Zero Impact–Sony’s Savings on PS4 Development

Only because they’re Sony.

Yesterday, Masaru Kato, chief financial officer of Sony, announced Sony’s FY 2012 Consolidated Financial Results. During the hour-long talk, he made a point of discussing the upcoming PlayStation unit, indicating that operating income will remain in line with previous years.

“Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4… 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 [as internal investments]. This time, we have a team working on chip development, but we already have existing technology to incorporate. All the facilities will now be invested by our partners, other foundries, so we don’t have to make all the investment in-house.”                                                            –Kato

In short, Kato says that the PS4 was cheaper to make and develop than the PS3, thereby making it cheaper to deliver at launch.

Now for nearly every other company, this information would be significant for the end consumer. It isn’t. It tells us nothing we don’t already know, and is strictly information meant to satisfy and reassure shareholders that they really are making money. (Even then… for a press release forecast, their numbers are really conservative and leave out expected PS4 sales entirely. Should that inspire confidence?)

So why isn’t it significant to consumers?

Essentially? Because they’re Sony.

Cheaper to deliver means that the company saves money on making and developing the system. That’s it. There is no indication that these savings will be passed onto the consumer in the form of a faster drop in price. In fact, I would go so far as to say that you shouldn’t expect it. Because they’re Sony.

Let’s look at this historically.

The PlayStation 3 at launch was a mess for Sony. Sales were low, prices were too high ($399 MSRP for the 20GB model and $599 for the soon-discontinued 60GB model), and development costs were too high. Only because they were losing money did they drop prices, and they could only afford to do that because they also cut back on hardware capability. It may have been what helped win Sony the BluRay/HD-DVD war, but on its own, its launch was a flop. Sony doesn’t want that happening again.

What Sony is trying to do is to model the release of the PS4 after the release of the PS2, their most successful console to date. In 2000, the PS2 was released at a price the public was willing to pay ($249 MSRP in the US), it sold an incredible amount more than they expected (in 2005 it was the fastest game console to reach 100 million units shipped), and required reasonable/low costs of development because it used technology that was already available.

So let’s look at both these consoles.

The PS2:
From its original $299 MSRP, it took 2 years for the price to drop by $100, and then as an attempt to undercut Microsoft’s Xbox right before E3. Today, 12 years later, the PS2 has been discontinued but still available for purchase through the PlayStation site at $100 MSRP. This is a Sony pricing strategy when they are successful.

The PS3:
At launch, the $399 MSRP 20GB  model was a flop and demanded immediate redesign and repricing. Sony did this. The price of the PS3 dropped $100 to $299… and it took 3 years to do it. This is a Sony pricing strategy when they aren’t successful.

As a comparison, take a look at Nintendo. Like the PS2, the Nintendo Wii was a launch success. It took 3 years to drop by $50 to $199.99 MSRP. Meanwhile, the 3DS launch ($249 MSRP) was a flop. After 6 months of disappointing sales, the company dropped the price by $80. The Wii U is also doing abysmally compared to the instant launch success of the original Wii. As I discussed in this article, it is also due for a hardware price drop—and probably soon.

All this to say…

If history’s anything to go by, lower costs to Sony merely means more money for Sony. We already knew that the PS4 would seller lower at launch than the PS3 (rumors indicate an expected $400) because they don’t want a repeat of the PS3. Telling us that Sony has managed to incur lower development costs won’t send anyone leaping for joy at the delightful possibilities because Sony is Sony and will resist market demand for hardware price drops for as long as it can, simply because it always has.

(Edit: Thanks to Qrphe @ N4G for pointing out the original mistakes in PS2 prices.)

I also want to clarify that all I’m saying is that a cheaper development price does not translate to faster drops in price to the consumer. People seem to instantly believe that this news changes things for the consumer. But it doesn’t. Sony resists market pressure historically more than any other gaming company and any changes as a result of success or failure will come slowly and over a period of years. Pressure from a fight for market dominance with Microsoft also does not change the fact that it will take years to come to a head.

The company is at a weaker point than it was with either the PS2 or PS3 launch. They have just managed to return a profit for the first time in five years. This is largely due to company execs foregoing bonuses, layoffs, and selling off major company buildings in order to cut down on expenses. They can’t afford a cut on revenue. Their expenses are still too high, and they’ve already cut all that they can to make sure that they aren’t losing money. Not, “make a modest increase compared to last year”, just not lose money.