I suspect that they are also charging about $400 for what cost about $60 to put together. So?
Purportedly they’ve struggled to get production costs below $450. Though that was reported 9 or 10 months ago. These consoles tend to be pretty narrow margin.
Back in June, a lot of the PC build channels were trying to price out an equivalent with a similar 8 core cpu, similar graphics card, similar ssd. etc etc. and the power supply, motherboard, and RAM to support it all. It was very tight.
Interesting. Would the margins not also apply to the disc-reader or do you really think this is how they are trying to recoup those costs?
The way that consoles work is that they take a loss on the hardware itself and make their money back in licensing fees for people to publish games on the platform.
Often even sold at a loss since they make most of their money from selling the games.
Back in 2006 Sony was still taking a $240 loss on every PlayStation 3 they sold.
Aren’t used games part of the appeal of having a disc drive? Sony wishes to recoup a portion of this lost revenue.
I guess that make sense. It also makes the extra $100 seem considerably less costly or as much of a ripoff.
It’s not just the hardware, but also the licensing costs for the codecs to play UHD Blu Ray films. They are probably still losing money on the hardware.
That’s a bit of a misconception from my read on it. There’s a handful of famous examples, like the PS3. Think it was the Sega Saturn, few others. Almost always these things are sold at a margin, if a small one at first.
The actual deal seems to be that the hardware side of the business is run at a loss for an extended period. In large part because R&D and spinning up production are so expensive. So that even when priced with a profit margin, sales don’t catch up with the buy in until production costs come down. That’s offset by the much higher margin on the software side, which hits an overall profit faster and overcomes the “loss” in hardware quickly. So it’s not losing money on every unit sold. It’s running a margin that doesn’t push that end of the business out of the red for slightly longer.
It seems very rare for console makers to price things below the cost to produce them, or even not to account for development costs in their margins. For Sony’s part they’ve spent a decade swearing they’d never do that sort of thing again and lamenting what a massive mistake it was. Most of the other examples seem to involve the failure of the company taking that path.
You often hear that the original Xbox is another example. The circumstance there seems to be that launching a console, R&D and so forth were so expensive that even with a sensible margin over production costs, cost drops etc. The entirety of Xbox, software included didn’t turn a profit for much, much longer than is typical.
Used sales are already a dying model. Game Stop’s business was pretty much built entirely around it, and they’ve been in free fall for years. Not likely to make it through the pandemic intact. The used market isn’t really much of a factor without them, and it’s been petering out for years even without direct pressure from platforms.
I think the thinking on this, and probably the Xbox S as well, is more that they get to sell the new copies. Digital only and they’re the only retailer, they keep a bigger chunk of the money when they’re not cutting Walmart or Amazon in. That and subscriptions can basically subsidize a tighter margin.
A newer (arguably) better model is already filling in the gap that will be left behind by the used games market: Bundles. The practice of taking some mix of good games late in their sales cycle, or OK games which haven’t been great sellers, mixing them together into a bundle, and asking some minimum amount in a pay-what-you-want bundle.
Similar on the PC side. Used was never much of a market there. But Steam’s sale/discount model and later the bundles (which were often a reaction from devs to Steam’s terms on those sales) seems to have filled that niche.
The whole used games and trade ins thing has long seemed to be a strategy used by those without a lot of means. Especially teens and young adults, but it seems to be fairly common in poorer neighborhoods as well. To be cruel about it that’s not a terribly lucrative market to chase. Gamestop seriously gutted the whole approach by offering pennies for trade ins, while charging damn near full retail for used copies after they consolidated the market. And they’ve basically been circling the drain for a decade and a half.
It’s this whole weird shell game that involves warehouses full of unsold COD discs, and convincing teens to trade 12 games and a controller for a new game. But wait if you take this used copy it’s only 11 games and a controller.
I can’t imagine that devs, publishers, and console makers consider it all that much of a pressure on new sales anymore. Though they clearly did back in the early 00’s.
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