Welcome to the first edition of On Target!, a periodical feature in which a number of our editors discuss stimulating issues in the videogame industry. This time, we dive into the world of Sony to find out just how much Sony should price the PS3 at.
On Target! Vol. 1: At what price should Sony launch the PS3?
Kevin: Some estimates say that the PS3 will be launching at $500, $600, even $700. Comments?
Dave: Estimates are just that—estimates. Until we know what price Sony is going to sell the PS3 to the consumer, all of them are meaningless.
Dmitri: The estimates could be plausible. There’s no set rule that a game console must be at a certain price. If Sony wants to leverage their brand dominance to a luxury-slanted product, who’s to say that they can’t?
Drew: I think that the pricing of $600 or $700 is completely unfounded. Most game developers go with the strategy of setting hardware at low prices, making more money off of software. Especially since Sony wants to make a name for Blu-Ray, the PS3 can’t be too expensive if the company wants to get the tech out there.
Kevin: I’d say so as well. A $500 PS3 launch price is already fairly risky, but anything higher would be heavily pushing it. Generally, $400 is already considered a hefty price for a gaming console; if the PS3’s price goes too high, I’d hate to guess how much of a consumer base Sony might lose. Dmitri has an interesting point, though. Going off what he said, do you think people would purchase the PS3 if the console launches at $600?
Dmitri: Well, it goes without saying that Sony will still try to make the console as inexpensive as possible, and they will still take a hit on the hardware. It’s all about how much all the tech they’re cramming inside will cost, and in some cases that part isn’t even up to them.
Kevin: And this is with Kutaragi’s comment about the PS3 that, and I quote, "it’ll be expensive." Couple that with recent announcements of both a PS3 hard drive and an efficient online service, and it’s safe to say that the console’s development costs are going up.
Dave: The inclusion of those features would definitely cost Sony more money, but I don’t know if it would be wise for Sony to pass that cost to their consumers.
Dmitri: It may drive up the price 50 dollars, perhaps more.
Drew: Probably, especially with another one of Kutaragi’s comment that "the PS3 can’t be offered at a price that’s targeted towards households."
Kevin: However, even with the hard drive and online service, it still would be in Sony’s strong favor not to price the PS3 over $500.
Dmitri: Basically, going over $500 would put the PS3 into the luxury good zone.
Kevin: It’s too bad that Sony seems reluctant to remove certain features from the PS3, though, even to keep the console’s price below $500.
Dmitri: Yeah, especially now that we know that they are planning to use Blu-Ray as the copy protection, which they almost definitely won’t remove.
Drew: Of course not—they want to keep their money out of modders’ pockets.
Dmitri: So now, I do find it hard to find any feature left that could be removed from the PS3.
Drew: Well, everything’s standard; they just went from Toyota to Lexus.
Dmitri: Seems like it. Truthfully, I’m probably going to love the system when it comes out, but it’s not going to be cheap. On a side note, though, I really hope that Sony is able to deliver enough of the systems for a global launch. I’m a bit worried whether they can produce and ship 6 million PS3s by November.
Kevin: Yeah, it really is a very ambitious plan. But if they are able to pull it off, Microsoft will likely be in deep trouble, especially if the PS3 launches at $400 or less.
Dmitri: I don’t want another 360 debacle. It would be magnified by 10 in problems with the extra demand the PS3 brings. Riots would probably literally happen.
Drew: Well, you know what they say about the person on top, don’t you? Nowhere to go but down.
Kevin: Or to stay at the top.
Dmitri: Honestly, if I am able to just walk into a store in November and not have to wait in a huge line and can walk out of the store with a PS3 without a hitch, for me, the console’s price would be forgiven. I am more worried about availability than anything else.
Drew: With a $500 launch, you just might find more PS3s open for purchase.
Dave: In the beginning, Sony will have a large range of prices to sell the PS3 at, because demand for the console will be very high. The 360’s launch price wasn’t $399 and $299—it was whatever you could get it at on eBay.
Drew: There will always be people who will buy the greatest products for the highest prices, and no price will stop them. Yet when the top-selling game of the year is Madden, Sony would be foolish for pricing their hardware out of the park. When it comes down to it, certain people will buy whatever system plays their favorite games.
Kevin: I agree. For a multiplatform title like Madden, there’s little reason why people wouldn’t skip over a $600 PS3 for the 360.
Drew: And if it’s a choice between $340 and $600, which would you pick? Editor’s note: The $340 price takes into account the $40 memory card that most people will have to purchase along with the core 360 system.
Kevin: Exactly.
Dmitri: There would have to be some really convincing games to make the average value-oriented consumer out there spend twice as much on a gaming system.
Drew: Ah, the "killer app" theory.
Dmitri: The "killer app" would have to be games; I personally don’t see consumers clamoring for Blu-Ray discs quite yet.
Dave: Sony has leverage over the Xbox 360 in terms of whether or not someone would spend more on it. It brings next-gen movies included in the package (as opposed to being an external attachment) for movie watchers, as well as backwards compatibility for gamers.
Kevin: But will people care?
Dave: Who knows?
Kevin: I mean, personally, I buy consoles solely to play games, just like I’d rather stick to my own DVD player to watch DVDs.
Dmitri: It’s strange, because a lot of the success of the PS3 seems to hinge on whether people want to spend at a premium for a new movie format that many haven’t even heard of.
Kevin: Basically, the question is, are people going to want to go out of their comfort zone just for Blu-Ray? Here, I’ll call Adrian over to answer that.
Kevin: Do you think people would pay a steeper price than usual for Blu-Ray on the PS3?
Adrian: Well, the last two or generations or so, people have shown that they’re not afraid to move ahead with advanced storage mediums for games. Sure, people bought the N64, but more people ended up buying the PSOne... and when the Dreamcast was released with the CD-ROM, more people ended up buying the DVD-based PS2 instead. So, considering the large and loyal userbase that Sony has created in the last eight years or so, it goes without a doubt that they can expect return business with the PS3.
Dmitri: There wasn’t a large price disparity between the systems either, which certainly helped.
Adrian: Glad you brought that up, Dmitri... see, Sony hasn’t sold either the PSOne or the PS2 at a price point that would cover the manufacturer’s cost... instead, they underpriced it, hoping to move the hardware off shelves. And as we all know, the more units that are sitting in living rooms across the globe, the more avenues there are that become open to send games to those same addresses.
Dmitri: Yep. When we wonder if people would spend 700 bucks on a system, didn’t people at one point laugh at the concept of a 400-dollar music player?
Dave: I definitely wouldn’t have bought a 400-dollar music player five years ago.
Drew: Ouch—hit me where it hurts, why don’t you...
Kevin: While we’re on the topic of Sony underpricing their consoles, would it be wise for Sony to price the PS3 at $400, when they would lose, according to Merrill Lynch, about $1.18 billion in their first launch year and millions in following years?
Dave: Why not?
Dmitri: If Sony knows that they can make the lost money back in a reasonable period of time, and if they can afford it, it’s possible.
Adrian: Absolutely... we’re not looking at the price tags of the games in that equation. Currently, Microsoft has been losing money yearly, but they still manage to make a profit on games tagged at $50.
Kevin: However, that’s with Bill Gates’ $50 billion war chest behind them. Interesting fact here, as well: At the PlayStation meeting in July 2005, Kutaragi mentioned that the PS3 is expected to have a 10-year life span. Could Sony stay in business so long at a yearly financial loss of millions?
Dmitri: Sony is in a bit of a financial slump at the moment, but I bet they still have enough set aside for the PS3.
Adrian: Well, Sony’s pushing a lot more hardware sales than Microsoft is at the moment.
Drew: On that note, it is all about the games—Sony is known for being a company that releases tidal waves of games, but with the PS3 being so expensive to develop for, it’s unclear if that will be the case this time around.
Dmitri: The difference is that Sony can’t afford as a company to have an overall money-losing console, while Microsoft can.
Adrian: Just remember, though, that Microsoft is losing money and selling less than half of what Sony is. Sony can fight the same uphill battle but do better in the long run.
Dmitri: I’m sure that, within a couple of years, the price of the tech inside of PS3 will be much cheaper.
Dave: The losses will be made up with the royalties made on Blu-Ray.
Dmitri: I still think it will take a very long time before Sony gets any serious cash coming in from Blu-Ray, though.
Kevin: I think so too, since they’d have to coax people into conforming into a new medium.
Adrian: On a side note, if the PS3’s to last 10 years, you can expect redesigns to shrink the overall mass of the unit. This has been Nintendo’s strategy for years, and as a result, units get smaller, but price and performance remains the same.
Dmitri: We have yet to see a console format that lasts 10 years. Ken likes to say things like that, but I’m pretty sure you’ll never see a console with a 10-year lifespan.
Kevin: I’ll hold you to that.
Kevin: So, if a PS3 will cost about $500 to make, could Sony price it at $399 (with a $100 loss per unit) and still be able to stay in the market?
Dmitri: PS2s are actually profitable to sell nowadays, and I see no reason to believe that Sony wouldn’t be able to absorb the initial costs of the tech (within reason) until the economies of scale kick in.
Drew: No doubt, Sony has the funds to take losses on a console (not to say that the PS3 necessarily will lose money) and still stay afloat.
Kevin: Do you think people are, say, waiting for the PS3 before they make a decision over which next-gen console they want to buy?
Dmitri: Well, I don’t think they’re waiting for the PS3 necessarily—they’re just waiting for a system that has great games.
Adrian: I’m excited about it, though I know I won’t get one this year. People miss some great gems on current hardware if they abandon them too quickly.
Dmitri: Whoever has the great games will get the consumers in the end. It’ll still be about the games, not DVD formats.
On Target: Final opinions
At what price should Sony launch the PS3?
Dmitri: $400. It’s the highest price the typical consumer would be comfortable paying for a gaming system.
Dave: $400, because that’s basically how much the 360 costs.
Drew: Sony is producing a powerful piece of machinery, and a HD-DVD player alone costs $500, so I doubt they will go cheaper. If Sony launches at $400 they will be on even footing with Microsoft, if not better. However, a $350 (or less) launch would give Sony the possibility of decimating Microsoft.
Kevin: $400 is about the medium between Sony not losing too much money and the PS3 not being wildly expensive, but, if Sony could manage, a sub-$399 PS3 launch would definitely make Microsoft sweat more.
Adrian: $400, because companies want to sell units and make money the next week and the week after, not make profits and miss selling units. [gm]
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Thanks for reading, and we’ll see you next time with On Target! Vol. 2.
The views expressed by the editors in this article do not necessarily reflect the views of GamersMark.com, its affiliates, or its sponsors.
