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Hardware  » Are consoles sold under production price?

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31 posts found
  Rusque

Elite Member

Joined: 6/08/10
Posts: 1683

6/25/13 12:20:09 PM#21

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.

  Phaserlight

Hard Core Member

Joined: 7/18/04
Posts: 702

Do you want to improve the world? I don't think it can be done. -Lao Tzu

6/25/13 12:33:38 PM#22
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

  Opapanax

Novice Member

Joined: 10/29/11
Posts: 983

Most Morbid One

6/25/13 12:38:40 PM#23

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.

  Vrika

Elite Member

Joined: 10/03/05
Posts: 2025

6/25/13 1:17:27 PM#24

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.

  maskedweasel

Tipster

Joined: 9/24/07
Posts: 7264

"Kids, try imagining how far the universe extends! Keep thinking about it until you go insane."

6/25/13 1:31:26 PM#25

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.

"Loan me a Dragon I wanna see space"


  Vrika

Elite Member

Joined: 10/03/05
Posts: 2025

6/25/13 1:45:29 PM#26
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.

  Martinmas

Novice Member

Joined: 12/10/05
Posts: 239

6/25/13 1:47:10 PM#27

For those that do not understand why a company would sell their consoles at a lose look up the Razor-Razor Blade business model.

Consoles = Razor

Games and accessories = Razor Blades

 

In the past most companies sold their consoles at a loss (except Nintendo) at launch but this time around it looks like only Sony is actually making a profit on each console.  People buying multiple games plus extra controllers and such makes a much higher profit than the $20-$50 they lose on the console itself.  So having more consoles in more peoples hands makes the most sense.

  Torvaldr

Elite Member

Joined: 6/10/09
Posts: 5670

6/25/13 1:53:09 PM#28
Originally posted by lizardbones


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.

This makes sense to me.  Hardware was more expensive when the last generation released.  It seems that if you could build a cheaper PC then the console hardware costs to Sony and Microsoft would be even lower.  It only makes sense, given the price point, that the new consoles are paying for themselves.

I think a mind wipe so people could play an mmo like it was their first time again, would be easier to build than a new mmo people here would actually like. - DamonVile

  Cleffy

Hard Core Member

Joined: 5/09/04
Posts: 5502

6/25/13 2:41:32 PM#29
$399 for a complex AMD processor and some other shit.  Of course they are selling at a loss.  The processors in the PS4 and Xbox One are huge.  There is no way AMD will sell them processors at a loss for themselves, so you are looking at $200 on the processor alone.  Tacking on the memory, the board, the disk drive, the hard drive, the enclosure, and the assembly costs, its going to be closer to $100 more than what these two are selling them for at a mass quantity rate.
  WhiteLantern

Novice Member

Joined: 1/27/10
Posts: 2778

6/25/13 2:43:57 PM#30

The old business adage is: "You make money on the blades, not the razors.".

It's been said to apply to videogames as well.

 

 

edit: Apparently I should have read the whole thread. I've been beaten to the punch.

I want a mmorpg where people have gone through misery, have gone through school stuff and actually have had sex even. -sagil

  Drakynn

Novice Member

Joined: 3/02/08
Posts: 2051

6/25/13 2:51:15 PM#31
Yup selling one product at a loss to stimulate sales in supporting products an old business tactic as others have said.Works for bars and Nightclubs and other service industries,works for all sort of products that need parts replaced regulalrly and has worked for consoles in the past when their production and research costs were higher than what the public was willing to pay.
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