Sony is not in the best of shape. It’s a fact that gamers appear to be fixated on, as the firm shuffles from one red number to the next. With a flagging television business and an increasingly irrelevant cellphone arm, the PlayStation 4 is one of the few products in the Japanese giant’s portfolio that’s posting positive numbers on a global basis. There’s absolutely no way that the manufacturer would squander all of that potential profit by prematurely cutting the price of its next-gen console, then, is there? This assumption is wrong – and yet it’s one of the most common comments made by armchair analysts around the web.
Historically, the PlayStation maker has adopted a loss leader strategy with its systems. While the PlayStation 3 may be renowned for its $599.99 price point, estimates at the time placed its manufacturing cost significantly higher; by pioneering Blu-ray and pairing it with the expensive CELL processor, the device was an overengineered bargain despite its wallet busting launch fee. An increasingly out-of-touch Ken Kutaragi almost crippled the company in this instance, with the format flagging against the much more nimble Xbox 360. However, while the firm’s hubris pushed things too far, it was following a tried and tested model.
Indeed, the organisation’s tactic has always been to lose money in the early stages of a generation in order to make it back at the end. Think back to the PlayStation 2: almost a third of its sales were obtained after the PS3 launched, with the manufacturer making significant bank on both the hardware and the software at that point. Unable to afford another catastrophic failure, however, Mark Cerny spearheaded a different direction with the PS4, with Sony confirming prior to launch that the platform would be profitable following the purchase of a game and a PlayStation Plus subscription. And it’s the latter that changes everything.
Sony's bottom line hinges on services – and not necessarily hardware
As of May, we know that the machine is already making money, which gives the firm a little wiggle room. Perhaps anticipating slightly stronger competition from Microsoft, group gaffer Andrew House even hinted at E3 a couple of years ago that the device has been designed with steep price cutting in mind – after all, another generation with a significantly more expensive system would be catastrophic for the company. This is exactly the situation that the Japanese giant currently finds itself in, though, with a temporary Xbox One price cut changing the climate for the console. Yet still the perception exists that the organisation won’t change course.
The thing that people fail to consider, however, is that hardware isn’t the only driver of profit. A quick glance at the platform holder’s mid-term business strategy depicts a desire to extract additional cash from consumers’ wallets – and it intends to do this through software and subscriptions. The problem is, of course, that you can’t profit from platforms such as PlayStation Plus, PlayStation Now, and PlayStation Vue unless you have users to sell the services to, and this is why we don’t think that the manufacturer will resolutely stick with a high price while its rival waltzes in and gobbles up all of the market share.
So far, Sony has only lost one 2014 NPD in the United States, and from what we’re hearing, it’s on top everywhere else, too. But while it’s clear that Europe is going to bloat the firm’s figures on a global basis, it’s interesting that its supplementary services – particularly PlayStation Now and PlayStation Vue – seem very much aimed at the North American market. This territory is tantamount to the organisation’s intentions, then, and it needs to hold onto its lead if it intends to boost its income by $1.7 billion by the end of March 2017 like it plans. In short: it will drop the PS4’s price in the United States if necessary.
Of course, it’s all going to depend on what its competitors do as well. Microsoft’s strategy seems to centre on the Christmas period right now, and should it put the price of the Xbox One back up in January, it’s going to have a rough time – not just against a strong Sony software lineup, but also the undermined value of its own machine. The immediate future remains very much the same, then: the Japanese giant will wait, and bide its time. Are the organisation’s wider problems going to prevent it from fighting tooth and nail with its Redmond rival on hardware price, though? No, because its bottom line hinges on services – and not necessarily hardware.
Do you agree that Sony can compete on price, or do you still feel that its larger corporate problems will prevent it from doing so? Share your strategy in the comments section below.