (http://news.teamxbox.com/xbox/8444/Analyst-Xbox-360-to-Retail-for-299-Microsoft-to-Lose-75-per-Console/) regarding Microsoft's potenital loss on each Xbox 360 console sold.

According to analysts at UBS Securities LLC, Microsoft will pay as much as $375 per Xbox 360 to its manufacturing partners and sell the units to consumers for $299. This represents an improvement over the last generation, in which Microsoft was rumored to lose approximately $100 per Xbox sold.

In a research note, UBS Securities estimates that two of the contractors, Flextronics International and Celestica, will share revenue of between $350-million and $450-million this year and between $900-million and $1.1-billion in 2006. The Globe and Mail also reported on Saturday that Wistron, a contract manufacturer in Taiwan, will build 60 to 70 per cent of the initial units.

Thoughts?

[Klade]

Didn't the first xbox lose like 200$ per unit when it launched? I might be pulling that number out of my ass but I'm pretty sure it was more then 75$. Heck microsoft can practically make this one back with a few game sales heh.

[carneconcarne]

thought: was jesus the only white man in jerusalem?

[bapenguin]

thought: was jesus the only white man in jerusalem?

1) Jesus wasn't white.
2) $75 loss per box is pretty low. If this is true, that's good news for MS.

[netcraazzy]

Now that Microsoft owns the GPU and CPU designs they should be able to save money in the long-term by farming their manufacturing out to the lowest bidder. Last gen they were at the mercy of Nvidia and Intel to supply the chips at whatever price they saw fit. I'm interested in knowing if there are any estimates on how much Sony is going to loose per system as theirs seems to have the more expensive design.

[Reanimated]

Pretty good considering that estimates put their loss at 150+ for the first Xbox.

[hideouslywrinkled]

Thought.

Analysts make money doing what people do for free on message boards.

[Thenetcase]

Thought:
I need to become an analyst. I could make bukus of money doing that... and I bet I could under-bid them too.

[Atorak]

$299 = Sexy Introductory Price > $399 > $499

[screwtape]

So how much does MS make off each game? How much for each controller, faceplate, miscellaneous add-on, Xbox Live kit? I'm wondering what the magic number is for them to break even and get into the black for each console purchase.

[darkwarrior]

The idea is to make the money back on the peripherals and games. Memory cards for example are essential for a PS2 unless you never turn the game off or can risk dying in FFX and returning to your last save..cept you don't have one.

SO they charge £20 for a single chunk of 8MB memory. You get one controller so you have to pay for any extras, hard drives, network adapters, replacements.

[Redline]

1) Jesus wasn't white.
2) $75 loss per box is pretty low. If this is true, that's good news for MS.

Thought: He was either being humourous (perhaps unintentionally so), or you didn't get it.

[sTubbs]

This is very interesting. How is MS able to obtain all of this technology for so cheap? I understand that most of the components are customized, and thus different than the typical PC stuff, but wouldn't that make the 360 parts more expensive and not less?

[Seriously, please help me out here. I am not exactly a tech head so this hardware / manufacturing price point intrigues me.]

[bapenguin]

Thought: He was either being humourous (perhaps unintentionally so), or you didn't get it.

Ya, I didn't get it at first...it was too early.

[normyk]

Wow, that is a lot less than I would have expected. A LOT less.

[Ernst_Jager]

I wonder what the PS3 loss will be?

[Dr.Finger]

So how much does MS make off each game? How much for each controller, faceplate, miscellaneous add-on, Xbox Live kit? I'm wondering what the magic number is for them to break even and get into the black for each console purchase.

Last time I looked the margin (% of an item's price that is profit) on accessories is something like 70%. I was told by a minor exec at a major game retailer that each system had to sell 3 games and 3 accessories to make a profit back around the PS2-XBox launch, and everything after is considered profit.

[carneconcarne]

I'm a funny guy :).
Seriously though, 299 is a nice price. Although, I have to say, having a free library of first-party nintendo titles may not be all that revolutionary, but it is tempting me to wait it out for the big N.

[doyama]

The losses per x-box 360 are inconsequential. If you look at MS' gaming division they posted their first profitable quarter in Q4. And most analysts agree that was only because of Halo2 and don't expect it to be a trend. The losses in the gaming division are a drop in the ocean compared to the profits their OS and to a lesser extent Office divisions. The only reason they don't give away the X-box for free is because it would violate a few hundred anti-competition laws. They COULD do it, they just can't.

PS losses are generally much higher because all the first lots of Playstations are always manufactured in Japan.

[jim_rock]

Deep Thought: Perhaps, if I am very lucky, the feeble efforts of my lifetime will someday be noticed, and maybe, in some small way, they will be acknowledged as the greatest works of genius ever created by Man.

[*Legion*]

The losses per x-box 360 are inconsequential. If you look at MS' gaming division they posted their first profitable quarter in Q4. And most analysts agree that was only because of Halo2 and don't expect it to be a trend. The losses in the gaming division are a drop in the ocean compared to the profits their OS and to a lesser extent Office divisions.

Windows and Office pay for everything else under the "Microsoft" name, indeed.

Of course, that's not unique to Microsoft. Many large corporations have their cash cows that pay for everything else in the company. Hell, the entire music industry is based on the idea of about 10% of album releases pay for the other 90%.

Gaming for MS is part of product diversification. Big corporations spread their bets around so that if something in the world changes and causes one of their cash cows to die, they can shift their focus into one of their other industries to help them survive.

[Deadend]

So.. it costs around $600 to build an X360? And High end Video Cards cost $400?

[player_2]

i am not at all concerned at the loss incurred by microsoft. i think they should give us the goddamn p.o.s. for free. the groups i am concerned about are the game developers and supporting them so the games are still being made. i can't pretend to lose sleep when i think about bill not getting his cut, that fucker is probably reading this thread and laughing as he lights his cuban cigar with a hundred dollar bill as he passes ken kutaragi the bong.

[mkelehan]

$300 with 20GB HDD. Gentlemen, I think we've gotten what was once referred to as the Best Case Scenario.

[if76]

I wonder how much Nintendo is MAKING off each Revolution sold.

[Pumped'Up]

to complete with the PS3, the $299 price tag of the 360 is laughable and should be less by $100.

[Zanzibar]

-$75 per X360? Chump change.

Call it ~4mil X360 units sold before manufacturing costs drop below the break-even point. That's ~$300mil. Bill Gates could pull that outta his couch cushions.

Hell, their ADVERTISING BUDGET has gotta be upwards of $500mil.

[*Legion*]

I wonder how much Nintendo is MAKING off each Revolution sold.

Well they have to make it be something other than an empty box first.

[Zanzibar]

to complete with the PS3, the $299 price tag of the 360 is laughable and should be less by $100.

Thought:
You lecturing us on what is 'laughable' is classic.

[RMan]

I understand that most of the components are customized, and thus different than the typical PC stuff, but wouldn't that make the 360 parts more expensive and not less?
Although there is some logic to that, there are other factors:
1. They’re developing new hardware, but it’s likely just the next iteration of whatever the hardware vendor is making, so it’s not like they’re designing it from scratch, and they’re likely not “adding” anything special.
2. Most of what you pay for with a PC part is marketing and distribution, in this case those costs are gone.
3. The guarantee of a huge number of parts that don’t change is very attractive, they can guarantee >20M units. Vendors don’t need to worry that the product gets poor sell-through, so initial costs are spread over a much larger product base.
4. The lack of needing to make the product compliant with other varied hardware platforms cuts down on testing and driver production significantly.

[Darkholmme]

While I can certainly be wrong, does anyone else feel like Microsoft just might be living off of its legacy right now? Windows XP has been out for a long time, meaning that that outlet is pretty much sold out. Most industries are becoming more Apple and Linux/Unix friendly, and the longhorn is getting a very scrutinizing eye by the industry. I know that 5-7 years ago I could easily understand how Microsoft could lose as much money as they wanted to (and did) in their gaming division, but if I recall correctly their stocks aren't as healthy as they were back then (granted, this may be from some sort of stock split that I don't know about), the EU is on their backs, they're losing the search engine war (as evidenced by Bill Gates' sour grapes comments over Google) and losing ground on the browser war.

Maybe I'm only asking this question after discovering how financially in danger Sony actually is despite its dominance in the market, but I wonder exactly how Microsoft is really doing?

[Mrbunchypants]

One has to remeber that most of the stuff int he Xbox 360 is not top of the line. nor does it have to be. By doing this they close the gap between loss and profit on the console. That plus some First party games and your makeing a nice bit a cash.
Sony this round has more at stake then MS. And it's all a gamble. The big N has always sold less but make a profit from day one. This time around they could give both MS and Sony a run for there money.

[Furious Wang]

If Microsoft releases at 300, then drops to 250 on PS3 release, then 360 wins - hands down. Everything Sony has shown us leads to a higher price point than 360. Sony also simply cannot take a loss per unit sold. It's looking like $400 will be a bargain for PS3 and the most likely price point. That dong won't cunt.

Looks like its going to be a battle between MSoft & Nintendo to me. Man, if Nintendo can bang out an decent console with a great controller for 150, they could just retake the whole game.

[TrackZero]

This is very interesting. How is MS able to obtain all of this technology for so cheap? I understand that most of the components are customized, and thus different than the typical PC stuff, but wouldn't that make the 360 parts more expensive and not less?

[Seriously, please help me out here. I am not exactly a tech head so this hardware / manufacturing price point intrigues me.]

They're buying in bulk, the same items just to be made en-mass from particular vendors. You get significant price cutting doing that. I'm sure they also put the part requirements up for bidding by multiple vendors who all tried to out-lower each others price. Not to say MS always takes the cheapest vendor, but it forces all the prices down by pitting them against each other. That's common for any project such as the Xbox.

[netcraazzy]

While I can certainly be wrong, does anyone else feel like Microsoft just might be living off of its legacy right now? Windows XP has been out for a long time, meaning that that outlet is pretty much sold out. Most industries are becoming more Apple and Linux/Unix friendly, and the longhorn is getting a very scrutinizing eye by the industry. I know that 5-7 years ago I could easily understand how Microsoft could lose as much money as they wanted to (and did) in their gaming division, but if I recall correctly their stocks aren't as healthy as they were back then (granted, this may be from some sort of stock split that I don't know about), the EU is on their backs, they're losing the search engine war (as evidenced by Bill Gates' sour grapes comments over Google) and losing ground on the browser war.

Maybe I'm only asking this question after discovering how financially in danger Sony actually is despite its dominance in the market, but I wonder exactly how Microsoft is really doing?

While I do think that Microsoft is seeing the beginnings of some decent competition on several fronts they are still making some good money on their Windows and Office software. Almost every new computer sold comes preinstalled with Windows, that's a bit of money in Microsoft's pocket every time. Now think about how many computers are sold worldwide every year and you start to get an idea of where a lot of their money comes from. It's the same story with Office too, except now you have large companies buying huge lots of licenses. I think the other divisions at Microsoft are seen internally as ways of supporting their primary revenue stream, a.k.a. Windows. To that end I think we are going to see a lot more connectivity between the 360 and your PC. Microsoft wants to be the leader in the console market, but their reason may be so that they have another platform that both supports and enhances their Windows OS.

[TrackZero]

I'm a funny guy :).
Seriously though, 299 is a nice price. Although, I have to say, having a free library of first-party nintendo titles may not be all that revolutionary, but it is tempting me to wait it out for the big N.

Hell, buy'em both, that's what I'll be doing.

[Crabby]

The losses per x-box 360 are inconsequential. If you look at MS' gaming division they posted their first profitable quarter in Q4. And most analysts agree that was only because of Halo2 and don't expect it to be a trend. The losses in the gaming division are a drop in the ocean compared to the profits their OS and to a lesser extent Office divisions. The only reason they don't give away the X-box for free is because it would violate a few hundred anti-competition laws. They COULD do it, they just can't.

PS losses are generally much higher because all the first lots of Playstations are always manufactured in Japan.

Seriously, this is my thought process o nthe matter entirely. $75 lost for each console? Eh, Bill is good for it. And if I know anything about those cats over at Microsoft, they probably don't care.


Good points in this thread made about Sony though. I certainly won't be buying their console at $400 and absolutely not paying anything above $300 for any console, ever.

[Zanzibar]

Good points in this thread made about Sony though. I certainly won't be buying their console at $400 and absolutely not paying anything above $300 for any console, ever.

I wouldn't be surprised if Sony actually delays the PS3 for a bit. That will allow prices for the HD-DVD drives and the Cell to come down a bit. It's a perfect scam. Sony announces the PS3 as being released in Spring of 2006, with a Fall 2006 US date. So, as the X360 approaches, there are already a LOT of people thinking 'I'm just gonna wait for the PS3. It's only 6 months.' AFTER the X360 launches, right after the holiday season, Sony is going to announce a delay. 'Stay with us,' they'll promise, 'it's only ANOTHER six months.' And a lot of people will wait. They already have blown their collective money wads on Christmas, so they won't have money to buy an X360. So, Xmas 2006 comes, and the PS3 launches in Japan. At that point, US buyers will save their money wait the remaining six months until it's released in the US.

[Fonz]

Lets keep anylizing and generating hype.

[CaptStu]

You're looney. Screw Sony. We're not sheep. I'm not waiting close to a year for Sony to put together a product that's not going to be any better than the 360.

[KNOTE]

So how much does MS make off each game? How much for each controller, faceplate, miscellaneous add-on, Xbox Live kit? I'm wondering what the magic number is for them to break even and get into the black for each console purchase.

MS guards it's royalty numbers very closely. But judging by the nintendo announcement last year that they were lowering royalties from $20 per title (!!) to one similar to competitors, at $8 per title, between $7-10 would be my guess. They make most money on hit first party titles. ($30) I think MS is finally realizing that. Nintendo has always known that, it's why they don't care about 3rd party developers outside of a few key partnerships. Sony made all their money on PS1 thru massive amounts of 3rd party sales. My guess is that still generates a large amount of cash for them, because 3rd party games sell the most units on that platform. (Madden, GTA)

Console + 3 additional controllers + 2 games (one first party, one third) = more than break even. That's why bundles exist.

[Orphiuchus]

1) Jesus wasn't white.
2) $75 loss per box is pretty low. If this is true, that's good news for MS.


Pff, jewish is white.

[CaptStu]

Why wouldn't MS buy Ubisoft? Obviously, Ubisoft needs the money and a shield from EA. And MS wants games. Sorry. This is off-topic.

[bobbler]

The price of a Cell versus the XCPU is about the same, I'd favor Cell over XCPU if I was a betting man and betting on who got a better deal per cpu (Sony or Microsoft). The simple fact that IBM had something to do with the design and plans on using Cell means that they probably aren't charging Sony as much since they got something out of the deal too. Transistor arrangement does not really make a difference in production cost -- theres about the same transistor count in both the Cell and the XCPU (most likely). Wafer size and transistor count (dictating how many dies per wafer) are the main deciding factors on yields, which dictate the lowest price they can do without losing money. Fishkill (IBMs newest plant in NY) is 300mm wafer plant and will probably be producing a majority of the XCPU and CELLs (If not all of them).

The price of the ATI card versus the RSX is about the same. Similar transistor count also ~300m for RSX vs ~330m for ATI's (although ATI's includes the edram, but that's still part of the chip). I'd bet that both are pretty close to the same in cost -- MS and Sony don't need to go through their respective companies to get the chips made; Sony can make their own or have NEC/Toshiba fab them for dirt cheap, MS can use TMSC or something to fab theirs (or maybe a partner they have like NEC/Toshiba for Sony). Overall neither are going to be much different in terms of price.

The only things that increase the price of the PS3 are the Blu-ray drive, which sony can produce which means they only have to pay themselves (but will probably have another company do it, who knows), and the built in wifi + some ports -- wifi/usb/network are all incredibly cheap to add in (pennies for a usb and a few more for network -- wifi is cheap also). The BR drive is already written off by Sony as a cost of winning the next gen format war -- they aren't going to transfer that cost to the consumer, it's just not the way things work; they have a lot to gain by making BR the next format, that means adoption rates need to be high. Xbox360 has a harddrive for sure (not sure on PS3 yet), so that's some extra cost on MS' side for now -- albeit a small cost.

You guys make it sound as if the PS3 is going to be vastly more expensive than the Xbox360 to produce. That's just flat out not true -- Sony is a far more capable company to make a console (they don't really need to go to outside sources to make stuff, they have fabs of their own for the RSX and can put the stuff together in their own plants).

75 loss per console on release is negligable at best, if it's right. I'd imagine at most the PS3 will lose 100 if the xbox360 loses 75 -- most of that extra loss will come from BR, which as I said won't matter to the consumer anyways. Over time both will go down (pretty rapidly) and I'd imagine the Cell will be even cheaper than the XCPU pretty quickly (toshiba using it in their TVs and IBM trying to use it in some workstations will increase production of it, reducing the price overall -- the vast number of PS3s that will be made will force the price down quick, same with the Xbox360 but probably to a lesser extent since it would be pretty ignorant to expect the Xbox360 to actually beat the PS3 on overall sold over the 5 years or so).

Don't claim the end is nigh when you haven't looked at all the angles.

Expecting anything but a 300 dollar price tag for PS3 and Xbox360 is sort of silly (and 200-250 for N-Rev most likely).

[Atorak]

Roughly 39 billion in cash on hand? Yeah, I think Microsoft will be able to swing a loss on the 'X' number of X360s they sell.

In most people's eyes, they 'lost' the last generation war to Sony, but Microsoft will come out of the gates swinging this generation. Plus, they will have a superior next-generation product out at least 9 months - 1 year ahead of their competition. As a businessman, I would take Microsoft's position over Sony's any day. Along those same lines, if you think about it, Microsoft could be generating a price point lower than original expectations, because it might end up costing their competition a hell of a lot more money.

If Microsoft could sell XBox 360's for $350, and only take a $25 loss per unit, Sony would probably follow suit at their launch, and sell their units for the same price. But, if Sony's PS3 cost upward of $450 to manufacture, which it very well might, and Microsoft priced their units even lower than $350, namely $299.99, then even though Microsoft's loss per unit increases, it is could be almost 2 fold for their competition (Sony).

Heh, if you want me to go one step further, Microsoft could launch the 360 with a starting price of $299.99, and a year later, then Sony comes out of the gate, they could offer the first price cut, and REALLY take a stab at the pockets of Sony. In that situation, you would have a comperable product, for less money, with a plethora of games that have already had the benefit of an extra year's worth of development tuning.

Not too bad, if you ask me.

[Chandler]

Looks like Microsoft wants to profit more this generation. We'll see how that affects gamers in the end. I agree with the above poster that the cell probably will even be cheaper than 360's cpu, Sony profited big time on PS2 because the emotion engine was really cheap parts (at least after 1st year), so let's not jump to conclusions that PS3 will "obviously" be more expensive.

[Kentor]

2. Most of what you pay for with a PC part is marketing and distribution, in this case those costs are gone.
Ummm... that's not true. The R&D costs for developing a new part is orders of magnitude more than marketing and distribution costs. The costs are usually so high that most of the revenue from previous products are used to develop the next product. Actual profits pale in comparison to how much is spent on R&D. Marketing and sales are typically a fraction of the cost of R&D (look at every Intel SEC filling). However, the cost of manufacturing parts is usually far less than marketing and distribution.

[RMan]

Marketing and sales are typically a fraction of the cost of R&D (look at every Intel SEC filling).
Oh, I have, perhaps you should take a look. Most recent financial report...
R&D - 4.7 billion
Marketing, general and administrative 4.6 billion

Typically throughout the years these figures hover around the same range, sometimes R&D is more, and sometimes less. Also consider that this is based on their income, and they do not get 100% of the money from each processor or piece of hardware sold (likely closer to 70%, if that). Also, what they list as "cost of sales" is at 14.4B, which I’m guessing is primarily fabrication and distribution. Anyway, in the end it’s extraordinarily clear that the vast majority of the money you throw down on a processor does not go to producing a better processor (figure on 15% or so), and I’d expect similar results from other hardware vendors. This is why projecting the cost of a video card of processor to how much it costs in a console system is completely meaningless, the idea that they pay even half of what you do is insane.

[Achilles]

Sony has said a couple of times that they don’t see $299 as a number they need to meet for their new console, prepping people for it being more than that at launch. Though I think they’ll come to their senses when they see that releasing at $350+ will get them killed.

I don't know how much the 360 will cost at launch, but they'll probably sell a bundle for $360 just to be cute as people around here have predicted. Losing $75 per unit at launch isn't bad at all if that's a real number.

[Goronmon]

Is there any solid evidence that the 360 will actually be going for $300, or are people just going on that assumption?

[Zanzibar]

Give Me Halo 3.

[Atorak]

Is there any solid evidence that the 360 will actually be going for $300, or are people just going on that assumption?

Hey, maybe Microsoft executives check EvilAvatar.com on a daily basis!

Perhaps they'll pick up a few pricing strategies along the way. :)

[riposte101]

We don't even know the price point yet and we know that they are losing $75 per?

[Stryfe01]

i am not at all concerned at the loss incurred by microsoft. i think they should give us the goddamn p.o.s. for free. the groups i am concerned about are the game developers and supporting them so the games are still being made. i can't pretend to lose sleep when i think about bill not getting his cut, that fucker is probably reading this thread and laughing as he lights his cuban cigar with a hundred dollar bill as he passes ken kutaragi the bong.

Really. Bill gives away so much damn money to charities year after year. He and his wife seriously champion these medical causes. Add to that that most people who know him think he has the greatest personality, but one of the shrewdest minds ever. Why are people so negative towards him ? He's rich...most of us are not. Get over it, or get rich.

[Atorak]

He's also probably one of the hardest working men on the planet as well. He could have stepped down, and retired as the richest man in the world, EASILY. But he didn't. He keeps innovating, he spends ungodly amounts of money on charity work, and he's basically dedicated his life to making products that help most of the civilized world do business more efficiently.

I love Microsoft, I know a few people that work for the company, and besides being some of the smartest people I know, they probably work the hardest as well.

Trust me, CEOs of large corporations are not sitting on the decks of their huge mansions, night after night, smoking cubar cigars, and sipping on Louis XIII, while watching the time pass on their Patek Philippe timepieces.

[mister_slim]

Didn't the first xbox lose like 200$ per unit when it launched? I might be pulling that number out of my ass but I'm pretty sure it was more then 75$. Heck microsoft can practically make this one back with a few game sales heh.
$120, I'm pretty sure. The short design time, some design choices, and the lower than expected volume meant that production costs didn't drop as quickly as the retail. But MS can write it off easily, so no problem.
The price of a Cell versus the XCPU is about the same, I'd favor Cell over XCPU if I was a betting man and betting on who got a better deal per cpu (Sony or Microsoft). The simple fact that IBM had something to do with the design and plans on using Cell means that they probably aren't charging Sony as much since they got something out of the deal too. Transistor arrangement does not really make a difference in production cost -- theres about the same transistor count in both the Cell and the XCPU (most likely). Wafer size and transistor count (dictating how many dies per wafer) are the main deciding factors on yields, which dictate the lowest price they can do without losing money. Fishkill (IBMs newest plant in NY) is 300mm wafer plant and will probably be producing a majority of the XCPU and CELLs (If not all of them).
Also, Sony has a one-bad-coprocessor-expected hedge that should bring up yields quite a bit.

[Furious Wang]

The only things that increase the price of the PS3 are the Blu-ray drive, which sony can produce which means they only have to pay themselves (but will probably have another company do it, who knows), and the built in wifi + some ports -- wifi/usb/network are all incredibly cheap to add in (pennies for a usb and a few more for network -- wifi is cheap also). The BR drive is already written off by Sony as a cost of winning the next gen format war -- they aren't going to transfer that cost to the consumer, it's just not the way things work; they have a lot to gain by making BR the next format, that means adoption rates need to be high. Xbox360 has a harddrive for sure (not sure on PS3 yet), so that's some extra cost on MS' side for now -- albeit a small cost.

You guys make it sound as if the PS3 is going to be vastly more expensive than the Xbox360 to produce. That's just flat out not true -- Sony is a far more capable company to make a console (they don't really need to go to outside sources to make stuff, they have fabs of their own for the RSX and can put the stuff together in their own plants).

75 loss per console on release is negligable at best, if it's right. I'd imagine at most the PS3 will lose 100 if the xbox360 loses 75 -- most of that extra loss will come from BR, which as I said won't matter to the consumer anyways. Over time both will go down (pretty rapidly) and I'd imagine the Cell will be even cheaper than the XCPU pretty quickly (toshiba using it in their TVs and IBM trying to use it in some workstations will increase production of it, reducing the price overall -- the vast number of PS3s that will be made will force the price down quick, same with the Xbox360 but probably to a lesser extent since it would be pretty ignorant to expect the Xbox360 to actually beat the PS3 on overall sold over the 5 years or so).


You sound like an engineer, and you appear to be looking at this from an engineer's angle and not a businessman's.

You make it sound like Sony can just throw in BRay drives into the PS3 for free because they are making the drives themselves. One must consider the fact that the drives still cost time and resources within the company to produce. There is a cost associated. Plus, BRay is a format created by Sony. There are pretty large R&D costs associated with the disk and drive designs. Sony can not "eat" all those losses just to ensure the success of a new format. They may not tack on 100s of dollars, but there will be a fairly significant overage charged for the inclusion of the new tech. In the end, Sony's push for Blueray will probably be more to inhibit piracy than push the video format.

Just like the lack of a DVD drive was a major factor in Nintendo's ability to launch the GCube lower than its competitors, so will the 360's lack of BRay.

If, however, Microsoft decides to go with an HDDVD drive, the two will be on a more even footing and I imagine the 300 estimate will have to be reevaluated.

Sony has also issued statements hinting that a Harddrive will not be included at purchase, but will be available as a accessory. This would certainly lead one to believe that Sony is concerned about production costs and working to keep those down, really putting them in a lose-lose situation.

Sony spent 2 billion dollars on preproduction of the PS2. Lord knows how much they've spent on PS3, but I'd imagine it to be at least 3 billion (that's conservative). That is money that they must make back. Sony's market cap is something like 34 billion. Microsoft's is 270 something billion. Microsoft can lose money per box. Sony simply cannot. Not without putting its other divisions at an enourmous risk that stock holders simply won't tolerate.

Sony was making some 120 dollars profit per PS2 sold on release. If you expect them to lose 100 per console on the PS3, well that's a pretty drastic swing. Let's say its a big success and they sell around 10 million around the first year and a half. That's a billion dollar loss on top of what they've spend already on R&D. That doesn't even include all of the marketing/advertising costs. If Sony wants to reduce their stock to junk status, that's probably the quickest route to get them there.

Don't think Sony will take a loss hoping to regain the cash through volume and game sales. Sony knows that was Sega's strategy with the Dreamcast. Sega's gamble ruined their entire company. Sony will gladly take a close second place if it means they get to stay in the game.

Microsoft is poised to take the game. There are really only 3 types of people who have played the Xbox and don't like it:

1. People who have a PS2 and don't have the resources to buy an Xbox or can't justify the purchase even though they desire one.

2. People who prefer single player games to multiplayer (mainly the Japanese Rpger or the Platformer)

3. The Linux Lovin' Microsoft Haters.

Everyone else will probably be won over.

[bobbler]

Furious Wang (Didn't want to quote your post, would end up too long :rolleyes:):

As I said, the cost of a BR drive is already written off as the cost of winning the next gen format war -- they'll make the money off format royalties (from movies/etc). I also said they will most likely have another company make it, even if they can. It's a gamble but it's what they are doing, most likely. So that cost extra can be sort of ignored in terms of monetary loss per system. Sure it's going to cost them, but now they have a secondary method of income... It basically seals the deal on winning the format war. The cost added to the PS3 is written as a loss in the 'Blu-ray division' of Sony. If, however, like you said MS goes with HD-DVD drive then that'd put Sony in a hurt it would seem -- Blu-ray would no longer be a gauranteed win. Hell might as well open up then, neither format will be winning any time soon if that happens.

This entire loss number came from speculation. So it may well be the PS3 still makes a profit (same with Xbox2) -- the deals they made with IBM and Nvidia seem to me like they got a very good deal now that I think about it some more (IBM won't be charging them much for the Cell since it's codesigned with toshiba/sony and them; RSX clearly didn't have a ton of money put into development as it's most likely just a modification of the G70 part, they also probably got a good deal because nvidia was probably wanting to get a console chip out there because it looks bad if they don't). There is more to the story than what's on the surface. We don't know what kind of deals MS and Sony got. But... I'd be very surprised if Sony is paying more for the Cell and RSX than MS is paying for their CPU and GPU, looking at the situations surrounding both of them.

$1.7 billion or so was put into the Cell (that is quite possibly from IBM/Toshiba/Sony combined, not really sure though, it's the only number I've heard). The RSX, I highly doubt all that much was put into -- considering it's most likely just a twist of G70 which was already taped out (die shrink, clock speed increase and adapted to work on the FlexI/O bus). I'd be willing to put some money on the fact that the Cell archetecture will end up in the PS4 in some form or another (Increased memory bandwidth and core's increased in power + more of them -- much like the x86 is standard for the PC now, each progressive CPU that Intel and AMD makes is based off their previous, usually -- that seems to be what they are trying to do with Cell for the PS3; create an archetecture to build from) -- It may be revamped, but the initial R&D now is money saved in the future.

Another thing to soften the blow of sold at loss hardware (if that ends up being the case) is the fact that the PS2 will continue to sell for another 3-4 years (the Xbox would too if MS would continue support for it). The PS1 sold around 1/3 of its total after the PS2 came out, which helped at the start of the PS2 (which I doubt they made 120 monies profit right off the bat, I haven't heard otherwise -- I haven't heard any numbers -- but that's a lot of profit right from the get go).

There is a lot more to the story; obviously neither of us knows the whole story or we'd probably be working for Sony and probably making some decent cash. I have a bit of faith in Sony knowing what they are doing -- I'm just trying to find all the sides of it (it's easy to say they will be doomed and lose money, but if that was the case they wouldn't be doing it), I also have faith that MS and Nintendo know what they are doing -- If I knew better than them, I'd probably be paid a lot more than I am.

I realize I'm doing a lot of speculation, but to even comment on this subject you have to speculate. So it may well turn out we're both quite wrong; who knows how it will turn out -- we're probably both missing things.

[Furious Wang]

Bobble, Agreed we're both missing things. However, I'm arguing from the financial viability of both companies and historical fact. My main point of contention (and I think many would agree with me) is that sony simply cannot eat the entire cost of adding a blueray drive to the PS3. You assume they will do so "just to win the next gen disk format wars".

I personally don't think either next gen disk format will be popular. VHS had 20+ years of mainstream market penetration. DVD has had almost 6. The public just isn't begging for a new format.

Sony's track record for proprietary formats is atrocious. Beta. Minidisk. Atrac. Blueray is far from a sure thing and gambling billions in the hope to make it up through royalties isn't something that's going to fly with their stock holders. Especially with their poor performance recently.

Sony doesn't have the financial foothold (much less the humility) to sell the PS3 at a loss.. So its really going to be a question of how much more than the 360 its going to cost. And how much that difference is going to cost sony.

I don't think it will cost them too much. It may give Microsoft the edge (at least in America, where the lower end has quite a bit less money than the lower end in Japan) at first, but there will certainly be plenty of time for Sony to catch back up. But if Nintendo does manage to come through in a big way, it will be that much harder for Sony to tag along.

Of course I could be wrong.

Oh, and interesting idea about the cell in PS4.

[baz]

Holy shit, I'm pretty sure some guys just had an intelligent discussion about console on an internet forum.

I expect the end of days to come any time now, I'm ready for the looting.

[bapenguin]

Holy shit, I'm pretty sure some guys just had an intelligent discussion about console on an internet forum.

I expect the end of days to come any time now, I'm ready for the looting.

I noticed that too...very scary.

[Atorak]

Guys, go check www.cnn.com, immediately.

Apparently, hell just froze over.

[Kelegacy]

2. People who prefer single player games to multiplayer (mainly the Japanese Rpger or the Platformer)



That's me right there. I will probably get the Revolution or PS3 first (a guess anyway) but I still bet I wont purchase any of the 3 until 2007 at the earliest. I seem to be in a trend, picking up systems later, cheaper and when more games are available. That being said, I didnt pick up an Xbox for about 3 years because none of the games (or at least not more than 2 or 3) really drew my attention. Plus, I do like RPG's and games from Japan. I dont really care about Halo 3, which already seems to be the big seller for Xbox 360 buyers. Multiplayer would be nice, if it was free. But as a seldom-online gaming freak, i'd be wasting money if I had a subscription...because I just dont use it that much.

[mister_slim]

Just like the lack of a DVD drive was a major factor in Nintendo's ability to launch the GCube lower than its competitors, so will the 360's lack of BRay.
The GC has a DVD drive. It doesn't play movies, but neither does the Xbox without a remote. Nintendo saved on licensing costs, but so did MS.

[Kentor]

Oh, I have, perhaps you should take a look. Most recent financial report...
R&D - 4.7 billion
Marketing, general and administrative 4.6 billion
That's why I said SEC fillings and not annual report. When they say "Marketing, general and administrative" they mean marketing, general and administrative. They do not mean marketing alone.

"Anyway, in the end it’s extraordinarily clear that the vast majority of the money you throw down on a processor does not go to producing a better processor (figure on 15% or so), and I’d expect similar results from other hardware vendors."
So I guess when Intel typically exceeds their net income in R&D expenditures that's "15%".

Actually, upon further consideration, 15% might be a reasonable estimate from a single unit consumer price. I was assuming the amount of money you pay Intel rather than the total price. Still, that doesn't mean that Intel is not spending massive amounts of money on R&D (i.e. the single largest expenditure of any division).

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