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A Triangle that PS3 wouldNot be able to make ?

Discussion in 'PS3 - Modding & Hacking' started by Dv1726, Feb 23, 2007.

  1. Dv1726

    Dv1726 Member

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    PsonE was a winner , Ps2 Beat The XboX , i don't know why a so powerfull Console (PS3 ) , couldNot Beat The 360 , but in the other hand...=>

    """Sony risks falling out of console battle

    Virtuous Triangulations

    By Charlie Demerjian
    ( www.TheInquirer.com
    THE CONSOLE MARKET is a virtuous circle with three main points, a virtual virtuous triangle. If you don't do well on all three points, you end up out of the market, and Sony is on the verge of just that.

    The three points of the triangle are cost, installed base and games. If you don't have two of them, the third will never happen, and if you do have two, the third will come for free. Basically it is a feedback loop, you will excel at all three and ramp up the numbers or you will be in a death spiral quicker than you can say comprehensive Blu-Ray crack. There is no middle ground.

    Let's look at these things individually starting with cost, you can use price somewhat interchangeably however. Cost is what a console maker has to shell out to get the box on the shelves, price is what you have to shell out to get it off the shelf.

    Cost is the more interesting one of the two mainly because price is artificial, almost every console maker subsidizes the initial cost of a console in order to sell more. The PS3 was stupidly expensive at $600, but even at that, Sony was eating about $200 putting the cost at around $800. They plan to make it up by getting a kickback of $10-15 per game sold, so if the buyer buys 15 or so games over the life of the console, Sony will break even.

    As time goes on, parts get cheaper, chips get shrunk, and technology marches on, so the cost to the console makers goes down, which can either be reflected in the price you pay or the profit they make. It usually ends up as a little of both.

    That brings us to installed base. The cheaper the consoles are, the more they sell. A $99 Xbox360 would probably have sold 25 times as much as a $400 one in 2006, but I doubt MS would be willing to eat the $420 per unit that it would have taken to do that. If MS sold 10 million units in calendar 2006, a $420 loss per unit would be a hit of just over $ 4 billlion. Not bad, but you probably would be buying $99 games to go with the $99 console to make the numbers work at the accounting department in Redmond.

    The first bit of the virtuous circle is that when the installed base, IE the number of units sold climbs, the cost goes down. If you want to make a grand total of 10 Xbox360s, the development costs, tooling, advertising and other costs are going to make each one cost tens of millions of dollars, possibly hundreds.

    At a million units, the cost goes down a lot, to the humanly affordable range, and by the time you hit tens of millions of units, the fixed costs go down even more per unit. You can also negotiate better pricing with suppliers, and in general things get cheaper. Take home message, higher the number sold, the cheaper each one is.

    So the more MS or Sony sell, the more money they make, or at least the less they lose, and the quicker they can drop the price. The more they drop the price, the more they sell. Conversely the less they sell, the longer it takes to drop costs and the longer they have to eat money on each console. The death spiral comes in when they can't drop prices enough to stop the initial eating of cash. Two $100 bills effectively tacked to each PS3 box times 10 million units is a lot of money.

    The only thing that could be worse than the continual loss of $200 per unit is not eventually making up for it in software sales. This where our third point of the circle (yeah, I know) comes in, software. For every game sold, the console maker gets a cut, usually a pretty hefty cut, but the exact amount is a closely guarded secret. When I was writing for the Atari Jaguar, it was about $5 per cartridge, and the grapevine tells me the number now is about $10-15 per disk sold.

    This number is highly negotiable, if you are a big name dev house and you are willing to put out your app exclusively for one console, this fee can be negotiated down or even away in rare cases. The little guys, well, they get shafted. In any case, for the sake of argument, I will assume the console makers get $10 per game sold, and zero for big name exclusive games.

    One more tidbit to toss at you, I have been told by a bunch of people that dev costs are painful on the new consoles, the 360 and PS3 specifically. If a game for the older XBox1 or PS2 cost $5 million to make, the 360 is about double that or theoretically $10 million. The killer here is that the PS3 dev costs are between 2-3 times that of the 360 and about 5x that of the Xbox1 or PS2. Ouch.

    Now, getting back to the feedback part of the circle, if you are a dev, you want to write your game for a large potential audience of paying customers. Assuming you get $20 per game sold, and a game costs $10 million to develop, you need to sell half a million copies to break even. If you don't, well, you won't be in this business for long.

    If your new game, Killer Death Robots 999 appeals enough to 10% of the people out there who eventually buy it, you can work out the numbers pretty quickly. If the console has a million units in circulation, you will sell about 100K copies and lose your shirt. If it has 10 million units out there, you stand to make a lot of cash, and at 100 million units, well, call me, I am more than willing to be adopted at this stage in my life.

    Basically what it comes down to is the more units a console maker has out on the market, the more willing game companies are going to be to write for it. Even if you make a stinker, if there are 100 million consoles out there, you will probably make a profit, there are a percentage of people who will buy anything. Conversely, if you make the best game in the world that everyone buys, if there are 100K consoles out there, you will still not make any net profit.

    There is a big mushy middle ground here, and that has to do with how much effort you expend on each version of a game written for multiple platforms. If the 360 has 10 million units and the PS3 1 million, you can do the math. Write it for the 360 and spend $10 million, but only port it to the PS3 if you can do the port for under $1 million.

    This is where a lot of the death spiral side of things comes in. If you don't have enough consoles out there, people will not write games for your super 31337 system, or at best do a crappy port to it. This means the console with the most units will get the better games. It will sell more units allowing them to lower costs, make up the money they initially ate faster, and in general be happy camper.

    The company with the lower number of units gets the shaft. They become less and less desirable to write for, and less and less desirable to buy, and less able to lower costs. Higher costs means fewer sales means worse games. Negative feedback, and it hurts.

    One note here is that there does not have to be a winner and a loser, there can be multiple winners or losers. If all of the consoles reach a critical mass, they will all win. If none sell enough, they will all lose, so don't assume that one winner means another loser.

    ONE WAY TO FEND OFF the death spiral for a console is to develop a exclusive killer app. If you have a game that will be a blockbuster, you can go to one of the console makers and say, "We will only put this out for your system if we get a bribe."

    That bribe is usually lowered or no kickbacks per disk. If the studio that made Halo was not owned by MS, they could go to MS and say "We figure we will sell 10 million copies of the 360 version of Halo 3 and seven million of the PS3 version. We will not do a PS3 version if you make it worth our while not to, say no fee per disk so we can pocket that $10 per unit and an ad budget worth $5 million".

    The virtuous part is that if five of those seven million potential PS3 customers buy a 360 because they really want to play Halo 3, MS can do the math and see if it is worth it or not to shell out the cash. Conversely, Sony could look at the 10 million potential 360 customers and figure that 6 million might buy a PS3 if Halo 3 was their exclusive. Here is where you get into a bidding war with a lot of zeros behind it.

    In the end, the better the games, and the more exclusive the games, the more consoles you sell. The more consoles you sell, the less they cost to make, and the more people buy. Why do they buy? Good games and low cost. Why is the cost low? Good games and lots sold. Why are the games good? Lots of potential customers. It is a positively reinforcing feedback loop.

    The flip side of this is that if the games are not there, you don't sell many consoles. This drives costs up and sales down. Why don't they buy? Bad games and high cost. Why is the cost high? Bad games and few sales. Why are the games bad? Few customers makes it not worth the effort. This is the classic death spiral.

    If you look at the current console wars, 360 vs PS3, you can see where things are at. Last I heard, MS was closing out the year with a profit of about $75 per 360 sold and Sony was losing about $200 per. The exact numbers are not really all that important, but the general trend is. MS has a cost of about $325 for the high end 360 and Sony about $800 for the high end PS3, MS makes money, Sony loses.

    Even if you assume both companies are bottomless money pits who see this as a long term struggle, there is a problem. The positive feedback loop will allow the consumer to win, cheaper consoles, better games, and lots of extra goodies that go along with it.

    The death spiral means a company has to shell out more and more money to hold their ground. They have to buy more exclusives, subsidize consoles more, and basically bribe people into taking money from them with each console sold. Worse yet, if you buy a PS3 for $-200 as far as Sony is concerned, and then there are not 20 games you want to buy over the next few years, Sony eats that $200.

    MS in the mean time can take that $75 they are making and drop the price to around $300, bundle in a couple of games and a controller, or just do something creative. Sony will have to match this and drop their price by $100, bundle games, or whatever else MS does. Instead of it being a zero sum game like it is for MS, Sony will have to sell 10 more games per console or eat the cash.

    Sony is treading on some seriously dangerous ground here, dangerous enough to potentially break the company. Their reputation is pretty well mud among the geek set for the DRM infections, rootkit fiascos and general corporate ickyness of the past couple of years. This drove away some early adopters.

    The $600 price tag drove away more making it a non-starter as an impulse buy. It was late to market, they couldn't supply the vastly lowered expectations they set weeks before Christmas, and in general failed miserably on execution. Net result, about half of the sales they were projecting six months before, possibly less than that. To add insult to injury, Nintendo blew by them and laughed.

    This did not escape the notice of the software makers either. They are faced with optimistically twice the cost to write a game for the PS3 as the 360 and only a fifth the market to sell it in to. It doesn't take a genius to figure out that the second generation of PS3 games will have a lot more ROI calculations done on them before they get a green light. Many won't get that green light.

    This is far more than a theoretical problem though, in talking to several game developers, the death spiral for Sony has already begun. Many are telling me they are not writing Cell code any more, just farming it out, the 360 is the development target now.

    The problem there is that the 360 will be utilized fully and optimized for. If there are special features of the 360, they will get used, and every tweak and hack explored as well. This will then be shoveled off to some poor third party who has to make it work on the PS3, a very different architecture with a very different set of strengths and weaknesses.

    What you end up with is a fully utilized 360 and the 'same' game on the PS3 with all the weaknesses of the 360 and all the weaknesses of the PS3. Add in very little budget to optimize the resultant PS3 code, and you get a B-list version of an A-list title. This will be readily apparent to even the most blatantly paid for game reviewer.

    Can you guess the result? Slower software sales, slower hardware sales, and higher costs. Those dollars end up going somewhere, people want to play games. So they buy a 360, it has all the cool games. This drives up unit sales, lowers cost, and makes MS very happy.

    Sony is on the verge of the death spiral. You can tell they are desperately spinning the rhetoric to keep hope alive, but private conversations with game devs tell me it is not flying behind closed doors. How long can Sony, or more to the point, will Sony keep up the money hose? Can they do it until the ugly duckling called PS3 turns into a swan, or will it stay ugly and die?

    Meanwhile, MS is on the verge of a price cut, is the primary development target for every console dev I talk to and is selling like hotcakes. PS3s are languishing on the shelves and getting the cold shoulder from the devs. One company is on the virtuous cycle, the other has their toes over the edge of the death spiral. Dire times indeed for Sony """

    But that , is what the SCEA Presid. is saying :

    ( According to EGM March 2007 )
    The problem we have ... it's society in geenral , we have been the undisputed winner for over a decade now . and peaople keep waitng for us to slip up . an, and we hav not . so peaple ttry to create stories that arenot there , THE REALITY IS THE PS3 WAS THE MOST SUCCESSFUL LAUNCH WE'VE EVER HAD .

    [...]
    what does PlayStation mean ?
    playstation mean you could have buy a playstation bakin 1995 and it had software support and was selling well until 2005 but we stopped manufacturing the hardware , and then the PS2 came out , and that sold 110 Million Units , and is still the bes seelling console seven holidays season later in 2007 . let's say i wen out and bought a Competitng system , how many of those machines lasted more than five years ?NONE OF THEM , how many of those machines still have great software support ? NONE OF THEM , so i may be making an incremental investment if those other features i just talkes about are not unique to PS3 , but if i invest in the PS3 , it;'s a brand that has staying power , and has proved itself . until we let the costumers down , that's going to be a strategic advantage for us , HOPEFULLY WE NEVER WILL !!!!
    """

    and what the developers say ( according to the same source )

    """Playstation network was a debacle from day one . basiclally the devlopers have to do all the heayvy lifting . microsoft required us simply to plug into their code . sony required us to build it or use an outside technology source . unfortunaterly , i fell that the quality of the titles could be much improved if the dev process was not so excruciatingly Painful
    as far as our relationship goes , miccrosoft is far superior in temrs of communication , support , and timeliness .... even the initial technical certification requirement documentation from sony was late and then only came in japanese , we had to hire a translator . do u think that speed thing up or slowed them down . ?
    who needs additional headaches when your already trying to accomplish the impossible ??? !!"""
    So is it worth bying a PS3 ? Sony is losing money , first on the PSP that lost against the DS , and now the PS3 .... :(
    <3 Sony <3 Sony <3 Sony
     
  2. chris0101

    chris0101 Guest

    ahhhhhhhhhhhhhh what an essay!!
     
  3. oofRome

    oofRome Regular member

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    Hah. You think that was a hard read, you should've seen his first one. He edited it a lot. Everything before he got into the vicious cycle is new.
    His older one had some interesting stuff about "Sony's Answer", "Microsoft's Answer", and "Nintendo's Answer". It's a shame he opted to drop it instead of explain himself a little more.


    This essay is all over the place now.
     
    Last edited: Feb 23, 2007

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