Why haven't Sony and Microsoft left the console business yet?

[Game Boy]

Sony and Microsoft are not doing well in the console business, and unlike Nintendo last generation they are both posting losses for the most part. Sony's PS3 is being outsold by the Game Boy Advance sometimes and future game releases are uncertain and not numerous while they make a $300+ loss on each console sold (except in Europe where they're selling it for $850). Microsoft's Xbox 360 is paying off the enormous losses of the Xbox and Microsft have admitted all of those sold are potentially faulty and it will cost them $1.1 billion+ to fix.

Why haven't Sony and Microsoft "give up" and leave the industry to cut their losses: the predictions for the future are pretty much more of the same with Wii and DS have very rapid and often supply-limited sales (i.e. they're extremely popular).

It's all very well doing it for prestige and to "get the next generation of technology (read: HDTV, HD-DVD and Blu-Ray) out there", but the core thing is profits, and not even software sales can make up the production, development and marketing costs for either company.

I don't want to see a Nintendo monopoly, but...

 

[RagingBITCH]

Because Microsoft doesn't "care" if it's gaming division is losing money. Yea, let's pull out after billions and billions spent on R&D, marketing, etc! Just give up and leave! That makes a *lot* of sense. They make enough money in their other ventures to support whatever they're doing now.

 

[MikeyLSU]

they don't lose money, they lose money for the first year or 2 of a new console, then make it all back.

Do you really think the Sony lost money on the PS2 after selling 100+ million of them. They make a killing on every game sold.

 

[tatteredpotato]

Originally posted by: MikeyLSU
they don't lose money, they lose money for the first year or 2 of a new console, then make it all back.

Do you really think the Sony lost money on the PS2 after selling 100+ million of them. They make a killing on every game sold.

I think licensing is between $5 and $10, and I'm sure it varies from title to title. I think MS has convinced a few developers to release games on the Xbox by waiving their fee.

This is why PC games are still $50.

 

[destrekor]

As MikeyLSU said, console creators lose money only for a short amount of time in comparison to its lifespan (1-2 years of money losses), after which the system is cheaper to make due to new innovations in hardware manufacturing. Also, even after price cuts, they tend to keep the retail price lower than the manufacturing price for about 2 years I'd say, or even less. After that, they cut the price once its cheaper to make, and eventually start turning a profit on it. The PS2 sells lot hot cakes and makes Sony a good amount of money.
Also, a company will make money on accessory sales, as well as game sales. That all combines.
It's only the first year or two that a company normally hurts from console sales.

 

[mugs]

Microsoft knew they were going to lose money last time - that was the entry fee to get into the console market. They wanted to get into the console market so they could get into people's living rooms. Now they have a box that can potentially serve as a media center. You can buy TV shows, rent movies, watch video clips, and if you live in AT&T U-Verse territory you'll even be able to use it as a IPTV set top box/DVR. If it weren't for the hardware design flaw, they'd be making a good sized profit on the Xbox 360 already.

Sony on the other hand no doubt made a killing over the last two console generations. This time around I think they went a little overboard on the hardware. With the price cuts that they're going to have to make to stay competitive, it'll be a while before they ever make a profit on the PS3 hardware.

 

[mugs]

Originally posted by: destrekor
as well as game sales.

I think game sales are more or less irrelevant. They don't need to build the system to develop and/or publish games. i.e. Sega, Atari. License fees are relevant.

 

[destrekor]

Originally posted by: mugs

Originally posted by: destrekor
as well as game sales.

I think game sales are more or less irrelevant. They don't need to build the system to develop and/or publish games. i.e. Sega, Atari. License fees are relevant.

while they don't need to build the system, the License fees help recoup the hardware losses.
if a system is built, the license fees that they get from each game is necessary.

 

[Schadenfroh]

I would theorize that the xbox has helped Microsoft dispose of OpenGL (in games that is), since a Direct3D title is probably easier to port to the xbox than an OpenGL title. There is a good profit potential with the xbox live marketplace / media center features. When the chip refresh comes, Microsoft will have greater price cutting flexibility as well as "fixing" the RROD issue.

The Playstation 3 has helped the bluray format greatly (not the other way around). Once Sony is able to get the cost of the console down to reasonable levels, it will probably sell like crazy when it hits the sub $400 range.

Sony and Microsoft are putting their money on the longterm results of the console wars.


Personally if I was in Microsoft's position before the launch of the Xbox 1, I would have spent the money buying up game developers / publishers and selling games for all platforms. Maybe making deals with the hardware manufacturers to allow cross platform multiplayer action. After all, Microsoft is primarily a software developer.

 

[mugs]

Originally posted by: destrekor

Originally posted by: mugs

Originally posted by: destrekor
as well as game sales.

I think game sales are more or less irrelevant. They don't need to build the system to develop and/or publish games. i.e. Sega, Atari. License fees are relevant.

while they don't need to build the system, the License fees help recoup the hardware losses.
if a system is built, the license fees that they get from each game is necessary.

Uh... yeah, that's why I said license fees are relevant. Actual game sales are not.

Actually, you could say that being a system developer hurts a company in terms of game sales, because they limit themselves to publishing games for one system.

 

[mugs]

Originally posted by: Schadenfroh

Nintendo itself invented the strategy that Sony and Microsoft are using (sell the console for a loss and make it up on game license and accessory sales later approach back in the NES days).

Are you sure about that? Nintendo claims they've always sold their systems for a profit from day 1. I thought it was Sony who popularized the Gillette business model in the video game industry.

Personally if I was in Microsoft's position before the launch of the Xbox 1, I would have spent the money buying up game developers / publishers and selling games for all platforms. Maybe making deals with the hardware manufacturers to allow cross platform multiplayer action. After all, Microsoft is primarily a software developer.

Software sales wasn't all they were looking for.

 

[DAPUNISHER]

Originally posted by: Game BoyI don't want to see a Nintendo monopoly, but...

But what?...yes, you do want to see that? MS and Sony may not be raking in the profits like Nintendo, this gen, but Sony has been doing it for years on the PS2, and MS has made progress, although mitigated by the hardware failures and continued inability to penetrate some overseas markets.

These companies have the resources to undertake long campaigns, they don't need to fold up and head home, because a battle or 2 goes poorly. I would be right back to 95% of my gaming and multimedia being on PC, if the best consoles could offer, at this point, is the quaint graphics and lack of multimedia functionality that is the Wii.

 

[Schadenfroh]

Originally posted by: mugs
[
Are you sure about that? Nintendo claims they've always sold their systems for a profit from day 1.

Checking now, I could have mistaken them for another console manufacturer when I read an article a while back about something similar. I have retracted my original statement until such time.

EDIT: It turns out the article that I read was not from a reputable source and I cannot substantiate it with another source, so I am fully dropping my earlier statement.

 

[destrekor]

Originally posted by: mugs

Originally posted by: destrekor

Originally posted by: mugs

Originally posted by: destrekor
as well as game sales.

I think game sales are more or less irrelevant. They don't need to build the system to develop and/or publish games. i.e. Sega, Atari. License fees are relevant.

while they don't need to build the system, the License fees help recoup the hardware losses.
if a system is built, the license fees that they get from each game is necessary.

Uh... yeah, that's why I said license fees are relevant. Actual game sales are not.

Actually, you could say that being a system developer hurts a company in terms of game sales, because they limit themselves to publishing games for one system.

do tell me how a company plans on getting a license fee from a game, if that game is not sold?
huh, huh ?
license fees are figured out on a per-game sale. Such as Sony gets $5 for every copy of a third party game sold. It benefits Sony for them to sell more copies. Thus, game sales matter.

oh, and if a system actually sells very well, it probably is not in that company's best interest to stop making systems and go multi-platform. Due to that, they then have to pay other developers licensing fees and whatnot. Sega didn't have strong console sales, so they had to go that way. But with strong console sales, means a lot of games will be developed for that system, meaning even more licensing fees. It can be argued that in that case, its a good idea to be a system developer versus a multiplatform software developer, since you rake in more money through license fees and eventually hardware sales. Pretty sure that has to be true since Nintendo and Sony have been in the console business for awhile now and don't plan on backing out yet, and Microsoft has been doing well enough to probably want to stay in the business.

 

[lupi]

Originally posted by: BlameCanada


This is why PC games are still $50.

huh?

 

[tatteredpotato]

Originally posted by: lupi

Originally posted by: BlameCanada


This is why PC games are still $50.

huh?

PC games don't have licensing fees and are therefor cheaper.

 

[destrekor]

Originally posted by: BlameCanada

Originally posted by: lupi

Originally posted by: BlameCanada


This is why PC games are still $50.

huh?

PC games don't have licensing fees and are therefor cheaper.

than?
Wii games are still $50. Last gen games were all $50. There were licensing fees for those games too. Licensing fees have not necessarily increased, but both Microsoft and Sony blame increased developer costs for software development as the reason for the price increase.

 

[randay]

wow yeah, everyone would be making a lot more money these days if they just stopped losing money, you are so genious. so tell me, which billion dollar company are you running?

 

[tatteredpotato]

Originally posted by: destrekor

Originally posted by: BlameCanada

Originally posted by: lupi

Originally posted by: BlameCanada


This is why PC games are still $50.

huh?

PC games don't have licensing fees and are therefor cheaper.

than?
Wii games are still $50. Last gen games were all $50. There were licensing fees for those games too. Licensing fees have not necessarily increased, but both Microsoft and Sony blame increased developer costs for software development as the reason for the price increase.

But assuming the PC and 360/PS3 versions have similar development costs, then the PC version can sell cheaper because they don't have to pay Sony or Microsoft for the right to put the game on their platform.

Obviously the Wii is technologically inferior to the other platforms so the development costs are lower and the higher price isn't needed.

I am not trying to say that the licensing fees have increased.

 

[mugs]

Originally posted by: destrekor

Originally posted by: mugs

Originally posted by: destrekor

Originally posted by: mugs

Originally posted by: destrekor
as well as game sales.

I think game sales are more or less irrelevant. They don't need to build the system to develop and/or publish games. i.e. Sega, Atari. License fees are relevant.

while they don't need to build the system, the License fees help recoup the hardware losses.
if a system is built, the license fees that they get from each game is necessary.

Uh... yeah, that's why I said license fees are relevant. Actual game sales are not.

Actually, you could say that being a system developer hurts a company in terms of game sales, because they limit themselves to publishing games for one system.

do tell me how a company plans on getting a license fee from a game, if that game is not sold?
huh, huh ?
license fees are figured out on a per-game sale. Such as Sony gets $5 for every copy of a third party game sold. It benefits Sony for them to sell more copies. Thus, game sales matter.

oh, and if a system actually sells very well, it probably is not in that company's best interest to stop making systems and go multi-platform. Due to that, they then have to pay other developers licensing fees and whatnot. Sega didn't have strong console sales, so they had to go that way. But with strong console sales, means a lot of games will be developed for that system, meaning even more licensing fees. It can be argued that in that case, its a good idea to be a system developer versus a multiplatform software developer, since you rake in more money through license fees and eventually hardware sales. Pretty sure that has to be true since Nintendo and Sony have been in the console business for awhile now and don't plan on backing out yet, and Microsoft has been doing well enough to probably want to stay in the business.

Come on man, try to keep up here... it is wearing on my patience.

It was pretty obvious that in my first reply to you I was talking about FIRST PARTY game sales. FIRST PARTY game sales don't factor into the equation, because they would sell those games regardless of whether they build the system or not. In fact they could sell more by not limiting themselves to one system (i.e. if they were third party developers/publishers).

As I said, license fees DO factor into the equation, so third party software sales obviously DO matter. But they make a lot less on a third party software sale than on a first party software sale, so I was differentiating there.

I never said it DID make sense for Microsoft or Sony to become third party developers. I'm just saying that when you put their system developer revenues in one column and their potential third party software developer/publisher potential revenues in another column, their game sale revenues (OF THEIR OWN GAMES) cancel out - or even possibly favor column B.

For the love of criminy.

 

[Ika]

Plus, Microsoft makes a killing on Xbox Live (specifically, nickle-and-diming consumers by making lots of small things cost money).

 

[XZeroII]

The PS and PS2 are the only things that have kept Sony alive the past few years. They were/are the largest profit centers for Sony.

 

[tatteredpotato]

Originally posted by: Aflac
Plus, Microsoft makes a killing on Xbox Live (specifically, nickle-and-diming consumers by making lots of small things cost money).

XBLVM has been doing exceptionally well.

As for nickel and diming consumers..... a couple bucks for small pictures and themes is a bit ridiculous.

 

[gorcorps]

The consoles themselves lose money, but the games are generating huge revenue for licensing. That alone makes it worth it for all companies. Plus you're naturally assuming that simple economics dictate everything. Nothing is ever as simple as what you learn in classes and these companies have very valid reasons for staying in business that are more 'complex' for lack of a better word.

 

[Game Boy]

Such as wanting to lose even more money because their imnstalled base is too low to support game sales? "Complex" indeed.