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Are consoles sold under production price?

ElikalElikal ValhallaPosts: 7,906Member Uncommon

Just recently I had a discussion about consoles with a friend about the production price. My opinion was, that Xbox One, PS4 and Wii U are all produced under production price, while my friend said that like with Apple products the parts would be very cheap and companies would never sell their product with loss, because they are greedy and evil. ^^

 

In the end it was just two opinions and I wanted to know if there are some facts, someway to find out who of us was right. Like some production value assessment of some neutral parties, product testers or somesuch.

Anyone? ^^

People don't ask questions to get answers - they ask questions to show how smart they are. - Dogbert

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Comments

  • BetaguyBetaguy Halifax, NSPosts: 2,590Member

    Here is an older article but still relevant:

    http://www.gamespot.com//news/report-ps3-to-sell-for-399-cost-494-to-make-6128295?

    Corporate sport

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  • mcrippinsmcrippins Dallas, TXPosts: 1,071Member Uncommon
    That would effectively mean they lose money on each system they sell. Doesn't seem like a very smart business decision.
  • GroovyFlowerGroovyFlower RdamPosts: 1,245Member

    Its a well known fact they sell console underprised, they mainly depend on the games they sell.

    Thats why games on consoles are so expensive.

  • RidelynnRidelynn Fresno, CAPosts: 4,179Member Uncommon


    Originally posted by GroovyFlower
    Its a well known fact they sell console underprised, they mainly depend on the games they sell.Thats why games on consoles are so expensive.

    Not all consoles sell for a loss, although it's not uncommon. Those that don't sell for a loss are still on a very thin margin.

    GroovyFlower is right - the revenue driver isn't the hardware, it's the licensing. They charge each developer a license fee just to be able to run their game on the platform. Then there are fees to distribute patches online, fees if you want to sell your product digitally on their storefront, fees if you want to have online connectivity (particularly XBL), fees for the DevKits, fees for Microtransactions processed through your program.

    The hardware is just there as the hook.

  • udonudon Durham, NCPosts: 1,768Member Uncommon
    Originally posted by Elikal

    Just recently I had a discussion about consoles with a friend about the production price. My opinion was, that Xbox One, PS4 and Wii U are all produced under production price, while my friend said that like with Apple products the parts would be very cheap and companies would never sell their product with loss, because they are greedy and evil. ^^

     

    In the end it was just two opinions and I wanted to know if there are some facts, someway to find out who of us was right. Like some production value assessment of some neutral parties, product testers or somesuch.

    Anyone? ^^

    They often sell for a lose early in their life cycle and as prices of components drop they start to make money.

    Most of the money that console makers make is off of the games themselves.  They get a license fee for every copy sold.

    I remember reading a article back in the early days of Xbox 360's that said that Microsoft didn't make money until a person purchased their 4th or 5th game for the new console.

  • GrayGhost79GrayGhost79 Webster, MAPosts: 4,813Member

    This Gen won't be sold at a loss. The x86 setup they are going with is a great deal cheaper than the custom setup of the PS3 of Xbox 360. They are basically using slightly modified PC components so they will be making a profit even if they do sale the systems at a loss for w/e reason initially they will become profitable fairly quickly. 

     

     

  • GwapoJoshGwapoJosh Auburn, INPosts: 991Member Uncommon
    All consoles start selling at a loss.. They start to make profit as the tech becomes cheaper to produce.  It's a risk but it's a necessary risk on the road to profit in the console world..

    "You are all going to poop yourselves." BillMurphy
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  • SpiiderSpiider BinzPosts: 474Member Uncommon
    That is a lie corporations want you to believe. Consoles are sold way over what they cost to make. Then corporations dumb bazillions in marketing and say "oh look consoles are underpriced, buy them while they last".

    No fate but what we make, so make me a ham sandwich please.

  • MibletMiblet BognerPosts: 333Member
    The consoles generally are sold at a marginal loss (launch) or marginal profit (end) depending on the point in their lifecycle.  The games for said systems however are an altogether different story.  Once you have purchased a console you will buy games for it, so it's an effective strategy, and and absurdly lucrative one.
  • LoktofeitLoktofeit Stone Mountain, GAPosts: 13,672Member Uncommon
    Originally posted by mcrippins
    That would effectively mean they lose money on each system they sell. Doesn't seem like a very smart business decision.

    They make it up in licensing, which is something they can't do unless people have the systems to play the games on.

    A person is usually only going to buy one of a particular console - people rarely have 2 of the same console in their house - so profit on that can only be made once for each household. However, games will continue to be made for the system for years to come, so licensing allows for continuous revenue.

    Here's a relatively recent article on the 'Razor and Blades' business model that should give you more insight into how it all works: 

    http://www.forbes.com/sites/ciocentral/2012/12/19/razor-and-blades-pricing-strategies-in-the-digital-age/

     

    There isn't a "right" or "wrong" way to play, if you want to use a screwdriver to put nails into wood, have at it, simply don't complain when the guy next to you with the hammer is doing it much better and easier. - Allein
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  • TheLizardbonesTheLizardbones Arkham, VAPosts: 10,910Member

    Sony stated that they are not selling their consoles at a loss. Some people are even saying that Sony will turn a profit on each one shipped. Not much profit, but $25 to $55 per unit shipped isn't chump change.

    http://www.playstationlifestyle.net/2013/06/11/pachter-sony-almost-certainly-making-a-profit-on-399-ps4/

    I can not remember winning or losing a single debate on the internet.

  • DaranarDaranar Walkersville, MDPosts: 177Member Uncommon

    It is common knowledge and practice that consoles are sold under their price.   Unlike PC, Microsoft, Nintendo, and Sony make money on the individual games sold.   Now, what I am curious to see, is if this is still reigning true (or still to the same margin) in these new consoles.   What I have heard is the price point is looking to be around $700!!   Now of course, ATM when you look at the specs, you would be hard pressed to find a PC running similar specs for around that much.   But in 6 months from now, you will easily find PCs running similar specs for the same price (or less).   Calculate in the mass production...seems they will be making money on these new wave of systems....IDK.   

     

    Thoughts?

    If I want a world in which people can purchase success and power with cash, I'll play Real Life. Keep Virtual Worlds Virtual!

  • DaranarDaranar Walkersville, MDPosts: 177Member Uncommon
    Originally posted by lizardbones

    Sony stated that they are not selling their consoles at a loss. Some people are even saying that Sony will turn a profit on each one shipped. Not much profit, but $25 to $55 per unit shipped isn't chump change.

    http://www.playstationlifestyle.net/2013/06/11/pachter-sony-almost-certainly-making-a-profit-on-399-ps4/

    Lol, in the time it took me to write mine, there is a good pit of clarification to my question/point.  And very nice, I didn't know they lowered the price for the low end models.  Cool deal.  At $399 I may get a PS4.

    If I want a world in which people can purchase success and power with cash, I'll play Real Life. Keep Virtual Worlds Virtual!

  • TheLizardbonesTheLizardbones Arkham, VAPosts: 10,910Member


    Originally posted by Daranar
    Originally posted by lizardbones Sony stated that they are not selling their consoles at a loss. Some people are even saying that Sony will turn a profit on each one shipped. Not much profit, but $25 to $55 per unit shipped isn't chump change. http://www.playstationlifestyle.net/2013/06/11/pachter-sony-almost-certainly-making-a-profit-on-399-ps4/
    Lol, in the time it took me to write mine, there is a good pit of clarification to my question/point.  And very nice, I didn't know they lowered the price for the low end models.  Cool deal.  At $399 I may get a PS4.


    For the previous generations, Nintendo was really the only company making a profit on their consoles, but this generation they've reversed it. Nintendo is losing money on each console sold, while Sony is making money on each console sold. Microsoft is very likely making money on each console sold, but we don't know for sure. Given that they are using a lower end graphics part and lower end memory, it seems likely that they are going to make money.

    I can not remember winning or losing a single debate on the internet.

  • saiyinsaiyin Keller, TXPosts: 12Member Uncommon
    Originally posted by Spiider
    That is a lie corporations want you to believe. Consoles are sold way over what they cost to make. Then corporations dumb bazillions in marketing and say "oh look consoles are underpriced, buy them while they last".

    Consoles are never sold for a lost. You guys are looking at things in a very small manner. Lets say it cost MS/Sony S40 million to develop the system and another S100 million for manufacturing, advertising and shipping of the system. Now in 2 years they probably sell over 20 million system world wide at about a price of $400 a piece that comes out to be $8 billion. Even if you double and or triple all the cost both companies will still be in the black by a lot.

     

    All the licensing of the software is all profit. Never believe the media specially when it comes to what a company told them. They don't have to give them the real numbers.

  • niceguy3978niceguy3978 Gainesville, FLPosts: 2,000Member
    Originally posted by Loktofeit
    Originally posted by mcrippins
    That would effectively mean they lose money on each system they sell. Doesn't seem like a very smart business decision.

    They make it up in licensing, which is something they can't do unless people have the systems to play the games on.

    A person is usually only going to buy one of a particular console - people rarely have 2 of the same console in their house - so profit on that can only be made once for each household. However, games will continue to be made for the system for years to come, so licensing allows for continuous revenue.

    Here's a relatively recent article on the 'Razor and Blades' business model that should give you more insight into how it all works: 

    http://www.forbes.com/sites/ciocentral/2012/12/19/razor-and-blades-pricing-strategies-in-the-digital-age/

     

    Yeah, it is pretty much the same strategy as cell phone companies.  Sell the phones deeply discounted to lock you into a contract where they recoup the cost of the phone and then some.  As far as I know the Wii is the only console over the last decade or so to sell at a profit from the beginning.  But they also had a lower game tie-in rate (fewer games sold per console sold) so they made less off of licensing, so I wonder  how it worked out over the lifetime of the console.

  • PhaserlightPhaserlight Boca Raton, FLPosts: 867Member Uncommon
    There is also the $99 Ouya (which is supposedly launching today; I'd be curious to know if you see one if you happen to head by Target or GameStop) and the $79 Gamestick coming out in August.  I highly doubt either of these are being sold at a loss.

    "To be what you are not, experience what you are not." -Saint John of the Cross
    Authored 110 missions in Vendetta Online
    Check it out on Steam

  • niceguy3978niceguy3978 Gainesville, FLPosts: 2,000Member
    Originally posted by Daranar

    It is common knowledge and practice that consoles are sold under their price.   Unlike PC, Microsoft, Nintendo, and Sony make money on the individual games sold.   Now, what I am curious to see, is if this is still reigning true (or still to the same margin) in these new consoles.   What I have heard is the price point is looking to be around $700!!   Now of course, ATM when you look at the specs, you would be hard pressed to find a PC running similar specs for around that much.   But in 6 months from now, you will easily find PCs running similar specs for the same price (or less).   Calculate in the mass production...seems they will be making money on these new wave of systems....IDK.   

     

    Thoughts?

    Where in the world did you get the 700$ from?  399.99 for the PS4 and 499.99 for the 360.  

  • niceguy3978niceguy3978 Gainesville, FLPosts: 2,000Member
    Originally posted by Phaserlight
    There is also the $99 Ouya (which is supposedly launching today; I'd be curious to know if you see one if you happen to head by Target or GameStop) and the $79 Gamestick coming out in August.  I highly doubt either of these are being sold at a loss.

    The Ouya is for android games if I remember correctly.  They wouldn't be able to collect any licensing fees for that since it is an open platform, so yeah, they would have to sell them at a profit since it would be their only source of income.  I've not heard of the gamestick, what is that?  Sounds like one of those things you would buy at target/walmart to plug into the tv and play the preloaded games it came with.

  • RusqueRusque Las Vegas, NVPosts: 2,229Member Uncommon

    When someone says ____ console costs $X to make and they're selling it for $<X when they're doing is telling you what each component costs on a single item scale.

    Large companies don't operate on individual unit pricing. It's called economies of scale, it costs much much less to produce/purchase 1 million components than it does to purchase 1.

    Go to a site that sells products in bulk, what do you see? If you buy less than a certain amount, you pay more per item than if you buy larger amounts. I just googled packing supplies since they are commonly purchased items.

    As an individual, if I were to buy a single roll of shrink wrap I would pay $152.

    But if I were a small company and I bought 50 rolls of shrink wrap, I would pay $117 per roll which is a savings of $35 per roll.

     

    So the cost to make a single PS4 might be greater than $400. But the cost to make a million of them is not as each component becomes cheaper the more it's produced.

  • PhaserlightPhaserlight Boca Raton, FLPosts: 867Member Uncommon
    Originally posted by niceguy3978
    Originally posted by Phaserlight
    There is also the $99 Ouya (which is supposedly launching today; I'd be curious to know if you see one if you happen to head by Target or GameStop) and the $79 Gamestick coming out in August.  I highly doubt either of these are being sold at a loss.

    The Ouya is for android games if I remember correctly.  They wouldn't be able to collect any licensing fees for that since it is an open platform, so yeah, they would have to sell them at a profit since it would be their only source of income.  I've not heard of the gamestick, what is that?  Sounds like one of those things you would buy at target/walmart to plug into the tv and play the preloaded games it came with.

    They are branding themselves as "The World's Most Portable TV Games Console" so yeah, you are probably pretty close to the mark.  Similar to the Raspberry Pi, I suppose, except it comes with a controller.  The only reason it's on my radar is because John Bergman wrote Vendetta should "just work" on it.

    "To be what you are not, experience what you are not." -Saint John of the Cross
    Authored 110 missions in Vendetta Online
    Check it out on Steam

  • OpapanaxOpapanax Rochester, NYPosts: 973Member

    Consoles for a very long time were normally sold at a loss to the company (Sony, Microsoft). Normally they make the money back from the sale of video games.

    So yes, they do in most cases of the last generation to now. They are losing on the actual sale of the consoles but make all that back and more of course off the games they sell.

    It may be less of a loss now, but I doubt that really. It's just been one thing that was very common amongst them.

    PM before you report at least or you could just block.

  • VrikaVrika FinlandPosts: 2,591Member Uncommon

    Consoles are like mobile phones locked to a single operator: The operator can sell the phones even at a loss, because afterwards when you use your new phone you're going to have to pay fees to access that operator's network or the phone is useless.

    Similarly, if you want to buy a game for Xbox/PS/Wii, you can only buy games that are approved by the console manufacturer. And even though it's not visible to you, the console manufacturer charges game makers for those approvals, and gets money out of every game purchase you make to your new console even if it's a game made and sold by someone else. The console manufacturer also has monopoly on providing some online services for the console, and can overcharge for those services as much as they wish. Thus getting profit when you use a console made by them.

    The price difference between PCs and consoles isn't because PCs would have that much better parts, or because consoles would get that much mass production advantages. The main reason for price difference is, that much the console maker expect to profit from further business with you if you buy their console instead of a PC.

  • maskedweaselmaskedweasel houston, TXPosts: 7,277Member Uncommon

    Consoles often do make a profit on each one they sell, but not all consoles did. The last generation of consoles definitely sold at a loss on some of their iterations.  Sony most definitely had to sell at a loss, meanwhile, the Wii became a hit and made a substantial amount of money on each console sold.

     

    Eventually parts became cheaper and it evened out.  Now, it appears by the time launch happens, I think the big three console manufacturers will make a profit on their systems in addition to their (mostly) required services.

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  • VrikaVrika FinlandPosts: 2,591Member Uncommon
    Originally posted by Rusque

    When someone says ____ console costs $X to make and they're selling it for $<X when they're doing is telling you what each component costs on a single item scale.

    Wrong. Those who analyze the component costs of new consoles, mobile phones, etc. use approximations of what the components will cost when bought on large scale by a business.

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