Pachter: PS3 price cut could cost Sony $350 million

by Andrew Yoon on Jun 12th 2009 7:15PM

A PS3 price drop is an inevitability. The only questions are when, and how much. While it may seem like a no-brainer, Sony must carefully plan out a price drop if it wants to get anywhere near its goal for profitability. Outspoken analyst Michael Pachter notes that Sony could lose $350 million of profits on a price cut of just $50 (accounting for 6-7 million systems sold after a reduction). While a cut to $299 would be far more palpable to gamers, that would cost the company at least twice as much -- would Sony want to incur those losses during a difficult financial market?

Considering the exorbitant price tag on a price cut, it's likely Sony will choose the smallest cut possible. Pachter suggests that a $350 bundle, which includes a first party game (such as Killzone 2) is the likeliest solution for the company, predicting the drop will happen in October -- just in time for the holiday season.

Source

Tags: michael-pachter, price-cut, ps3, sony

Reader Comments (85)

its selling well enough as is, when the price does drop though, god help you ppl who don't have one, cuz u may never get your hands on one.

Unless when they cut it's price they also turn it into a Wii, I doubt that.

Oh that is so far from accurate you'd need a rocket just to get there. "Selling well enough as is"? Maybe in Qatar. Fact is Sony hasn't sold *nearly* enough PS3s, and they, like practically every other business in a recession, need to do something to spur sales- although I'm not sure throwing a third of a billion dollars at the problem is really going to reap benefits long term. I think Sony needs to lick their wounds, concentrate on staying at least slightly profitable and wow us with the PS4 when the time is right.

Hahahahahh...

Oh my god, you are not kidding...

Hmm... that would be just after the Tokyo Game Show if I'm not mistaken. From a business view that is a lot of money to lose. However $50 off with a bundled game doesn't sound too bad.

They will earn some of it back through software sales, especially if they cut the price simultaneously as they release a big title (namely GoW3 or GT5).

And if the install base ever gets as large or larger than the 360s I guess it will be more difficult for Microsoft to secure third party exclusives, timed exclusives or exclusive dlc.

Every time I think about how badly Sony screwed this generation up I just shake my head in wonder- I thought Nintendo had a rough patch between the SNES and the Wii; at least those machines were profitable. I'm beginning to think that it doesn't matter *what* Sony does; they are never going to recover this generation, they are never going to lead and if the PS3 reaches profitability it will only be by the grace of God. Although I own all three systems and recognize that each has its own strengths and weaknesses, the ubiquitous natures of the 360 and the Wii have a certain cachet to them that it seems that the PS2, PS1, SNES, Genesis and NES had to themselves, and the PS3... well, it's the ugly stepchild, which is bullshit because there are games that are just as good or better than games that you will find on the other two systems. But the fact remains that due to boneheaded marketing decisions, an absolutely fucking crazy initial price point and just plain smarter moves by the boys out of Redmond, the PS3 just ain't it and it's slight technical edge and its commensurate extra cost will be the albatross that should lead to mass firings at Sony and a complete reimagining of their gameplan. All I can say is- good luck.

@Ryan LN

I don't think Sony failed with the PS3, they were focused on making the bluray, the replacement for the dvd and they won, of course they had to sacrifice their leader position in gaming, and still can't concentrate now that downloadable movies are catching on, of course, the PS3 is again the main weapon, except they don't have the installed base to win such a war vs the ipods and pcs.

@RidgeCity

I didn't say that the PS3 was a *failure*- that certainly isn't true- but Sony lost the humongous advantage it had in mindshare and marketshare with the PS2. And for what? To win a format war that will ultimately by a Pyrrhic victory when digital distribution marginalizes blu-ray and their antiquated licensing fees? I just think that there could have been smarter, more prescient business decisions made by them when designing and marketing their uber-expensive beast of a machine, and that their traditional corporate hubris (see minidisc, UMD, memory stick, SACD et al) lead them to a place where they didn't have to be.

And I predict it won't. So I guess we cancel out since Pachter tends to have as much credibility as a commenter on this site when it comes to predictions.

It's funny cause in a way you just completely ragged on your own comment! Awesome!

Far more palpable? Did you mean "palatable", or am I missing some second meaning of the word?

You're not the only one, I assumed Yoon meant palatable as well. I don't see how a $50 cut would be any less palpable than $100 - both would be pretty evident.

He could have meant Palpatineable. Sony's plans for the PlayStation brand may have something to do with something, something dark side, something, something complete.

http://www.google.com/search?q=define%3A+palpable&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

iFetser jumps straight into the lead for best comment of the month!

I LoL'd

Huh, that's what I thought.

Yeah, but Pachter's a dickhead.

good ol pachman, breakin' it down!

love the outspoken tag, haha

In other news: Fish swim, birds fly, and I havn't had sex in 10 years. More at 11.

*I really wish I could get payed for being Captain Obvious.*

So is your name really LameDick? eh? eh?

Step away from the video games and the computer and go outside.

No, it's actually Alex Trebek. I hide here whenever Sean Connery comes over to see mother.

Sex is overrated unless it's meaningful.

Next after the break:

Pachter apologizes for saying the price cut could cost sony $350 million.

Pachter knows squat.

I'm curious if the PS3 price is dropped, will the xbox 360 follow suit? By an equal amount the 'same-day'? If the PS3 does drop by $100.00 puting it at $299.99 which would be a great deal considering its a gaming machine but also doubles being blu-ray player, can surf the internet(though I'd prefer pc surfing still), high-def media center extender capable via third party apps and some first party stuff, etc.

$100.00 of the xbox arcades 179.99 would put it at $79.99? which would be almost unreal. I could see it dropping to $125ish though or $139.99 such that the arcade would be half the ps3 entry model.

Any other people have any thoughts on what MS's counter would be?

Maybe a drop in price of the Elite/Pro models, along with a Price drop in HDD's?

One can dream...

Depends on how much money they are making, why drop the price of an Xbox to compete with a PS3 if it will make them less revenue for each console? Unless the price drop of the PS3 has a detrimental outcome on the sales of the 360.

Why do you think Wii hasn't moved despite 360 coming down, they are on top in terms of sales, they want MONEY, dropping the price by 25% cuts thier revenue by 25%. Sony NEEDS to drop in order to increase revenue, but it could cost them in the long run, 360 doesn't NEED to drop, (excluding all the accessories and crap and XBL), it's at the right price point and Micro is making profit already, what benefit would it be to Micro if they lowered the price to counter PS3? The only benefit would be if the PS3 was beginning to pick up further market share that Micro needed.

Besides, if Natal turns out to be a success and has the 'Wii effect', how stupid would it be to lower the price of 360, Micro might as well throw a good 3mil out the window because they can't raise the price back up afterwards to get more money from the people buying 360 to play Natal, that's just bang out of order.

360 is already priced pretty aggressively. I highly doubt a price drop again this year on any of the 360 models. If anything the elite would get knocked down by $50, but I dont see the pro/arcade models dropping in price yet again.

Do you really think MS would cut the price to that level (when they have already said they wouldn't) just to match Sony's move? Especially considering that would make MS make a substantial loss on each console sold hence cutting massively into their own profit?

MS are childish dicks, but come on even that is a bit far for them.

Like Sony MS looses money on every x-box thats sold. If they were going to do a price drop it would be on the elite model whose sales have already been canabalized by the Arcade SKU.

In order for Sony to drop the price, it would first have to lower its own costs on resources to make PS3. As far as I know, Blu-ray is still the most expensive part of the PS3.

While I'd like Sony to drop the price to appeal to all the individuals out there who have said they could buy a small private aircraft for the price of the PS3, would it be a wise business decision, if they were to drop the price, there would have to be high certainty that people would buy it after the drop to cover the losses, so yeah, it's a difficult situation and people make it sound so easy, 'drop the price, drop the price'.

@Mav:

Sony say they've cut production costs by 50% since launch and even that was end of last year. It's been about 8 months since they said that and with Sony not denying the "Slim" it screams that they have reduced costs sufficiently to warrant a price drop.

I'd expect a $100 price drop on current SKU's with the new Slim replacing it at the current $399 price point.

That way you get the cut people want to go out and buy one, and you will get the bleeding edge "must have" types, snapping up the slim.

Until they've finished it, they won't show it, once they show it, chances are that they will try to make profit out of it, so it will be priced higher then current PS3 SKUs which will in turn drop in price, the higher price on the slim will make up for the lower pricing of the phat, the higher price of the slim will be justified because it's new, more practical (and maybe has bonus features? Who knows), as long as the pricing isn't ridiculously high, people will buy the phat because in comparison to the slim it's now cheap, and because it's lowered in price.

It's a win win situation, but yeah, that's 'IF' slim even exists and 'IF' it all goes according to plan

Add BC and 120gb and they'd be in serious business with the slim

@Maverick Saturn
Actually, there would need to be a high amount of game, PSN sales with the price drop. If the majority of people purchased a priced dropped PS3 and only rented Blu-ray movies, it would hit Sony pretty hard.

Exactly mate, right on point

tbh, i dont think the PS3 is at a bad price point right now, yeah maybe not for the current econemy but for whats on offer i see it as a deal ut if it does drop in price i see it droping buy like 15% maybe.

Sony execs know what is to gain and lose from a price cut. If they think it's a good business move they'll do it; journalists on gaming websites and gamers themselves probably don't know what's best for an international company.

People make livings whining about hardware prices and blogs make a living writing about them.Seriously thats all I have been reading about today. Console A cost so much more than portable B and whinny, whine, whinny, whine. Lets all just pretend that the PSP Go and the PS3 will never drop in price.

If I want a steak but I only have enough money for a cheeseburger, I buy a freaking cheeseburger. It doesn't do me any good to complain about a steak price cut.

Well it's gonna cost me AU$350 to fix my PS3 now...
just got YLOD last night when trying to load up the vidzone thing.

and I just bought inFamous...
:(

Yellow Ling of Death? Did you import your PS3 from Japan?

...it means Yellow Light of Death...

@Mystile

/Picard facepalm

For Europe and America to get price cuts, the Yen would have to get quite a bit stronger.

No...the YEN would have to become a hell of a lot weaker. Right now $399 USD only converts to 39267.58 Yen, last year it was worth 43065.29 Yen.

So...SONY is ALREADY eating a 9% drop in revenue by keeping the cost the same.

At launch...just for fun $499 was 58692.07 Yen ... so they have cut BC and a few ports...increased HDD sizes and are collecting 33% less revenue than at launch.

I was aiming for that, but I failed economics on the way.

If Sony was smart they'd add the $10 back-compat chip and drop the whole console $50. But they clearly are not.

I'd LOVE to know what new kind of alien mathematics brought you to that arbitrary number.

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Pachter: PS3 price cut could cost Sony $350 million

Reader Comments (85)

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