PS4 costs $381 to build in teardown – only $18 less than retail price
allthingsd.com
allthingsd.com
Wait, the retailer takes a significant cut too. They're not selling these things for free. Sony doesn't receive the full retail price, so Sony can't have "little profit margin", they're definitely selling them at a significant loss. Or am I missing something?
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.
Source: http://www.gamespot.com/articles/ps3-manufacturing-costs-dow...
[1] http://phys.org/news/2010-12-air-playstation-3s-supercomputer.htmlOf 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.
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/G...
(2) http://wccftech.com/xbox-ps4-attach-rate-325-average-nextgen...
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 [2]http://www.ign.com/articles/2006/05/06/the-economics-of-game... [3]http://www.pcworld.com/article/196214/article.html [4]http://en.wikipedia.org/wiki/High_definition_optical_disc_fo...
It should be no surprise that every time you buy something from Gamestop they try to upsell on your "protection plans" and strategy guides, items that actually have high margins.
The time of brick and mortar game retailers is coming to an end. As soon as either MS or Sony gets their act together and can do midnight launches digitally (see: Steam), that will be the final nail.
And second hand games. They give customers a low price for the game and add a fat markup before selling it on again.
For a fun personal example -- rotisserie chickens are always sold at a loss, but it's normally the center piece of a dinner, meaning you also sell mashed potatoes, cole slaw, bread, etc at a high margin.
The idea of grocery stores having permanent loss-leading items never occurred to me.
I shop at WinCo in the PacNW and $3/lb would be pretty standard for pork chops when buying a ~2-3 lb package.
I see that you're talking local grocer, but I assume their pricing wouldn't be that drastically different to a major chain.
Grocery functions successfully on average product margin of around 40-45% --
So when you calculate that pre-made mashed potatoes and coleslaw are massively overpriced, it balances out. There's a good chunk of psychology here as well. The person who is buying a pre-cooked chicken is the same person who isn't going to mash their own potatoes or make their own slaw. Get them hooked with cheap chicken, everything else seems like a fair price too.
It's really a fun job, thinking back on it.
Lose money on the alcohol, recoup it on everything people end up buying along with it.
http://www.hmrc.gov.uk/rates/alcohol-duty.htm
Plus there is "VAT" - 'value added tax', not that I have ever worked out what value gets added by the tax.
Our friends in continental Europe have lower tax rates. Hence the discrepancy you see.
The problem in the UK over recent years has been with pubs. Unless they can get some deluxe food options together then they have a tough time making a profit. The supermarkets sell alcohol far cheaper than they can, furthermore there has been a smoking ban. Consequently your dedicated alcoholic has stayed at home, with his widescreen TV and supermarket alcohol.
They don't. They really don't. I'd be surprised if the retailer made more than $5-10 on the console.
For games consoles, it's extremely common for them to be sold at a loss. (Nintendo used to be the exception)
http://www.edge-online.com/news/isuppli-60gb-ps3-costs-840-p...
"Electronics supply chain researcher iSuppli’s analysis showed that Sony loses $306.85 per 20GB hard-drive equipped PS3 sold, not including packaging, controller or cables. The amount is greater than the loss incurred from the 60GB model, which has a $241.35 difference between the cost and retail price."
There's plenty of places for them to make up the difference if the original intent of increasing percentage of marketshare works (and it seems to be): they get a cut of every game sold, they are likely to sell a lot of PS+ memberships, accessory sales (extra controllers, the PS4 camera) and they will almost certainly get costs down faster than the retail price on the eventual redesigns (PS4 slim or whatever) in a couple years.
On a related note, I've had a PS4 since Friday and the machine is very, very nice.
It wouldn't even be surprising if they sold the consoles at a loss, considering there is a lot of money in owning as much as the market share as possible, due to game sales but most of all the ever growing "online store" phenomenon.
The fact that the PS4 costs a good chunk less than the XBox One and is perceived as being the more powerful console will serve Sony well, I predict.
Of the Wii, the XBox 360, and the PS3, only the Wii wasn't sold at a loss at release. The idea that they would sell at a loss isn't new. They make their money on the games.
IIRC, there were even people promoting buying the original XBox just to mod it and run Linux on it, because every sale was a hit to Microsoft's pocket (since you weren't using it for games).
I feel like this understates it. Of course they're making their money on the games. These discs (or even better, digital DLs) cost close to nothing to spit out, yet sell for $60 each. Of course, Sony doesn't make get all of that profit, but come on, Sony isn't stupid -- it's obviously trying to produce a high-end, expensive console with plans on making money on the games.
What's that supposed to mean? These discs have contents that took years to develop.
Developers even have to pay Sony for hardware, SDKs etc. to develop the content.
I'm wondering if perhaps Sony won a Pyrrhic victory here.
Legality aside, I'm a member of a private movie tracker. High quality 1080p rips come in at ~12GBs or more for ~1h45m of content. I have an 80Mb connection, and it still takes me about 30-35 minutes to complete the download.
1080p, let alone 4k, downloads are years away for the average consumer. What are they getting these days, 20Mb + download caps? So sure, fiber only, but my god it's a long way off.
(To be less abstract: they probably made back the money already. Everything else is gravy.)
Actually making the game (not the disc but what’s on the disc) is extremely expensive and the production costs of AAA games are actually exploding. Think of all the more or less non-automateable manual work that is involved in creating believable virtual worlds. Think of all the textures that have to be painted, things that have to be animated, lines of dialog that have to be written and voice-acted. Much of this is hard, manual work. There is no way to make it better except by paying more people more money to do it.
The second thing that costs a lot is marketing, i.e. making sure that everyone and their grandparents actually know about the game and want to buy it, mostly because making AAA games is so expensive already, so it better be successful.
It’s perfectly reasonable to be worried about the new consoles and the future of (AAA) games. Even last generation expensive games like the Tomb Raider reboot sold tons of copies but were nevertheless barely satisfactory in their financial performance. Think about what kind of challenge it must be to make a game for a console fewer people have and that also needs much better assets (i.e. is more expensive) because what’s the justification for making a next-gen game otherwise?
The next few years will be extremely interesting for video games. I’m very much looking forward to see how that shakes out (though I wouldn’t necessarily want to work on AAA games). Will there only be few, safe and expensive mammoths like GTAV? Or safe and boring yearly updates to games like Call of Duty? Some of this is already happening. Just look at the bankruptcy of THQ. And on the other end of the spectrum there are tons of indie games popping up (which purposefully limit their scope – mostly by not creating photo-realistic virtual worlds – to get by with much less money).
This is a terribly exciting time for video games and I wouldn’t be surprised if this industry looks completely different in ten years (the supposed life-span of these new consoles – maybe the last consoles?).
All of this is not to say that Sony doesn’t take a hit on the console but plans to make money some other way, that is probably very true. But it doesn’t have anything to do with the fact that making a plastic disc costs a few cents.
Importantly for Sony, the cost of manufacturing the PS4, relative to the cost of the system at retail versus how things were with the PS3 is a vast improvement. Sony is likely taking a small loss on the console, but took very large losses when initially selling the PS3.
They were in the position of having to sell a lot of games and accessories to make up for the loss on the PS3, whereas even a single game or accessory sale probably makes up most if not all of their loss on the PS4.
The article also really misses some crucial points. For one, it's not just about games. There are accessories (controllers, playstation camera, controller charging stations, covers, etc.), digital downloads (skins, avatars, etc.), Playstation Plus, Sony's music streaming service, and a whole array of revenue streams that are fairly high margin and in most circumstances the loss they took on the console should be made up quickly.
From another angle, Sony is already at a price advantage and there's a decent chance they won't discount the device as manufacturing prices drop. This is the exact opposite position the PS3 was in as it was much more expensive than it's competition and Sony had to continually discount the machine to stay in the running with the Xbox 360.
Finally, a small aside. I think it's interesting now that the PS4 is on x86 and using a straightforward unified memory architecture. Doing a bump on this (double memory, double cores, double GPU compute units) doesn't seem very far fetched and could probably happen at a similar price point within 5 years. This would give Sony a new console with a huge back catalog of games that would not need to be ported (and could even have "HD" add-ons for download), plus a bunch of new power for games on an architecture developers are already familiar with. All this and it would likely cost a lot less to develop as opposed to developing new hardware from scratch as has been done for every generation previously. I think it would be an interesting move and could allow Sony to have a long running platform to compete with.
The headline could be 'PS4 not being sold at a loss!' instead of 'PS4 is only just scraping a profit'.
Under standard accounting practices (GAAP), COGS is the only common above-the-line expense item used to determine gross revenue (aka gross income). Essentially all other expenses are deducted from gross income to determine net income (i.e., profit or loss).
Since the XBone is basically the same machine + kinect sensor, I'm guessing the teardown price is going to be something like $400-450. Neither company is making money on the hardware obviously.
Doesn't include years of R&D, manufacturing setup, advertising, shipping, support, finance-related costs, retailer mark-up, QA and repairs, etc.
Production costs will drop, but they are likely years away from profits.
In fact, I would not be surprised if the estimation error is bigger than 5%, so we don't know if they are selling at a loss or not.
https://news.ycombinator.com/item?id=6745386
> Sony may have lost between $4 and $6 billion on PlayStation 3.
Yield is inversely proportional to die size, so the larger the die, the lower the yield. Yield is also lower on newer manufacturing processes. Both apply here. Furthermore, although some chips might be only marginally defective and 'binned' to a lower SKU that option isn't open to Sony. They have no use for those lower-clocked chips.
Chip manufacturers never publish their yield figures, but if you look around you'll see yields of around 60% are certainly not uncommon or unheard of.
Could they be selling them to someone else?
i.e. if the GPU is binned to a lower SKU, could they be selling it to someone else that's then throwing it onto a regular PCI-e card for a desktop?
I know these practices wouldn't apply too well when you're making a PS4 with a single performance level, but that 60% yield still sounds horrible from a process design perspective.
Weirdly, absolutely nothing from the Xbox One
You can't do reviews, post tear-downs, complain about performance (or DOA consoles) when no one has the console yet (other than a handful of reviewers that might get a pre-release peak).