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Next-Gen Shift Costing Sony and Microsoft 80

The shift to the next generation of consoles is costing their parent corporations dearly. GameDailyBiz has an article up claiming that the gaming division at Sony may lose almost $900 million this year, thanks to rollout costs for the PS3. The 360, already in the marketplace, is looking pretty solid. However, in among increased Microsoft revenue announcements (up 13% for the quarter over last year) and a healthy number of shipped systems by the end of June (almost 5.5 million) is a hard statistic. From the Gamastura article: "As for specifics on the Xbox 360 and Xbox's financials, the company's Home and Entertainment division, which includes the Microsoft Xbox video game console system, PC games, the Home Products Division, and TV platform products for the interactive television industry, lost $388 million for the quarter on $1.06 billion in revenue, a sharp increase from the $175 million loss the previous year." A reminder that these systems may be successful, but they're costing to get out there.
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Next-Gen Shift Costing Sony and Microsoft

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  • The consoles they're selling are merely part of the infrastrucutre of their new online gaming plans.
  • by bunions ( 970377 ) on Friday April 28, 2006 @12:37PM (#15221860)
    Well, shit, there's your problem.

  • Where have I heard this before?

    Sony will be losing money maybe for a few months on the ps3, then like its' ancestors, they'll break even and be rolling in cash.

    Flash forward to May 1995. The E3 Expo was having it's first go, and
    everyone showed up. Nintendo was telling us to wait for the Ultra 64 as it
    could do "real-time ray tracing" and was just so damn pretty they couldn't
    show it to us as we weren't ready to handle it. For if we saw it, we would
    go insane!

    At the show, Sega and Sony announced their launch

    • Does that entire thing have to be posted everytime someone mentions Sony might lose money? Couldn't you just post the link?
    • by hotdiggitydawg ( 881316 ) on Friday April 28, 2006 @01:21PM (#15222172)
      Then we look at Sony's stock report for Oct-Dec 2000, and there is an interesting little blurb. It said that had Sony been able to meet demand with another 1 million PS2 units, they would have pocketed $175 million in profits. $175 million divided by one million consoles equals $175 per console profit.

      Poor mathematics skills. You want projected profit per console, you need to divide the $175 million profit by all consoles sold, not just the 1 million shortfall.

      I'm glad you're not my accountant.
    • by Anonymous Coward on Friday April 28, 2006 @01:55PM (#15222414)
      Sega was not only losing money on the Saturn, but asked retailers to expect the same. A "modest $15 per console" loss to help Sega. Well, you can imagine what many retailers said...
      Bull. The first console EVER to sell on a loss was the Xbox, that's why the Saturn cost so much; Sega sold at a profit. And it's on record that when Sega lowered the price from $400 to $300, they PAYED the stores the price difference to make up for it (e.g. Store buys console to sell for $400, then Sega says, 'Sell at $300'. Store would normally lose $100, but Sega gave the stores $100 to make up for it.)

      The Saturn was the first console that was actively being marketed and the company was losing money. While Sony was building the PlayStation from parts they made themselves, Sega was paying a higher price and buying parts from others.
      While that made some of the difference (the video output IC on the Saturn is from Sony!), it's not the majority. The problem was that the Saturn had too many custom parts, almost everything besides the CPUs, RAM, and CD drive was custom, like the TWO video processors and the funny bus to handle four different CPUs (main, slave, sound, CD-Rom (Yes, CD-Rom, it's part of the Saturn's security system)) and other things like MPEG card overlay, controllers, and cartridge port. The Saturn arch. was a hairy monster. The PlayStation was almost entirely made from off the shelf parts. The PlayStation was streamlined. While the PSX was not as powerful as the Saturn (wait, let me finish) it was so much less complicated (and had a much better inital SDK) that it was easier/humanly possible to get good preformance out of it.

      With the Saturn, you had two main processors with poor communication to work with, a poor SDK (the first one didn't even natively support light-sourcing!), a DSP for the main CPUs (there was also a seperate sound DSP) you had to program (Well, not had too; most games just let it sit there doing nothing. It was intended for things like calculating projection), a really screwed up and complex video processors; a lot of time is wasted formatting polygon data into the various tables and display lists for the polygon/sprite generator, and funny memory partitioning for video RAM (512kB for texture/sprites and display lists/shading tables/palletes, 512kB for the background processor, and two sets of 256kB for frame buffers. 1.5mB total. The PSX had 1mB in one partition for video RAM). But if you want to see the Saturn out-do the PlayStation, go compare the Saturn and PlayStation versions of Dead or Alive (Saturn has higher resolution, more polygons, better textures and backgrounds). The one of the creators reasons for the Saturn got DOA first that he wanted to put it on the more powerful system of the two. Today, DOA's creator continues to choose the more powerful console, which is, at the moment, the Xbox 360. (Another reason for the Saturn getting DOA first was that the arcade version ran on Sega's Model 2 hardware.) Or you can look at the Saturn Shenmue video which runs on a stock, RAM-upgrade-less Saturn. (To give a timeframe for it, the Saturn version was probably shelved in late 1997 or early 1998, as Dreamcast version footage was around when the Dreamcast was released in Japan in late 1998.)

      The Dreamcast was a money losing venture for Sega. Sega went for broke in building the best console they could buy with the Dreamcast, and sold them at less than cost. A lot less than cost. The theory being that scale of economics would catch up to let them rebuild their once glorious market share and, that the margins on their own games would be good enough to justify a loss.
      Ahem. The first console EVER to sell on a loss was the Xbox.

      • if you get a chance, could you hit the Saturn wikipedia article and/or the gamefaqs faq and tack on something. Wow, it's hard to imagine someone with that much Saturn knowledge outside of Sega. Did you work on games for it?
    • Gee, Acts of Gord again. Here's a few problems with his post:

      1.) He doesn't show us this fabled stock report.

      2.) Stock reports are written to impress shareholders. They could have been using any number of rationalizations to cook up the $175 mil figure. Considering the '2 billion' spent on the PS2, we can already tell there's numerical gymnastics going on with that report. I have a dollar that says they spent a lot of money in the previouse quarter to produce the machines, and the 'profit' arrived in th
    • Where have I heard this from indeed? I could swear someone either posted this same comment recently or linked to a website that had it.
  • by CastrTroy ( 595695 ) on Friday April 28, 2006 @12:45PM (#15221921) Homepage
    Meanwhile at the big N, they have decided to put out a cheap system that most people will be able to afford, and forego all the expesive research and recalls associated with the leading edge technology the other guys are using. Also, their marketing campaign consists of not telling anything to anyone, and only release details about the system that will make people think about the yet to be released system all day. The shroud of mystery surrounding the Revo/Wii is better than any of Sony's/MS's proclamations that they have the fastest processors in existence.
    • by Anonymous Coward on Friday April 28, 2006 @01:00PM (#15222021)
      And if they manage to pull off a console victory with a name like Wii, it'll be nothing short of stunning.
      On the day of release, I'll be going to the mall for a Wii, then I'll spend the next few days eating, drinking and Wii'ing. When I'm familiar with it, I'll share my Wii with my friends, maybe take my Wii round to theirs and we can play with each other's Wii. Then when it's old and everyone's got one, I'll put my Wii on eBay and sell it for a small fortune.
      I mean what's next - is the Wii 2 gonna be called a Poo? Come and play with my Poo... Not since Free Willy has there been a culture feck up of such laughable proportions...
    • Are you playing with your Wii, or are you just glad to see me?
    • by Anonymous Coward
      I love Nintendo's strategy to try and keep everything quiet compared to Sony/MS boasting how bananas-great their consoles will be, only to quietly dull down the specs as time goes on, realizing that they can't really give you "24/7 virtual reality graphics that will do your homework for you!" I think Nintendo has something right: they're building machines with the technology already readily available. You don't build consoles with the intent to push the technological envelope. Why not? Because once it's out
    • I can't wait to stand in the midnight line at Best Buy and chant "We want to play with Wii!"

      Gotta say, not much mystery there...

    • Meanwhile at the big N, they have decided to put out a cheap system that most people will be able to afford

      Not only will the people be able to afford to buy it, but Nintendo will also be able to afford to sell it. Nintendo seems to be the only real console producing company where they have some sort of "goal" to make "profit." It's very hard to make profit when your company sells its consoles at loses greater than $100. Not only will the Wii be good for gamers in general, but it will also be good for N
  • So, you mean to tell me that it costs money to produce a good before you are able to start selling it? I thought it was free.
  • by Animats ( 122034 ) on Friday April 28, 2006 @01:36PM (#15222288) Homepage
    Microsoft's "Home and Entertainment" business unit is a money drain. It's never made money. At some point, Microsoft may have to sell that business off and focus on their core business, business computing.

    The stockholders are getting impatient. Microsoft stock has been flat for five years now. [] It's definitely not a growth company any more. Trying to grow into the entertainment sector has been a financial disaster. Microsoft is a high-margin company trying to grow in a low-margin area, and that almost never works.

    • by badboy_tw2002 ( 524611 ) on Friday April 28, 2006 @02:07PM (#15222501)
      Microsoft is sitting on a mutli multi billion dollar war chest. They don't call it a war chest for nothing. They are prepared to lose another billion on the xbox 360 (like most accounts say they did with Xbox) and from all the financials to date it looks like they'll be no where close to losing that as sales are continuing at a healthy pace. Do you honestly think the "3 versions to get it right" myth is a complete falsehood? MS is in this game for keeps. The 360 is a healthy, fully supported platform with tons of developer support. MS wants to be in the living room, they NEED to be in the living room so they can sell you a MS Media Center PC to be in the office that can beam all that MS DRM'd WMA content you bought down to your MS Entertainment Center. This is a long term growth strategy into a still emerging market. All the pieces are coming into play (for-pay downloadable TV shows, music, movies), and MS wants a piece of the action. They want to be the bridge between content providers and your television, and if it takes losing a billion on some games to get there they are going to do it.
      • At some point the stock holders are going to want the X-Box division to actually turn a profit, not just increase gross revenue. It can't just bleed money forever, and right now its not just bleeding, its gushing money. So the question is, does Microsoft actually have any plans to make any money on the X-Box? It seems they don't.
        • by jusdisgi ( 617863 ) on Friday April 28, 2006 @03:57PM (#15223294)

          At some point the stock holders are going to want the X-Box division to actually turn a profit, not just increase gross revenue. It can't just bleed money forever, and right now its not just bleeding, its gushing money. So the question is, does Microsoft actually have any plans to make any money on the X-Box? It seems they don't.

          It's not unheard of to have a division of your company devoted to loss-leader activities. As long as it's valuable to some higher grand strategy (in this case, moving into the entertainment and content industries and into more and more home appliances, thus ensuring embedded markets for MS software, and perhaps new subscription revenue streams) and management can convince the shareholders to trust them, the Xbox division can simply bleed money. And as a small shareholder since '96 and having seen the votes, I can say that nobody's considering deviating away from the "core team" and its vision any time soon. Oh, and about the flat stock price, people forget the big dividends they paid through most of that time. Not this past year, sad to say...

          In any case, I'm sure MS (and its shareholders) would be tickled pink to have the X-Box division turn a profit. But with the amount of money they've got sitting around and with the long-term situation as it is, I don't perceive a real serious concern about its losses.

        • The parent is correct. The key to microsoft being in the console market is simple, Microsoft intends to eventually become the only player in the market. They want to Nintendo and Sony out of the console hardware business, or more aptly the console O/S business. Once they've established control of the consoles, they'll raise prices and use their standard tricks to destroy anyone who threatens their newly-lucrative console monopoly.

          Of course, the console monopoly is just a first step in building a digital
        • It can't just bleed money forever, and right now its not just bleeding, its gushing money.
          Eh. When your two largest divisions generate $6B/qtr in revenue at 80-90% margins, "gushing" is relative.
      • ... it's just a matter of how quickly the competition latches onto it, and does something about it.

        I certainly ain't a fanboy, or MS lackey, but I can give credit where credit is due.

        Anyway, some things to remember about Microsoft's current strategy and direction:

        • as parent poster says, they're sitting on a cash warchest, which is NOT going to be wasted, but rather invested
        • the home user desktop is still largely their domain. This means a lot of game/app developers
        • DirectX is a very mature and stable pl
      • Some of the weird stuff coming out about the money that microsoft holds, that money is not the companies money nor is it microsoft's directors money, it is the shareholders money, microsoft's directors/management can not throw it away on ego driven investments or just simply let it burn up on losing divisions.

        Microsoft was forced to jump into the x box line because it's management had no other ideas of where to successfully expand the business (they have managed to pick quite few losers) and where to m

    • Or maybe Microsoft's stock has been flat for 5 years because they haven't released a major OS in... 5 years.

      I dunno, do you see a pattern maybe? Just a bit? Core buisness? Yes.. hmm.. yes..
    • by metamatic ( 202216 ) on Friday April 28, 2006 @02:17PM (#15222580) Homepage Journal
      I was in Best Buy a couple of days ago, and it's clear that Microsoft is spending enormous amounts of money to buy shelf space and display areas in major retailers. Custom plexiglass display stands, special silver and white shelving, prime end-of-row positioning, big display TVs, couches, posters on the windows, the works.

      I didn't see anyone actually buying anything 360 related, though. Everyone was browsing the PS2, PSP and Nintendo handheld areas.
      • The funniest thing is that often these expensive display kiosks are devoid of customers because either the kiosk is broken, or the store owner has disabled it, because he doesn't want highschool kids spending hours in his store, taking up space, and not buying anything.
  • by SetupWeasel ( 54062 ) on Friday April 28, 2006 @01:58PM (#15222440) Homepage
    Wii love profit.
  • Does anyone know who was the first console manufacturer that decided to initially sell its console at a loss? I know that it wasn't always the case. I don't believe the NES, SNES or SMS were sold at a loss.

    Would be curious to find out!
  • by RyoShin ( 610051 ) <> on Friday April 28, 2006 @02:06PM (#15222493) Homepage Journal
    This little piggy is in the market, (Microsoft)
    this little piggy has yet to come, (Sony)
    this little piggy only had some things, (N-Gage)
    this little piggy had none, (Phantom)
    and this little piggy when "Wii Wii Wii" all the way to the bank! (Nintendo)

    Okay, so I need to work on my rhyming.
  • by Anonymous Coward on Friday April 28, 2006 @02:18PM (#15222591)
    Simple fact is, shops are going to be flooded when Wii starts hitting the shelves
  • by The_Real_Quaid ( 892126 ) on Friday April 28, 2006 @02:28PM (#15222665) Homepage
    M$ can handle the enormous costs. Sony is barely scraping by right now with the hardware costs of the failed PSP. The PS3 costs and failure will be their undoing. Never underestrimate M$ viciousness, when they smell blood they go for the kill.

    Here is an article I wrote last year about the coming decline of Sony marketshare in the game biz, and the resulting overall financial disaster for Sony Corp as a whole. []

    Oh and in case anyone wants real, comprehensive financial data, here is a chart [] that shows profits/loss for Nintendo, Sony (game division) and M$ (game division) by quarter for the last 3 years.
    • Uh-huh (Score:5, Insightful)

      by Nazmun ( 590998 ) on Friday April 28, 2006 @02:36PM (#15222711) Homepage
      MS lost about 1 billion PER year (well they were 100 million or so shy) on the xbox (it may have whittled down a bit in the end) and the xbox360 sales aren't doing any better and actually much much worse in japan.

      I'd say they pretty much failed after pissing away the billions.

      On the other hand the ps2 has been enormously profitable. Sony always has a massive startup cost for their consoles as they are a hardware company and spend a ton at the very beginning on research and in building factories.
      • "On the other hand the ps2 has been enormously profitable."

        Take a look at the chart. The hard data is there. There is a more detailed thread [] that has more info by quarter. All this info is from publicly available financial reports filed by each company.

        After you strip away "revenue" (Sony always has big revenue numbers) by balancing it with costs, you get the real operating profits.

        Here is the last 3 years:

        Sony $1.252 Billion
        Nintendo $2.747 Billion*

        Also note the star, because Nintendo's la
        • When speaking strictly from a console point of view I wouldn't be surprised if Sony had the upperhand in the home console department. WHen you think about the last three years that 1.252 billion includes the money pissed away on the psp as you mentinoed. But 9/10 times the games nintendo has on the top charts in japan are portable titles. I wouln't be surprised if it was the same here in North America.

          When you take out the portables i'm sure the numbers will get a lot closer.

          But your right from a busines
          • Also, Nintendo always spends lots of money on R&D. The difference is, they don't spend $400 million for R&D on the processor, they spend $400 million on R&D for the entire console. Every part in the Wii is custom made for Nintendo, including the CPU, GPU, system RAM and probably the Flash memory storage. The PS3 is mostly stnadard parts, with a custom made CPU and Blu-ray drive (which pretty much has to be custom made since it was one of the first ones worked on).

            I don't have exact numbers

    • by Anonymous Coward
      The question is whether Microsoft continues to see any benefit in losing money to break into the console market. To determine the answer to this you first must understand why Microsoft entered the console market in the first place.

      Back in 1998/1999 Microsoft was trying to determine where the next threat to their control of the home-computer market was going to come from. With the upcomming release of the Sega Dreamcast and Sony Playstation 2 Microsoft saw a disturbing reality forming; videogame consoles (wh
      • "Back in 1998/1999 Microsoft was trying to determine where the next threat to their control of the home-computer market was going to come from.
        Now, Microsoft believes that their greatest threat comes from web-based systems so do they still believe that losing money on consoles is their best approach?"

        There is some truth to that, but there is more to the picture than you are looking at.

        M$ realizes that there is an end of the road to their traditional business model. THere is only so many imp
  • The sky is Blue.
  • Which console loses the most money.

    The reason I ask is I don't think I can afford three consoles. It seems to me I want to buy whichever one loses the most.

    Don't I want my console company to lose money? If they are making money it is coming from me. I would much rather have underpriced hardware.
  • OK, it's great that we're getting fancy consoles with mega graphics, but the cost of generating consoles makes it all but impossible for an innovative smaller company to come out with something that anyone's going to buy and it's now up to companies who can absorb a $500 million loss on console sales to make them.

    Sega's already caved in, now only selling coin-ops and games; I suggest the next console from Nintendo will be the company's last. The days of being able to rely on the sale of games consoles and

"There is no distinctly American criminal class except Congress." -- Mark Twain