4 ms·

You're not missing anything. The gaming console market has almost always been driven by a give away the camera and sell the film type of business model. They'll

You're not missing anything. The gaming console market has almost always been driven by a give away the camera and sell the film type of business model. They'll make their money on games and dev licensing once the installed user base is big.

aaronbrethorst 13y ago
'razors and razor blades' http://en.wikipedia.org/wiki/Freebie_marketing http://en.wikipedia.org/wiki/Freebie_marketing
Anonymous8202 13y ago
Yep, this is par for the course when it comes to gaming consoles. Although the PS3 sold at a lose during launch, does anyone know the profit margins nearing the end of the console's life? Surely hardware gets cheaper and the manufacturing process gets more refined as time goes on, so I'm curious to know how much the same technology costs to produce now, compared to day one. Anyone know the numbers?
- wiremine 13y ago
  > does anyone know the profit margins nearing the end of the console's life Came here to ask the same question. I'm curious what the final P&L was for the PS3 console (not software/licenses), over its entire run to-date.
  - Tloewald 13y ago
    AFAIK the only bits of Sony making money right now (well, prior to the PS4 launch) are the content (music/movies) and insurance businesses. So my guess is the PS3 has been a net loss for Sony (unlike the PSX and PS2).
- CitizenKane 13y ago
  It improved substantially during the life of the console. Unfortunately for Sony, it took about 3 years after launch for the manufacturing price to line up with the price at retail. Source: http://www.gamespot.com/articles/ps3-manufacturing-costs-down-around-70/1100-6214569/ http://www.gamespot.com/articles/ps3-manufacturing-costs-dow...
tammer 13y ago
Which gives rise to situations like these[1] now that the difference between game consoles and PC's is close to nil. [1] http://phys.org/news/2010-12-air-playstation-3s-supercomputer.html
dspillett 13y ago
Also these days they get a cut of any in-game purchases that flow through their service (and they'll no doubt block any game that tries to enable in-game purchases by other routes). It is the razor blade model except they get the income from three sources after selling the razor: dev licenses, a cut of game sales, and a cut of in-game purchases. Of course the cost of the kit will fall over time so next year they will either be making some profit on the kit (though they may instead drop the price for market-share reasons). Though if you think the loss on the physical console parts is surprising: think about the R&D costs that they incurred before manufacturing even one single consumer unit. Consoles are a fairly extreme example of a loss-leader product.
kosei 13y ago
Still, if you look at historical attach rates, the PS3 had fewer than 10 games per console.(1) A console developer might get $20 per title. However, doesn't include the games that ship with the platform and/or other bargain bin titles, so let's just call it 8 games. Call that $160 per user lifetime, which shows just how much they were actually losing. They get additional revenue from dev kits etc, but they also lose money for advertising, spending to purchase console exclusivity, marketing, etc. A recent analyst expects an attach rate of 3.25 games to new consoles,(2) which means just $65 per console not including the profits (if any) that they make on the unit itself. Considering the overall costs to R&D, build and maintain a console, it's a pretty frightening up front cost for a long tail game. Now you know why they want each console generation to last 10 years. (1) http://www.vgchartz.com/analysis/platform_totals/Tie-Ratio/Global/ http://www.vgchartz.com/analysis/platform_totals/Tie-Ratio/G... (2) http://wccftech.com/xbox-ps4-attach-rate-325-average-nextgen-gamer-buy-3-games/ http://wccftech.com/xbox-ps4-attach-rate-325-average-nextgen...
- gnarbarian 13y ago
  There were about 800 games produced for the PS3 [1]. Each dev kit costs about $10,000, nearly all of them used multiple devkits. Then they get paid by the unit for each game that gets sold. "The exact licensing fee varies based on the manufacturer, as well as any deals they may give a publisher, but it can generally be anywhere from $3 to $10 per unit." [2] The console itself is almost always a loss leader. BUT it doesn't stay as a loss leader for the lifetime of the console. the PS3 stopped having a negative margin between 2 and 3 years after it was released (which was also slower than average) [3] This was likely due to the Cell processor which was never really popular anywhere but in the PS3. The PS4 uses far more standardized pieces and should become profitable much more quickly. There is also a ton of money to be made on delivering content, advertising and indie game markets as well as the subscriptions used to take advantage of these online services. They also make money on peripherals and controllers. Of course it's very risky nonetheless as sega demonstrated. But there are also less tangible benefits. By including the blueray player in the PS3 they may have won the HD format war. That alone might make it all worth it. [4] [1]http://en.wikipedia.org/wiki/List_of_PlayStation_3_games http://en.wikipedia.org/wiki/List_of_PlayStation_3_games [2]http://www.ign.com/articles/2006/05/06/the-economics-of-game-publishing http://www.ign.com/articles/2006/05/06/the-economics-of-game... [3]http://www.pcworld.com/article/196214/article.html http://www.pcworld.com/article/196214/article.html [4]http://en.wikipedia.org/wiki/High_definition_optical_disc_format_war#Deciding_factors http://en.wikipedia.org/wiki/High_definition_optical_disc_fo...
pippy 13y ago
IIRC Sony made far more selling insurance than their entire hardware division.

aaronbrethorst 13y ago

'razors and razor blades' http://en.wikipedia.org/wiki/Freebie_marketing http://en.wikipedia.org/wiki/Freebie_marketing

Anonymous8202 13y ago

Yep, this is par for the course when it comes to gaming consoles. Although the PS3 sold at a lose during launch, does anyone know the profit margins nearing the end of the console's life? Surely hardware gets cheaper and the manufacturing process gets more refined as time goes on, so I'm curious to know how much the same technology costs to produce now, compared to day one. Anyone know the numbers?

wiremine 13y ago
> does anyone know the profit margins nearing the end of the console's life Came here to ask the same question. I'm curious what the final P&L was for the PS3 console (not software/licenses), over its entire run to-date.
- Tloewald 13y ago
  AFAIK the only bits of Sony making money right now (well, prior to the PS4 launch) are the content (music/movies) and insurance businesses. So my guess is the PS3 has been a net loss for Sony (unlike the PSX and PS2).
CitizenKane 13y ago
It improved substantially during the life of the console. Unfortunately for Sony, it took about 3 years after launch for the manufacturing price to line up with the price at retail. Source: http://www.gamespot.com/articles/ps3-manufacturing-costs-down-around-70/1100-6214569/ http://www.gamespot.com/articles/ps3-manufacturing-costs-dow...

tammer 13y ago

Which gives rise to situations like these[1] now that the difference between game consoles and PC's is close to nil. [1] http://phys.org/news/2010-12-air-playstation-3s-supercomputer.html

dspillett 13y ago

Also these days they get a cut of any in-game purchases that flow through their service (and they'll no doubt block any game that tries to enable in-game purchases by other routes). It is the razor blade model except they get the income from three sources after selling the razor: dev licenses, a cut of game sales, and a cut of in-game purchases. Of course the cost of the kit will fall over time so next year they will either be making some profit on the kit (though they may instead drop the price for market-share reasons). Though if you think the loss on the physical console parts is surprising: think about the R&D costs that they incurred before manufacturing even one single consumer unit. Consoles are a fairly extreme example of a loss-leader product.

kosei 13y ago

Still, if you look at historical attach rates, the PS3 had fewer than 10 games per console.(1) A console developer might get $20 per title. However, doesn't include the games that ship with the platform and/or other bargain bin titles, so let's just call it 8 games. Call that $160 per user lifetime, which shows just how much they were actually losing. They get additional revenue from dev kits etc, but they also lose money for advertising, spending to purchase console exclusivity, marketing, etc. A recent analyst expects an attach rate of 3.25 games to new consoles,(2) which means just $65 per console not including the profits (if any) that they make on the unit itself. Considering the overall costs to R&D, build and maintain a console, it's a pretty frightening up front cost for a long tail game. Now you know why they want each console generation to last 10 years. (1) http://www.vgchartz.com/analysis/platform_totals/Tie-Ratio/Global/ http://www.vgchartz.com/analysis/platform_totals/Tie-Ratio/G... (2) http://wccftech.com/xbox-ps4-attach-rate-325-average-nextgen-gamer-buy-3-games/ http://wccftech.com/xbox-ps4-attach-rate-325-average-nextgen...

gnarbarian 13y ago
There were about 800 games produced for the PS3 [1]. Each dev kit costs about $10,000, nearly all of them used multiple devkits. Then they get paid by the unit for each game that gets sold. "The exact licensing fee varies based on the manufacturer, as well as any deals they may give a publisher, but it can generally be anywhere from $3 to $10 per unit." [2] The console itself is almost always a loss leader. BUT it doesn't stay as a loss leader for the lifetime of the console. the PS3 stopped having a negative margin between 2 and 3 years after it was released (which was also slower than average) [3] This was likely due to the Cell processor which was never really popular anywhere but in the PS3. The PS4 uses far more standardized pieces and should become profitable much more quickly. There is also a ton of money to be made on delivering content, advertising and indie game markets as well as the subscriptions used to take advantage of these online services. They also make money on peripherals and controllers. Of course it's very risky nonetheless as sega demonstrated. But there are also less tangible benefits. By including the blueray player in the PS3 they may have won the HD format war. That alone might make it all worth it. [4] [1]http://en.wikipedia.org/wiki/List_of_PlayStation_3_games http://en.wikipedia.org/wiki/List_of_PlayStation_3_games [2]http://www.ign.com/articles/2006/05/06/the-economics-of-game-publishing http://www.ign.com/articles/2006/05/06/the-economics-of-game... [3]http://www.pcworld.com/article/196214/article.html http://www.pcworld.com/article/196214/article.html [4]http://en.wikipedia.org/wiki/High_definition_optical_disc_format_war#Deciding_factors http://en.wikipedia.org/wiki/High_definition_optical_disc_fo...

pippy 13y ago

IIRC Sony made far more selling insurance than their entire hardware division.