Sony to lose $1 billion on Playstation 3
According to a report from Merrill Lynch Japan Securities, published in Japanese magazine Toyo Keizai, Sony is set to lose over US $1 billion on the Playstation 3 in the year following its launch.
The report indicates that Sony may be willing to sell the console at less than the production cost – said to be around 54,000 yen (almost US $500) – in an effort to gain a significant share of the market.
Merrill Lynch predicts that Sony will launch the PS3 with a US $399 price tag – around US $100 less than it costs to manufacture.
The expected move by Sony is similar to the plan they implemented with the Playstation 2, which initially sold at a loss before making up its profits with the sale of software in following years.
Microsoft’s next-generation console, the Xbox 360, was also reported to have been released at a loss, rumoured to be at least US $126 per console.
Sony Computer Entertainment president, Ken Kutaragi, told Toyo Keizai that he believes price will not be such a big issue because people will want the PS3 no matter what the cost.
“Whether consumers think a product is expensive or cheap all depends on the balance between its appeal and price. Our ideal [for the PS3] is for consumers to think to themselves, ‘OK, I’ll work more hours and buy it.’ We want people to feel that they want it, no matter what…
I’m confident that the PS3 is a product that people will definitely want,”
The expensive production cost of the Playstation 3 is mainly due to the advanced equipment of the machine, with the three main components – its Cell chip, RSX, and BD-ROM drive – totalling to the value of around 11,000 yen (approx. US $100).
While the idea to lower the price in order to gain a large percentage of the market sounds promising, particularly after the resounding success of the Playstation 2, (profits of US $759 million and $1.03 billion in the two years after release) an operating loss of US $1 billion must be a concern. It would be over twice what the Playstation 2 experienced in its first year due to the more powerful – and far more expensive – components of the next-gen console.
However, with the limited success of the Xbox 360 in Japan so far, Sony has reason to be confident that they can successfully overcome the initial loss period. The challenge remains to continue to churn out top quality games that will appeal to their consumers, something that Microsoft appears to struggle with for the Japanese market.
By Blake Hurley, Ps3Focus.com writer