Sony Games Plans on Losing $900 Million This Year
Accoriding to Reuters Sony plans on its game division losing 100 billion yen, or roughly 900 million dollars. Most of this has to do with the PS3 launching this year. Now, this begs the question: how much does Sony plan on losing per console?
An extremely oversimplified guess would be that Sony might be able to produce and sell maybe 5 million PS3’s by fiscal year’s end which would put the loss per console to be roughly $180. That would be fairly in-line with the price estimates of $400-500 and cost estimates around $700 per console. The only thing this doesn’t take into consideration is that Sony is still selling PSP’s and PS2’s as well as games for both systems. The PS2 is still selling well and the PSP isn’t doing bad either.Therefore Sony’s video game division should be able to make up for the high PS3 costs right?
Well, I think they probably are. Sony has to factor in the expenses in developing/launching/marketing the PS3. Thus far most video game related magazines fail to mention that Sony has spent about $2 billion just developing the hardware over the last few years. If you add in those costs the PS3 is probably losing closer to $300 or $400 per console for the first year or two. So, at this point of Sony sells the PS3 at a few hundred dollar loss, which they probably will, that will put the PS3 project a few billion dollars in the hole. More than likely the PS2 and the PSP will make up for this loss and then in the next year or two the PS3 will hit break even with software sells making up for hardware losses.
The real downside to all of this is that Sony’s software is going to need to sell at a premium and that Blu-ray discs will also be sold at a premium for quite some time. This is not good for the consumer or the early adopter. Sure Blu-ray is going to be cool and PS3 games will be awesome, but Sony’s going to be charging at least $60 per game and $25-30 per movie. Don’t expect those prices to drop much either. The PS3 won’t be getting any Greatest Hits titles until year 2 or 3. Sony needs to make as much back on software and accesories as possible to make up for the $200-300 loss they will take on each system.
Needless to say if Microsoft is able to cut costs significantly on the Xbox 360 we will see some serious price cuts and the console war is going to get ugly. Until the PS3 launches not much will happen, but I would expect a price drop in November and the holiday season to be particularly interesting in the U.S. I mean let’s face it: if Microsoft has an abundance of 360’s to go around(which they have) and they drop the premium price to $300, that will translate into a lot of 360 sales in the wake of the PS3 shortages that are bound to happen. This will be especially true if the PS3 retails for $500, which I think it will.
