PlayStation 4 Selling at $60 Loss for Sony

[Cognimancer]

PlayStation 4 Selling at $60 Loss for Sony

PlayStation 4 consoles are selling for less than the cost of manufacturing, but Sony expects to recover those losses before customers leave the store on launch day.

The logistics of console sales aren't as simple as they used to be. In order for Sony to stick to the PS4's $400 price tag, they're taking a direct loss with each sale - the console takes about $60 more to produce than it's selling for, five million units Sony anticipates selling by the end of the year [http://www.eurogamer.net/articles/2013-09-20-sony-expects-to-recoup-playstation-4-hardware-loss-at-launch], and the company is losing a good chunk of change. Even with those numbers, though, all it will take to get Sony back in the green is for each PS4 buyer to purchase one launch title and a subscription to PlayStation Plus.

Sony Japan executive Masayasu Ito says that for the initial losses from one console will be recouped in the average PlayStation customer's first purchase. After all, these consoles aren't for decoration; by the time a user can really start enjoying their purchase Sony will be turning a profit.

This is looking like a much safer gamble than the PS3, which (depending on which version you bought) was selling at a loss of over $300 per unit on launch day [http://www.escapistmagazine.com/news/view/66333-iSuppli-Estimates-PS3-Selling-At-240-to-306-Loss]. The PS4 manages to be more profitable at a lower price due to its shift to PC-like architecture, as opposed to its predecessor's custom hardware components.

The PlayStation 4 hits shelves on November 15.

Source: Eurogamer [http://www.eurogamer.net/articles/2013-09-20-sony-expects-to-recoup-playstation-4-hardware-loss-at-launch]

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[gigastar]

So all Sony needs to do to recover losses is sell about 2 first party games per unit.

Assuming those first party games broke even, it doesnt sound that bad.

 

[Griffolion]

Well, they're losing 5 times less than they were with the PS3, so that's a plus. This was to be expected. Selling hardware for profit at launch either has the hardware really highly priced or really cheaply made, both of which hit the consumer worst. Seems like they've struck a decent enough balance.

 

[rofltehcat]

I wonder how that will pay out. I mean apparently MS switched from selling at a loss to selling at no loss with the Xbone.
Those $100 cheaper will probably also influence many buying decisions and boost the amount of games, controllers and other stuff people will buy for it so I don't think it'll take long for them to regain that loss.

 

[Church185]

I was hoping they wouldn't be selling for a loss, but considering how easy it will be to recoup those losses, I'm not that worried about it. Hopefully this means no cheap parts, and the hardware will have a decent lifespan.

 

[Ukomba]

Small price to pay if it helps them dominate the console market, the big money is in the game sales.

 

[Roxas1359]

Considering the huge losses that Sony took with the PS3 at launch, this is really an improvement. Too bad I'm not getting it at launch, but I'll get a PS4 eventually.

 

[wulfy42]

It's a genius move really. Undercut the Xbox price by $100, at little to no initial loss. Your never going to make much of a profit on initial console sales...it's the games that come afterwards that make the real profit.

But the more of the next gen market you corner, the larger long term projected sales will become. In addition, you have the new mandatory playstation plus for online play...which is going to be pretty much free money for sony from most people that buy a PS4...that alone will net a decent profit for every PS4 within a year of purchase (and more then make up for the initial loss), and thats without customers buying even one game (dont' forget some customers may rent/buy used etc).

Most people don't shell out the large amount for a console though without buying at least 1 or 2 games....so more then likely it's going to not even be a loss for sony right out of the box. That leaves pure profit..and more importantly a much larger advantage over the competitors (really only 1) for the console market.

 

[Vaccine]

Considering that price tag was a really big factor for a lot of people over the Xbone, you can't sell games in the first place if the console doesn't make it into the consumers hand, so it is smarter to sell consoles at a loss I guess.

 

[Adam Jensen_v1legacy]

I'm surprised that it's just $60. They've done their homework this time and they have idiots for competition. Things are going well for them.

 

[fix-the-spade]

That's a surprise actually, the persistent rumour was twenty-ish dollars profit on the box. It's better than the PS3's enormous losses though, still wonder what Microsoft's margin is on the Xbone.

I wonder how that will pay out. I mean apparently MS switched from selling at a loss to selling at no loss with the Xbone.

The general wisdom is that every box a console manufacturer sells is worth about $1000 to them over the course of it's lifetime from hardware, software, subscriptions, advertising and licensing. That $60 loss could become irrelevant if nine months from now there are fifty percent more PS4s than Xbones out there, which I hope is what happens.

 

[The Artificially Prolonged]

Not the biggest loss margin, I'm actually surprised the loss is that small. Someone buying an extra controller and an extra first party game when purchasing the console should cover the loss for Sony. Plus they are already selling cheaper than their main rival so they likely have a better chance of shifting more initial units and thus more games.

Now hold on just a ding-dong minute...

In May, CFO Masaru Kato stated in an earnings call that the PS4 would NOT be sold at a loss.

http://www.ibtimes.co.in/articles/466755/20130511/sony-ps4-release-date-gaming-console-sold.htm

Did manufacturing and supply expenses suddenly increase over the past 4 months?

Or were they lying to potential investors during their earnings call?

I'm not sure, though I do remember Sony reporting larger than expected losses due to a weak Yen earlier this year. Perhaps the currency value slightly pushed up the manufacturing cost for Sony. I'm not expert on these things but that's the only thing jumps to mind for the reason for the contradiction.

 

[MrHide-Patten]

Hope this move pays off for them, they've been doing poorly over the years and it would be nice to see them bounce back. Can't have Nintnedo hogging all teh money.

 

[Ed130 The Vanguard]

Now hold on just a ding-dong minute...

In May, CFO Masaru Kato stated in an earnings call that the PS4 would NOT be sold at a loss.

http://www.ibtimes.co.in/articles/466755/20130511/sony-ps4-release-date-gaming-console-sold.htm

Did manufacturing and supply expenses suddenly increase over the past 4 months?

Or were they lying to potential investors during their earnings call?

There was that fire at a factory that produced GDDR5 RAM which drove up prices, as wll as other factors (weak yen, etc).

A $60 loss on a console isn't bad considering that it is already undercutting its compeditor as well as releasing eariler and into more markets.

 

[Denamic]

It's pretty smart, actually. Sell units at a loss for future profit through game sales and + subscriptions. I wouldn't even call it a gamble.

 

[Covarr]

I think this is very smart financial planning, and will work out well for the company and for the console. Even if their predictions are wrong, and absolutely nobody buys more than one launch game and not everyone gets PS Plus, it will still work out fairly quickly. Manufacturing price will drop over time, users will buy more games later, players will renew their PS Plus subscriptions, accessories such as extra controllers and cameras will be sold for a profit... They will have recouped their losses within a year easily, probably faster.

Now hold on just a ding-dong minute...

In May, CFO Masaru Kato stated in an earnings call that the PS4 would NOT be sold at a loss.

http://www.ibtimes.co.in/articles/466755/20130511/sony-ps4-release-date-gaming-console-sold.htm

Did manufacturing and supply expenses suddenly increase over the past 4 months?

Or were they lying to potential investors during their earnings call?

Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4.

He didn't say it wouldn't be sold at a loss, just not at a major loss. It was a vague statement, but I think "only $60" is still in the spirit of that.

P.S. Thanks

 

[Fiz_The_Toaster]

Considering the huge losses that Sony took with the PS3 at launch, this is really an improvement. Too bad I'm not getting it at launch, but I'll get a PS4 eventually.

I was surprised that it's actually that low of a loss, so I agree about it being an improvement. Now one can hope that it will be easier to develop for this time. I can't get it at launch either for stupid financial reasons, but I really want to get it at some point since from what I can tell they really did listen to people.