Kaz Hirai: "PS4 hardware is already profitable"

[DrunknMunky Veteran]

http://av.watch.impress.co.jp/docs/n...22_649764.html

 

??CEO?PS4??????????????????????????????????????????????????????

 

Is Kaz Hirai saying that PS4 hardware is profitable already?

 

Originally Posted by extralite
Yes, and that it differs in that regard to the business model of previous platforms.

 

From Gaf

 

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Sony: PS4 "likely" to exceed profits earned from PS2

Kaz Hirai hails strong hardware sales and digital services.

 

By Wesley Yin-Poole Published 22/05/2014

 

It's all part of the plan.

 

The PlayStation 4 is off to a strong start, with seven million units sold since it launched in November 2013.

 

But what's the long term view?

 

During a corporate strategy meeting today, reported on by Japanese website Impress Watch and spotted by NeoGAF, Sony boss Kaz Hirai said that the strong hardware sales, coupled with the growing popularity of digital services, should allow the PS4 to produce profits beyond what Sony managed with PlayStation 2 - the best-selling console of all time.

 

Here's the direct quote, translated for Eurogamer by Digital Foundry contributor John Linneman.

 

"It is likely that PS4 will become the platform which exceeds the profits earned with PS2."

 

Before the quote, there is a line not in quotes, which specifies strong sales and network services as a driving factor.

 

While Sony is suffering billion dollar losses - and expects those losses to continue - PS4 is doing well. Sales for the company's Game segment were up 38.5 per cent during the last financial year, but it still posted an operating loss of $78m due to the costs associated with the launch of the PS4 and the write off of some of Sony Online Entertainment's old MMOs.

 

Sony expects to shift a total of 17m PS3 and PS4 consoles combined during the current financial year.

 

Console hardware manufacturers typically make a loss on each console sold during the early years of its life in an effort to establish an install base. The real money, however, is made from software sales and network services. That's stuff like PlayStation Plus subscriptions, and digital sales of game content, movies and the like.

 

This is in keeping with comments made to Eurogamer by Sony Japan executive Masayasu Ito in September last year. He said the PlayStation 4 hardware would make a loss at launch, but insisted Sony expected to immediately recoup the costs when a typical user also bought a PlayStation Plus subscription and games.

 

It was a different case with the PS2, of course, which launched in 2000. That console didn't have a digital storefront to sell subscriptions and downloadable content from. But it was hugely successful - it's the best selling video game console of all time, with an incredible 155m units sold globally.

 

Sony made well-documented losses on the PlayStation 3 during the early years of its life. And it was always part of the plan to avoid a similar situation with PS4. Back in May 2013, Sony chief financial officer Masaru Kato explained the difference.

 

"Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4," Kato said.

 

"At the time we developed PS3, we made a lot of in-house investments to develop the Cell chip. Development of the chip saw the silicon processing and all the facilities invested by us ourselves. But this time, yes we have a team working on chip development, but we already have existing technology to incorporate and also product investment, and all the facilities will now be invested by our partners, other foundries, so we don't have to make all the investment in-house."

 

http://www.eurogamer.net/articles/2014-05-22-sony-ps4-likely-to-exceed-profits-earned-from-ps2

[DeltaXray]

Doesn't surprise me, since if I remember rightly the teardowns showed that the estimated build cost was only a fraction below retail. I wouldn't think they're making megabucks on the hardware but never thought they'd make a loss on it either.

[theyarecomingforyou]

It depends what they mean by profitable. I highly doubt that the PS4 has recouped the cost of R&D and advertising on the slim margins being made on each unit.

[+E.Worm Jimmy Subscriber¹]

Did not they say both XB One and PS4 are not sold at a loss?     I thought this was already common knowledge

It depends what they mean by profitable. I highly doubt that the PS4 has recouped the cost of R&D and advertising on the slim margins being made on each unit.

 

 

no way.    but at least they are not losing it on each sale.  which is better then the last gen.

[123456789A]

Well of course it is. It doesn't cost more than $399 to build.

 

The Xbox was about the same way, just under the retail price to build.

[DrunknMunky Veteran]

Doesn't surprise me, since if I remember rightly the teardowns showed that the estimated build cost was only a fraction below retail. I wouldn't think they're making megabucks on the hardware but never thought they'd make a loss on it either.

 

There's been a few estimates since the specs were announced/teardowns. Some said they were losing a small amount, some said it was even and some said $18 profit. Either way it's known now but not how much by.

 

AllThingsD estimate the X1 costs $471 to make so profitable from the start. Removing Kinect might have changed that either way though.

[torrentthief]

Good news. Now if they could release a slim version next year with a 20nm SoC instead of 28nm for ?299 that would be great.

[Aergan]

I would think that the PS2 & especially the PS3 have taught them quite a bit about being smarter with their bill of materials and not dividing so many I/O processes into separate logic components. Good on them to be honest.

[McKay]

There's been a few estimates since the specs were announced/teardowns. Some said they were losing a small amount, some said it was even and some said $18 profit. Either way it's known now but not how much by.

 

AllThingsD estimate the X1 costs $471 to make so profitable from the start. Removing Kinect might have changed that either way though.

 

Either way both consoles are in a much better position than last gen. They're outselling their predecessors and they aren't losing a bucket of money in each one. 

[rfirth]

The hardware is profitable. The division isn't due to research and development costs, marketing, distribution...

 

And the company is drowning... $1.25 billion loss for 2013 and a forecasted loss of $490 million for 2011.

 

Microsoft staring a price war with them would be a disaster for Sony.

 

[+Asmodai MVC]

Good news. Now if they could release a slim version next year with a 20nm SoC instead of 28nm for ?299 that would be great.

They aren't going to shrink the process in the first year.  They also aren't going to lower the price as long as they are selling them as fast as they can make them.

[DeltaXray]

Yeah Sony have absolutely no reason to lower the price for a while yet. They've hit a sweet spot and are still flying off the shelves.

[+Asmodai MVC]

Either way both consoles are in a much better position than last gen. They're outselling their predecessors and they aren't losing a bucket of money in each one. 

 

This is actually bad for consumers though.  It used to be that when you bought a console you got far more hardware than what you paid for at launch.  The manufacturers recouped the losses over time because they take a cut of all the games for the platform unlike on PC (which is why console games used to be $60 while the same game for PC costs $50.)  Also over time the hardware would become cheaper until later in the consoles life they'd actually start making a profit on hardware.

 

Now the hardware at launch isn't that much better (if at all) then what you could get just buying a PC for the same price.  So you're locked into a closed platform without getting a great deal on hardware and the platforms holders just pocket the extra money from the games... profit!  PC gamers even get screwed now because with widespread multi-platform development publishers now typically keep prices the same across PCs and consoles ($60 everywhere instead of $50 on PC) and so they're just screwing PC gamers by taking the money that goes to the platform holders on consoles and just pocketing it.

 

So yeah, things are great for the platform holders... not so much for gamers.

[McKay]

This is actually bad for consumers though.  It used to be that when you bought a console you got far more hardware than what you paid for at launch.  The manufacturers recouped the losses over time because they take a cut of all the games for the platform unlike on PC (which is why console games used to be $60 while the same game for PC costs $50.)  Also over time the hardware would become cheaper until later in the consoles life they'd actually start making a profit on hardware.

 

Now the hardware at launch isn't that much better (if at all) then what you could get just buying a PC for the same price.  So you're locked into a closed platform without getting a great deal on hardware and the platforms holders just pocket the extra money from the games... profit!  PC gamers even get screwed now because with widespread multi-platform development publishers now typically keep prices the same across PCs and consoles ($60 everywhere instead of $50 on PC) and so they're just screwing PC gamers by taking the money that goes to the platform holders on consoles and just pocketing it.

 

So yeah, things are great for the platform holders... not so much for gamers.

 

True in the short term yes, but look where drastically underpricing the PS3 got Sony. If they got into more trouble it might have impacted their gaming division. I'm happy to pay pretty much the price it cost to make, considering my other gadgets were bought for so much more than they cost. 

[HawkMan]

This is actually bad for consumers though.  It used to be that when you bought a console you got far more hardware than what you paid for at launch.  The manufacturers recouped the losses over time because they take a cut of all the games for the platform unlike on PC (which is why console games used to be $60 while the same game for PC costs $50.)  Also over time the hardware would become cheaper until later in the consoles life they'd actually start making a profit on hardware.

 

Now the hardware at launch isn't that much better (if at all) then what you could get just buying a PC for the same price.  So you're locked into a closed platform without getting a great deal on hardware and the platforms holders just pocket the extra money from the games... profit!  PC gamers even get screwed now because with widespread multi-platform development publishers now typically keep prices the same across PCs and consoles ($60 everywhere instead of $50 on PC) and so they're just screwing PC gamers by taking the money that goes to the platform holders on consoles and just pocketing it.

 

So yeah, things are great for the platform holders... not so much for gamers.

 

 

True but false.

 

this assumes license cost to release games on the consoles haven't changed with the time and that inflation hasn't affected this business. both false. 

 

Sure they could have released the consoles at 100$ less or more, and take a loss recouping the money on software sales(Sony which historically has slightly worse attach rate gets a bit worse off there). HOWEVER, then games would have had to cost more.

 

Now I know what your counter argument is "that is BS, games are the same price or more than they used to be". No they're not, inflation makes them cheaper and even if they are the same price they used to be, that ignores a MAJOR part of game development; Production costs. In the past generation production costs where lower since all the games used low poly models only a few models even used high detail normal maps textures got away with less detail and so on. Today it's a different story, ALL characters and monsters not only need a high res in game model, they also need super high res movie quality models to generate normals maps from, the modelling alone costs a lot, then you have to remodel them 2-3 times for different lods(not it's not as simple as just hitting a magic button to get a lower res model, there are short cuts, but you still have a lot of work to do on each LOD. and each LOD needs to be texture mapped and skinned for animation, both time consuming labour). And then there's animations, even if you buy an expensive middleware solution like endorphin for those super sweet realistic animations and reactions to the environment, you still need to animate the character for all the non every day stuff an scenes he'll be in. Then you have voice acting, and all the res of the environment models and the levels and environments themselves. 

 

Games today are ridiculously expensive to make. So a cheaper console would mean more expensive games, pick one. As it is and in the long run when you add it all up, I'd say the consumers are winning with consoles that aren't losing money. 

[mrp04]

There's been a few estimates since the specs were announced/teardowns. Some said they were losing a small amount, some said it was even and some said $18 profit. Either way it's known now but not how much by.

 

AllThingsD estimate the X1 costs $471 to make so profitable from the start. Removing Kinect might have changed that either way though.

 

Yeah probably INCREASED the profits.

 

There was an (anonymous) Reddit AMA by an XB1 engineer around the XB1 launch. He regurgitated the "Kinect is crucial to the XB1 experience" crap but also said that if Kinect wasn't bundled the system could be sold significantly cheaper than $400. 

Removing the Kinect and "cutting" the price to $400 wasn't really a cut, not when they were selling the bundle with a Kinect and a game for $450.

[+Asmodai MVC]

True in the short term yes, but look where drastically underpricing the PS3 got Sony. If they got into more trouble it might have impacted their gaming division. I'm happy to pay pretty much the price it cost to make, considering my other gadgets were bought for so much more than they cost. 

 

What's true in the short term?  That implies something is no longer true in the long term, I'm not sure what you're saying.

 

Sony got arrogant after dominating with the PS2 and made the PS3 far more expensive than it should have been.  They spent a lot of money on not just blu-Ray but in developing Cell as well.  As a result they took a huge hit at the hands of Microsoft and the Xbox 360 and had to sell the PS3 for even MORE of a loss than they wanted to as well as cut features (backwards compatibility, USB ports, card readers, etc.) to get the price down.  Microsoft made a similarly arrogant decision in assuming the popularity of the Xbox 360 would drive sales of the Xbox One even though it cost $100 more due to the inclusion of Kinect.  That is a separate issue though.  If we look at the Xbox 360 or the PS2 or event the PS1 all of them had better hardware than similarly priced PCs at the time of their launch (you can always throw more money at PCs and end up with a better system, that's why they're the master race) and were sold at a loss.  Only Nintendo has been selling consoles at or above cost at launch prior to this generation (I believe the GameCube was sold at a loss but the Wii is just a modified Gamecube internally and sold for a profit at launch as did the Wii U).

 

So now we as gamers are getting less (relative to the times) for our money. The Wii dominated in sales last generation with comparatively low spec'd hardware and with Nintendo selling it for a profit from the get-go.  Sony spent a fortune on R&D and got burned because of the expense of the resulting product.  So now the platform holders are all R&D gun shy and are only making minor tweaks to the existing PC platforms and selling the result for a profit from the start.  That's good business for them, but it's a much worse deal for gamers than consoles have historically been.

[McKay]

What's true in the short term?  That implies something is no longer true in the long term, I'm not sure what you're saying.

 

Sony got arrogant after dominating with the PS2 and made the PS3 far more expensive than it should have been.  They spent a lot of money on not just blu-Ray but in developing Cell as well.  As a result they took a huge hit at the hands of Microsoft and the Xbox 360 and had to sell the PS3 for even MORE of a loss than they wanted to as well as cut features (backwards compatibility, USB ports, card readers, etc.) to get the price down.  Microsoft made a similarly arrogant decision in assuming the popularity of the Xbox 360 would drive sales of the Xbox One even though it cost $100 more due to the inclusion of Kinect.  That is a separate issue though.  If we look at the Xbox 360 or the PS2 or event the PS1 all of them had better hardware than similarly priced PCs at the time of their launch (you can always throw more money at PCs and end up with a better system, that's why they're the master race) and were sold at a loss.  Only Nintendo has been selling consoles at or above cost at launch prior to this generation (I believe the GameCube was sold at a loss but the Wii is just a modified Gamecube internally and sold for a profit at launch as did the Wii U).

 

So now we as gamers are getting less (relative to the times) for our money. The Wii dominated in sales last generation with comparatively low spec'd hardware and with Nintendo selling it for a profit from the get-go.  Sony spent a fortune on R&D and got burned because of the expense of the resulting product.  So now the platform holders are all R&D gun shy and are only making minor tweaks to the existing PC platforms and selling the result for a profit from the start.  That's good business for them, but it's a much worse deal for gamers than consoles have historically been.

 

I said short term the customers get more, but Sony were devastated by selling the PS3s for a huge loss on every unit, combined with the costs of R&D is disastrous. If companies kept this up they'd go broke and have to pull out of the gaming business all together. So long term the customers lose out. Last gen was fantastic because Companies, sure we aren't getting as good a deal this generation, but we're getting a better deal than most other of our gadgets offer us. 

[DrunknMunky Veteran]

Yeah probably INCREASED the profits.

There was an (anonymous) Reddit AMA by an XB1 engineer around the XB1 launch. He regurgitated the "Kinect is crucial to the XB1 experience" crap but also said that if Kinect wasn't bundled the system could be sold significantly cheaper than $400.

Removing the Kinect and "cutting" the price to $400 wasn't really a cut, not when they were selling the bundle with a Kinect and a game for $450.

Yeah I'm sure it does in some ways increase profits on the console, but I put either way because now of course they need new assembly lines for the kinect to be boxed up, shipped and sold separately etc. Not to mention whatever way they're handling the stock during the transition from bundle to unbundle.

I'm sure it's negligible either way in the grand scheme of things.

What's true in the short term? That implies something is no longer true in the long term, I'm not sure what you're saying.

Sony got arrogant after dominating with the PS2 and made the PS3 far more expensive than it should have been. They spent a lot of money on not just blu-Ray but in developing Cell as well. As a result they took a huge hit at the hands of Microsoft and the Xbox 360 and had to sell the PS3 for even MORE of a loss than they wanted to as well as cut features (backwards compatibility, USB ports, card readers, etc.) to get the price down. Microsoft made a similarly arrogant decision in assuming the popularity of the Xbox 360 would drive sales of the Xbox One even though it cost $100 more due to the inclusion of Kinect. That is a separate issue though. If we look at the Xbox 360 or the PS2 or event the PS1 all of them had better hardware than similarly priced PCs at the time of their launch (you can always throw more money at PCs and end up with a better system, that's why they're the master race) and were sold at a loss. Only Nintendo has been selling consoles at or above cost at launch prior to this generation (I believe the GameCube was sold at a loss but the Wii is just a modified Gamecube internally and sold for a profit at launch as did the Wii U).

So now we as gamers are getting less (relative to the times) for our money. The Wii dominated in sales last generation with comparatively low spec'd hardware and with Nintendo selling it for a profit from the get-go. Sony spent a fortune on R&D and got burned because of the expense of the resulting product. So now the platform holders are all R&D gun shy and are only making minor tweaks to the existing PC platforms and selling the result for a profit from the start. That's good business for them, but it's a much worse deal for gamers than consoles have historically been.

Wii U was sold at a loss and was profitable with the purchase of 1 game at launch. Probably a different story now considering the low sales.

[+Asmodai MVC]

True but false.

 

this assumes license cost to release games on the consoles haven't changed with the time and that inflation hasn't affected this business. both false. 

 

Sure they could have released the consoles at 100$ less or more, and take a loss recouping the money on software sales(Sony which historically has slightly worse attach rate gets a bit worse off there). HOWEVER, then games would have had to cost more.

 

Now I know what your counter argument is "that is BS, games are the same price or more than they used to be". No they're not, inflation makes them cheaper and even if they are the same price they used to be, that ignores a MAJOR part of game development; Production costs. In the past generation production costs where lower since all the games used low poly models only a few models even used high detail normal maps textures got away with less detail and so on. Today it's a different story, ALL characters and monsters not only need a high res in game model, they also need super high res movie quality models to generate normals maps from, the modelling alone costs a lot, then you have to remodel them 2-3 times for different lods(not it's not as simple as just hitting a magic button to get a lower res model, there are short cuts, but you still have a lot of work to do on each LOD. and each LOD needs to be texture mapped and skinned for animation, both time consuming labour). And then there's animations, even if you buy an expensive middleware solution like endorphin for those super sweet realistic animations and reactions to the environment, you still need to animate the character for all the non every day stuff an scenes he'll be in. Then you have voice acting, and all the res of the environment models and the levels and environments themselves. 

 

Games today are ridiculously expensive to make. So a cheaper console would mean more expensive games, pick one. As it is and in the long run when you add it all up, I'd say the consumers are winning with consoles that aren't losing money. 

 

The exact amount of the license fee and inflation make no difference at all to my points.

 

Console games have to pay a licensing free to the platform holder to release the game on the console (excluding edge cases like indy games released through the online market... i think that's free... not sure)... not to mention they have to buy specialized dev kits.

On PCs there is no such charge.  Game developers can release their game directly to a PC gamer with no fee to anyone else if they like (via disc or download directly from them or their service such as uplay, origin, etc)

 

This means if a game costs $X on a console some fraction of that goes to the platform holder, lets call it Y (sure Y can change with time and so can the value of X because of inflation but that IN NO WAY changes the point).  The game on PC should then cost $X - Y because there is no platform holder to pay.  If the game is the same price on both console and PC (say $60, but it could be anything) the PC gamer is getting a worse deal as the publisher/developer is just pocketing Y as extra profit.

 

Historically most consoles were sold at a loss a launch and the loss was recouped via the Y charges above.  Y still exists, it may not be the exact same number (which makes no different to the point) but it's not zero and so the fact that console makers are now selling launch devices at break-even or even a slight profit means Y is just being taken as profit and consumers are getting a worse deal compared to prior generations.  If you want to talk about R&D and such this generation is the LEAST innovative generation ever.  Both major consoles are just minor tweaks of off the shelf PC components compared to historical consoles which were much more custom designs.  So comparatively speaking they should have LESS money they need to recoup than prior generations and consumers should get an ever better deal but they aren't.

[HawkMan]

Yeah probably INCREASED the profits.

 

There was an (anonymous) Reddit AMA by an XB1 engineer around the XB1 launch. He regurgitated the "Kinect is crucial to the XB1 experience" crap but also said that if Kinect wasn't bundled the system could be sold significantly cheaper than $400. 

Removing the Kinect and "cutting" the price to $400 wasn't really a cut, not when they were selling the bundle with a Kinect and a game for $450.

 

you're mixing actual store prices and RRP.  the 450 price is a store price, the 400 price without Kinect is RRP. 

[+Asmodai MVC]

I said short term the customers get more, but Sony were devastated by selling the PS3s for a huge loss on every unit, combined with the costs of R&D is disastrous. If companies kept this up they'd go broke and have to pull out of the gaming business all together. So long term the customers lose out. Last gen was fantastic because Companies, sure we aren't getting as good a deal this generation, but we're getting a better deal than most other of our gadgets offer us. 

I don't see how customers are getting more short term.  We're getting less all the way around.

Again the PS3 was the exception not the rule.  Sony's arrogance after winning the prior caused them to go too far down the R&D road at too high of an expense.

The model that should be continued though is not the PS3 model as you rightly point out it's too much R&D at too high a price but the better solution (from a consumer point of view... that has been proven to work for platform holders as well) is the model the Xbox360, PS2, PS1, etc. used.  They still sold for a loss and had more customized internals instead of off the shelf parts and those generations worked fine.  The most popular console in history was the PS2, it sold for a loss at launch and had custom designed chips, not modified PC parts.  That was great for Sony (setting up the arrogance that led to their downfall with the PS3), and it was better for consumers than what we have now.

 

"sure we aren't getting as good a deal this generation" <- That was my point... if you agree I'm not sure what the point of your reply was.  You act as if you're refuting something I said and then come right out and confirm what I was saying.

 

As for if we're getting a better deal than most gadgets offer us I'm not sure that's true either.  Maybe compared to Apple devices which have the "Apple Tax" but I don't have Apple products in part for that very reason.  No product I can think of that I use increases the costs of the software released on it by requiring a licensing fee, only consoles.  In return we used to get cheaper hardware, we don't anymore.  So now we're paying more for software for nothing in return.  The only saving grace this generation is now indy games are big and they tend to be cheap and I don't believe they have to pay those licensing fees.

[HawkMan]

 

This means if a game costs $X on a console some fraction of that goes to the platform holder, lets call it Y (sure Y can change with time and so can the value of X because of inflation but that IN NO WAY changes the point).  The game on PC should then cost $X - Y because there is no platform holder to pay.  If the game is the same price on both console and PC (say $60, but it could be anything) the PC gamer is getting a worse deal as the publisher/developer is just pocketing Y as extra profit.

 

 

 

Your math falls apart the minute you realize that the PC version may not be self financing 

[tomasse]

Well, with a more PC-like hardware in PS4 (AMD CPU-GPU), rather than a specialized-PS3-cell-broadband-hardware-uncommon-and-difficult-to-code, i find it really possible for the PS4 to be already profitable.

[+Asmodai MVC]

Your math falls apart the minute you realize that the PC version may not be self financing 

I don't see how, please explain.  If you're making a game it has to be financed no matter what platform it's for, be it console or PC.  You either have the money and can finance it yourself or you don't and have to seek financing elsewhere (typically through a publisher).  That's the same for both console and PC games so how it's financed makes no difference. ON TOP OF THAT however the console version has to pay an additional licensing fee to the platform holder.