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Discussion Starter · #1 ·
Here is a thread from EA:


The reaction to Microsoft's dual pricing strategies for the Xbox 360 wasn't exactly what Microsoft was hoping for. What will gamers have to say about the PS3? This week's Game Over column on CNN/Money looks at the possibility that Sony might have been playing a high-stakes game of chicken, leading consumers (and Microsoft) to believe the PS3 will be incredibly expensive, while planning to stick with a $299 price all along. Did Microsoft, in fact, get suckered?


Wow. Now wouldn't that be something.
 

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Discussion Starter · #3 ·
Quote:
Originally Posted by Dean Martin
I don't think that's the case but I think PS3 was going to be at least $100 more.
I would think so too. But that would be a HUGE gamble on Sony part and a total p.r. bomb to MS. It would look bad to MS even if Sony hit 349. Which I think that MS should have hit in the first place. But I'm still geting one.
 

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Yes they got suckered into rushing to release


. without hd movie playback

. no digital outputs

. wifi optional

. high def optional

. hard drive optional

. wireless controllers optional

. launch lineup not ready


If a ps3 fanboy claimed this a month ago I would have scoffed in disbelief, but it happened...
 

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Things you have to assume:

1) MS isn't charging $299 and $399 and reaping tons of profit (if any)

2) Sony's claim of "expensive" is code for saying "We aren't going to lose a ton of money on each console"


Sony would have to cut a ton of features and make them expensive options to get to a $299-399 launch price.


No way Sony bundles the PS3 with Blu-Ray, harddrive, network adapter, HDMI ports, wireless controller, headset, remote, at or under $399. Simply won't happen.


Jasman
 

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Quote:
Originally Posted by ileff
. no digital outputs

. hard drive optional
I think these two are the only legitimate compliants that can be made with the Xbox 360. The first one since it would have benefited an every growing number of displays and the second one since most people expected it.


Quote:
Originally Posted by ileff
. wifi optional

. high def optional

. wireless controllers optional
I think these three complaints are a bit unfair since all three of these accessories can be bought separately and will not affect any of the games.


Quote:
Originally Posted by Jasman
No way Sony bundles the PS3 with Blu-Ray, harddrive, network adapter, HDMI ports, wireless controller, headset, remote, at or under $399. Simply won't happen.
Why did you include a hard drive, headset, and remote in that list? The hard drive on the PS3 will most likely not be standard and Sony has never said anything about what accessories they might include with the PS3.
 

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Quote:
Originally Posted by ileff
Yes they got suckered into rushing to release


. without hd movie playback

. no digital outputs

. wifi optional

. high def optional

. hard drive optional

. wireless controllers optional

. launch lineup not ready


If a ps3 fanboy claimed this a month ago I would have scoffed in disbelief, but it happened...
I guess Sony would know all about getting suckered into an early launch (Vs. Dreamcast). Of course Sony still won and gamers lost (To some degree and I'm sure some of you will find this debateable).
 

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If I remember correctly, the DC spent more of its time competing with the PS(1) than the PS2.. It's more of a "bridge" console IMO. Graphically the PS2, Cube and xbox are failry close while the DC while still having some great games is a few steps further back from the pack.


on topic, wouldn't surprise me one bit. I hope the PS2 does release for $299.. that said if it is for $399, that is still one hell of a bargain considering everything they are offering.
 

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There is nothing keeping MS from lowering the 360 later if they feel the market change (PS3 release) dictates it. They simply have no reason to release at less than the MOST the market can bear this holiday season.


If Sony comes in at $299, you can bet the 360 will drop to the same and the core will drop even lower. Sony and MS have shown us they are willing to match drops and bleed cash when needed to not be the "expensive" console on the market.
 

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Quote:
Originally Posted by FrankJ.Cone
There is nothing keeping MS from lowering the 360 later if they feel the market change (PS3 release) dictates it. They simply have no reason to release at less than the MOST the market can bear this holiday season.


If Sony comes in at $299, you can bet the 360 will drop to the same and the core will drop even lower. Sony and MS have shown us they are willing to match drops and bleed cash when needed to not be the "expensive" console on the market.
true, good points.. Bottom line is that I'm glad there is competition :)
 

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>>There is nothing keeping MS from lowering the 360


If MS drops a HD-DVD / HDMI / 400GB version next spring for le$$, I'm going to feel stupid with my original 360. Maybe I can dump it on ebay to someone who doesn't know any better.
 

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Quote:
Originally Posted by ileff
>>There is nothing keeping MS from lowering the 360


If MS drops a HD-DVD / HDMI / 400GB version next spring for le$$, I'm going to feel stupid with my original 360. Maybe I can dump it on ebay to someone who doesn't know any better.
possible but highly unlikely..I think MS actually would like to make money this round.
 

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Who cares, they can always drop the price. I'm more concerned about another X360 version (HD-DVD, etc) coming out at a later date. Although if they sold it as a whole new system, and not as upgrades, they'd be alienating all gamers that bought launch systems, so I doubt they'll go that way.
 

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Quote:
Originally Posted by briankmonkey
possible but highly unlikely..I think MS actually would like to make money this round.
I totally agree. Microsoft took a major loss with the first XBOX(4+ billion dollar loss). They know that they have to make a profit this generation. After all, they have shareholders to answer to. They priced the XBOX 360 probably more on where they could minimize their losses rather than based on what Sony will do.


Microsoft knows that mostly hardcore games will buy the 360 at launch. Hence, they can upsell those gamers on the more expensive hardware. Once the PS3 comes out, chances are the costs to make the 360 will have gone down and thus allow Microsoft to bring down the price of the 360 to be even more competitive with Sony. While I'm sure Microsoft certainly considered what Sony would come out at for the PS3, I think their main factor was that they need to post a profit on the 360 this coming generation if they're going to continue to stay in this business.
 

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>>need to post a profit on the 360 this coming generation if they're going to continue to stay in this business.


MSFT currently has $38B in cash, and generates about $10B/yr free cashflow.


Being the de facto living room hub is worth chasing.
 

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Quote:
Originally Posted by CallMeJean
Microsoft took a major loss with the first XBOX(4+ billion dollar loss).
Just an FYI - no one has the breakdown for Xbox P&L besides MSFT. They report Xbox as part of the Home and Entertainment division. This division has other products and MSFT's desire for dominance outside the PC and in the home and living rooms incurs a ton of R&D outside the Xbox itself. R&D is expensed as incured so generally the dividends from heavy R&D work are apparently oversized margins later (or so the hope is). R&D for the original Xbox was expensed previous to launch so that's something to consider when looking at the numbers.


Although it is frequently quoted in the forums that "Xbox lost XYZ according to their financials" - I tell you that there is no real source for that outside of upper level MSFT management and internal reporting, and even those who make their living doing this stuff have to work hard at getting ballpark estimates. That said, Xbox weights significantly on H&E and obviously it hasn't been a major source of profit. So it's not totally lost in there, just obscured and a lot less transparent than most people go around saying.
 

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Quote:
Originally Posted by ileff
>>need to post a profit on the 360 this coming generation if they're going to continue to stay in this business.


MSFT currently has $38B in cash, and generates about $10B/yr free cashflow.


Being the de facto living room hub is worth chasing.
It certainly is, which is why they can overlook the losses they took last gen to concentrate on this gen. However, if they don't make any more headway this gen, you can bet they will be getting out.
 

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Probably useful to post a few things to give people an idea since this gets so twisted. This is just from some quick poking although I've looked at these companies before on occasion. You can find all of this at the investor relations section for MSFT and likewise for Sony which uses a much more transparent pure gaming division (sort of an offset for the currency conversions you wind up doing).


Here are the business segments:
Quote:
Originally Posted by MSFT 2004 Form 10-K
Our seven product segments are: Client; Server and Tools; Information Worker; Microsoft Business Solutions; MSN; Mobile and Embedded Devices; and Home and Entertainment.
This is the description of what exactly Home and Entertainment does.

The underlined text equates or can be paraphrased as very painful R&D expenses frontloaded on future projects. R&D is expensed as incured and once they go into real production for launch (i.e. to generate revenues) only then does R&D expense stop and cost of goods sold and inventory build hit the income statement and balance sheet. Obviously, some or a lot of projects are never launched which is why R&D is expensed as incurred - essentially accounting conservatism so you don't have this massive capitalized asset sitting on the balance sheet only to be written down to zero later when the project is scrapped.

Quote:
Originally Posted by MSFT 2004 Form 10-K
Home and Entertainment. The Home and Entertainment segment is primarily responsible for realizing Microsoft’s plans to grow a range of new consumer businesses, building on the Windows platform to offer a broad range of services and applications running on a wide variety of devices in the home. The Home and Entertainment segment is responsible for the development of and business strategy for the Microsoft Xbox video game system, including hardware, third-party games development, games development published under the Microsoft label, Xbox and Xbox Live operations, marketing, research, and sales and support. The segment leads the development efforts of our Home Products Division (HPD) product lines. It also carries out all retail sales and marketing for Microsoft Office, the Windows operating systems, Xbox, games, and HPD products. It is also responsible for the development, sales, and deployment of Microsoft’s TV platform products for the interactive television industry.

Microsoft Xbox, released in fiscal 2002, is our video game console system that delivers high-quality graphics and audio experiences. We offer several types of entertainment products, including classic software games, online games, simulations, and strategy games. HPD includes Microsoft’s line of consumer hardware and software products, such as the Encarta line of learning products and services, the Macintosh applications business, and Microsoft hardware products.
What does MSFT report at a segment level? Essentially two lines, Revenue and Operating Income(Loss). They don't report the components that lead one from revenue to operating income except for the entire company i.e. you can see company-wide R&D but not the amount of spending at the segment level. Obviously if we can't even get segment, there is just no way to arrive at real Xbox only figures for this either so the real "Project Xbox" lifetime figures are unreconcilable due to the segment containing so many different pieces - a good portion of which are still all R&D at this point as was the entire Xbox before it was finalized, announced, and launched.

Quote:
Retyped Reconciliation of Revenue to Operating Income from MSFT Earnings Release

Revenue

- Cost of Revenue

- Research & Development

- Sales & Marketing

- General and Administrative

= Operating Income
Anyway - for those that are financially curious, this is what's going on so when someone posts that Xbox lost $XYZ (i.e. operating income), that number is for the whole segment (providing it's a real number and not some hyperbole) and there's a lot more going on there than simply XBox and definitely some very significant R&D expenses paving the way for future plans which we won't know anything about until R&D has stopped and the product is finalized.
 

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Quote:
Originally Posted by CallMeJean
It certainly is, which is why they can overlook the losses they took last gen to concentrate on this gen. However, if they don't make any more headway this gen, you can bet they will be getting out.
Speculation, not even sound speculation.


The battle for the wired home is not even in full swing, it will not be over for another decade or more. Common sense dictates MS will be in the battle for the long haul.


MS investors want your TV, your game system, hell your refrigerator running an MS OS and they want it connected to your Windows 2010 sever that controls EVERTYHING.


Lets say they spend 4B per cycle to make this happen. 12B is small change compared to the potential income from a server running a MS OS in a significant number of US homes.


Right now if you live in Florida you can buy a brand new condo thats fully wired with a media center PC and a linksys box (Pretty sure it was a Linksys) installed for media streaming. (In laws moving in this January!)


MS wants BOTH ends of that scenario and the XBox is one of their investments to get there. (And thats just the begining, Bill is a true fan of the computer controlled home).


Its started last gen, but this is the generation where the companies are barely trying to hide the fact that their game systems are far more than just game systems to them.
 
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