Sony Is Struggling With PlayStation 5 Price Due to Costly Parts

polonyc2

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PlayStation 5 Price Tag Reportedly Slashed by Sony to Match up With Xbox Series X and S

We’ve heard all sorts of rumors that Sony is struggling to keep the price of the PS5 down due to expensive components like its cutting-edge solid-state drive, so should we be bracing ourselves?...perhaps not, per a new report from the usually-reliable folks at Gamereactor

According to their sources, the price point Sony originally had in mind for the PS5 was “considerably” higher than the $300/$500 Microsoft settled on for their new consoles...thankfully, Sony has since chopped the price of the PS5 to bring it in line with the competition...specifically, the disc-less PS5 will now reportedly cost $400 and the version with a disc drive will cost $500...

https://www.gamereactor.eu/source-playstation-5-to-adjust-plans-in-response-xbox-series-x-pricing/
 

Snowdog

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We’ve heard all sorts of rumors that Sony is struggling to keep the price of the PS5 down due to expensive components like its cutting-edge solid-state drive, so should we be bracing ourselves?...perhaps not, per a new report from the usually-reliable folks at Gamereactor
I don't really see PS5 costing more than XBSX to build. Both are expensive.

I am sure Sony was hoping MS was going to charge $599 and Sony would match them and eek out a small margin. But MS which has a LOT more money, chose the (near) Zero Margin route and kind of Forces Sony down the same path.
 

Derangel

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PlayStation 5 Price Tag Reportedly Slashed by Sony to Match up With Xbox Series X and S

We’ve heard all sorts of rumors that Sony is struggling to keep the price of the PS5 down due to expensive components like its cutting-edge solid-state drive, so should we be bracing ourselves?...perhaps not, per a new report from the usually-reliable folks at Gamereactor

According to their sources, the price point Sony originally had in mind for the PS5 was “considerably” higher than the $300/$500 Microsoft settled on for their new consoles...thankfully, Sony has since chopped the price of the PS5 to bring it in line with the competition...specifically, the disc-less PS5 will now reportedly cost $400 and the version with a disc drive will cost $500...

https://www.gamereactor.eu/source-playstation-5-to-adjust-plans-in-response-xbox-series-x-pricing/
If true, that would definitely make things interesting. Though, I have to wonder exactly how much money Sony is going to be eating with each sale at those price points.
 

Derangel

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I don't really see PS5 costing more than XBSX to build. Both are expensive.

I am sure Sony was hoping MS was going to charge $599 and Sony would match them and eek out a small margin. But MS which has a LOT more money, chose the (near) Zero Margin route and kind of Forces Sony down the same path.
Bloomberg estimated the cost to build the PS5 was over $450, with most of it going to the GDDR6 and flash memory. Both systems share the same amount of GDD6 so costs are the same there, but Sony's SSD set up is significantly faster so that is going to cost more than MS' solution.
 

Snowdog

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Bloomberg estimated the cost to build the PS5 was over $450, with most of it going to the GDDR6 and flash memory. Both systems share the same amount of GDD6 so costs are the same there, but Sony's SSD set up is significantly faster so that is going to cost more than MS' solution.
And MS has a larger die SoC....
 

vegeta535

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Sony has a custom 3D Audio engine built into their custom APU and that new controller.
I don't think those are built into the SoC. Their own separate custom chip. Sony then can get away with the slower CPU since it is not doing all the extra work like MS is. Still it is a hefty amount slower on the gpu side. Still probably not weaker enough that most people will tell a difference.
 

Flogger23m

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Neither Sony or Microsoft will win this generation. This is the death of the game console. COV19, PC Gaming, and a failed economy will kill off consoles. If they do start charging $70 for a game you can expect piracy to run rampant as well. I can see services like Xbox Game Pass become popular, much like Netflix did when movies costed too much for most people. I can see Sony eventually making their own store on PC with a monthly service like Xbox Game Pass.
Yeah, no.

Only thing that will kill consoles is when subscriptions and streaming become big enough that people stop using local hardware. I still think we're far away from that still.
 

Sycraft

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I don't really see PS5 costing more than XBSX to build. Both are expensive.

I am sure Sony was hoping MS was going to charge $599 and Sony would match them and eek out a small margin. But MS which has a LOT more money, chose the (near) Zero Margin route and kind of Forces Sony down the same path.
MS can eat the loss much easier though. They make money hand over fist on their cloud division, among others. So they can afford to take a loss on their gaming division, if they think it is strategically useful for the future. Not as easy for Sony. They've had profitability problems in recent years. They are doing fine now, but their games division is part of why and if that sinks because of the PS5 losing too much per unit, that is a problem. Likewise they are not likely to look so good profit wise because movies are taking a hit with the pandemic, where as cloud services have boomed. Basically MS is just in a much better position to be able to eat a loss on the hardware than Sony is.
 

Snowdog

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MS can eat the loss much easier though.
Totally agree on that. Almost certainly why Sony let MS go first, and hoped they would just choose a higher price point. They really don't want compete on price.
 

Templar_X

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XBox has bigger SoC, and bigger SSD.

I see ZERO reason for the Sony to cost more.
SOC area is not the only factor, XSX has 56 CUs at 1.8Ghz and PS5 has 36 CUs up to 2.2GHz.
Depending on details of the manufacturing process one might have better yields than the other (area vs clocks).
 

Sycraft

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Totally agree on that. Almost certainly why Sony let MS go first, and hoped they would just choose a higher price point. They really don't want compete on price.
Both were playing that game, waiting on the other. Neither wants to get out priced, but neither wants to lose money if they don't have to. However Sony is in a much harder spot... and it looks like MS wants to squeeze.

That said, MS also needs to more. The PS4 really won the current round of sales bigtime, and these things snowball on themselves, so MS is well motivated to want to take back marketshare.
 

DukenukemX

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Have your crazy predictions ever been right?
I said Horizon Zero Dawn was coming to PC and people said that would never happen. I said that Nvidia was going to recreate the GTX 970 to compete this console generation and they have with the RTX 3000's series. I did say there would be a PS4 emulator and so far there hasn't been one, so I got that prediction wrong.
 

DukenukemX

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Yeah, no.

Only thing that will kill consoles is when subscriptions and streaming become big enough that people stop using local hardware. I still think we're far away from that still.
Subscription services piss people off and cloud gaming has never had a future due to speed of light. What'll happen this generation is that people are broke due to COV19 and just won't buy new stuff like a PS5 or even a RTX 3070. Cheap graphic cards like a RTX 3050 or whatever AMD has to offer is what people may choose to purchase over consoles. Xbox Series X is $500 and that's not going to fly for most people. The cheaper versions of these consoles will generally piss people off as they can't buy used games and play them. The PS4 is already wide open for piracy now, so people may just keep their older consoles and abuse the exploit found on it.

4huspqlhdhb51.jpg
 

Tengis

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What'll happen this generation is that people are broke due to COV19 and just won't buy new stuff like a PS5 or even a RTX 3070
People keep saying crap like this and I dont know a single person that is "broke" outside of sensationalized articles on news websites. People that I knew that were "broke" before covid actually have money after covid because of the ridiculous unemployment increases that they sucked up.
 

UltraTaco

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Both were playing that game, waiting on the other. Neither wants to get out priced, but neither wants to lose money if they don't have to.

Well, they should've done what airlines do and fixed pricing to what they both agree on. Customers will pay.
 

NeoNemesis

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Be interesting to see what Sony charges in Canada. MS went with 379 & 599 CAD, which is better than I thought, I wonder if Sony will match that.

Margins on consoles have always been shit, the real money is made on the attachments and games.
 

DukenukemX

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Yes, people will choose a $200-300 graphics card over a console which has all their friends and previous games on it. Hahahahahahaha.
Good one.
A $200-$300 graphics card that will let you play all the games available on PC with no monthly fee for online play. If you're really broke then piracy on PC is an option as well. I know, a lot of virgin ears can't hear that piracy is a valid option for some gamers.

People keep saying crap like this and I dont know a single person that is "broke" outside of sensationalized articles on news websites. People that I knew that were "broke" before covid actually have money after covid because of the ridiculous unemployment increases that they sucked up.
You and your friends are not a statistic. If you think COVID was bad before then wait and see what September brings. September is the real start of this economic collapse. Have you been to a city lately?
 

-Strelok-

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A $200-$300 graphics card that will let you play all the games available on PC with no monthly fee for online play. If you're really broke then piracy on PC is an option as well. I know, a lot of virgin ears can't hear that piracy is a valid option for some gamers.


You and your friends are not a statistic. If you think COVID was bad before then wait and see what September brings. September is the real start of this economic collapse. Have you been to a city lately?
Piracy doesn’t let you play online either. Piracy isn’t a “valid” option, it’s a cop out for those who can’t afford it. If you’re going to pirate, just accept it for what it is and don’t try to justify it. Also $60/year? If that’s a lot then I would suggest figuring out how to increase your income.

This is getting off topic fast, but everyone I know that lost their job found one within 1-2 months. I switched jobs and am getting paid more as well, so maybe if you are a “career” barista at Starbucks it’s an issue.
 

TripleAgent77

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XBox has bigger SoC, and bigger SSD.

I see ZERO reason for the Sony to cost more.
Sony's SSD is slightly smaller, but much more exotic. IIRC, an off the shelf version doesn't exist. If so, that probably costs more. Maybe a lot more.
 

Snowdog

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Sony's SSD is slightly smaller, but much more exotic. IIRC, an off the shelf version doesn't exist. If so, that probably costs more. Maybe a lot more.
It's not so much exotic, as that it has a faster custom interface. SSDs were held back by the interface. So it's custom, not exotic, and at the volumes involved, custom is irrelevant.

XBox bigger SSD probably cost more than Sony's smaller one, using a custom interface, over console volumes.

So again, I see ZERO reason PS5 would cost more to build than XBSX. It has smaller SSD, and smaller SoC. The two most expensive components. Everything else is essentially the same.

At worse they cost about the same to produce.

MS has the big deep pockets advantage. They could lose billions subsidizing the XBSX launch and not even blink about the loss. Sony OTOH needs profit everywhere it can get it. Losing anything on HW sales would be painful.
 

DukenukemX

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Piracy doesn’t let you play online either.
Yes and no. Depends on the game itself. I play WoW TBC on a private server, but majority of games you don't have this option. But if you do pay for a multiplayer game then you don't have to pay Steam or Epic the privilege to play those games online like you would on Xbox and Playstation.
Piracy isn’t a “valid” option, it’s a cop out for those who can’t afford it.
Seems like a valid option when the gaming industry is hinting at $70 games.
If you’re going to pirate, just accept it for what it is and don’t try to justify it.
Why not? Who here hasn't used emulators and justified it? We've all done it at some point, especially if you're a broke college student living off ramen noodles.
Also $60/year? If that’s a lot then I would suggest figuring out how to increase your income.
Yea sure, lets go out and cut some grass during a period where 30% of Americans are jobless. Better double up on cutting grass because I'm not one console owning plebe, so I gotta own both consoles which both demand $60 a year. Actually, I better start a grass cutting business because I also have Netflix, Amazon Prime, HBOGO, and DIsney+. Wait, I need to open a franchise of grass cutting cause now I have a monthly World of Warcraft subscription, Office 360 subscription, a VPN, PSNOW, Geforce Now, and the list goes on. I'm gonna need a subscription for managing my subscriptions.

For services that are meant to make it cheaper for consumers, it's getting extremely expensive when everyone demands a subscription for their service. It's like eating a bag of chips, just one more subscription can't hurt... right?

This is getting off topic fast, but everyone I know that lost their job found one within 1-2 months. I switched jobs and am getting paid more as well, so maybe if you are a “career” barista at Starbucks it’s an issue.
Not really off topic when people are wondering why Sony still hasn't announced prices when we're like 2 months away from the PS5 going on sale. Sony understands that if the price just isn't right, the PS5 can flop. Like I said many times, in that 2020 is the worst year you can release a console due to what's going on in the world. You can't blindly ignore what's happening. Also if Sony isn't careful they can recreate the problem they had with the PS3 when it costed $500-$600 and had a very slow start. Microsoft isn't exactly in a better position when their Xbox Series X costs $500 and the Xbox Series Shit is a $300 piece of garbage. Microsoft should look back at the Sega CD 32X and understand why that isn't a good idea.

Sony wants to undercut Microsoft but also have investors who don't like the idea of losing money per sale of console. Microsoft is a much bigger company who can afford to take a loss on console hardware sales. Sony also understands that traditionally no console at $500 - $600 has done well. Not the PS3 at launch and neither the Xbox One. I can almost guarantee you that both Sony and Microsoft wanted their games to be $70 but again COVID is causing a massive economic crash and are letting developers decide if they want to sell games at $60 or $70.

Also again your personal experience is not a benchmark. We know the unemployment rate is high, people are leaving the city and buying up homes, and people are staving. I really doubt that people are just going to buy new consoles during these tough times. A $1,200 Trump check would certainly boost the sales, as people in general are fiscally irresponsible, but I think people are going to keep what they have and play the games available. And yea, piracy is gonna be a popular option during these tough times. That and free games like Fortnite.
 

VIC-20

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I'm so tired of subscription-based anything. The worst part is how all the consoles moved to subscription model for multiplayer and are now in the process of doing so for games.

It makes all of this pricing feel like a joke to me. The Series S is $299 says MS? What about when they start pushing the "must-play" AAA exclusives via Xbox Games Pass Ultimate. This is the endgame for MS and once that finally happens it will be $14.99 per month for users. What if you want the privilege of playing these games online via Xbox Live - another $9.99.

$299 plus *only* $14.99 month in perpetuity doesn't feel like much of a deal to me.


Edit: Wasn't aware that Game Pass Ultimate also includes Live Gold features - updated the comment above
I didn't say I like it and I don't know how that strategy will play out long term. But it is their strategy. Obviously software companies want predicable monthly revenue, not sell then sell again but up to a decade later (Adobe's old model).

A lot of big YouTubers are spreading the message that Game Pass is a really cheap way of playing the new AAA titles on the new console. So short term, its definitely going to get some buy in. Time will tell.
 

Sycraft

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Well, they should've done what airlines do and fixed pricing to what they both agree on. Customers will pay.
Well that is illegal, but the big reason they don't is they want to win. MS in particular really wants to take the market space back from Sony. They aren't in a "We only pretend to compete," kind of space where they work together and all agree to live and let live. MS wants to grab marketshare from Sony and they know one way to do that is to undercut them on price.
 

cybereality

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Yes, Sony may be in trouble. I think for the die-hard fans, their exclusives will still sell the console.

I know I am very excited with everything shown, Sony does have a good style of games they fund and create.

But for the general gamers, who just play the big cross-platform titles, Xbox is looking pretty sweet.
 

GoodBoy

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PlayStation 5 Price Tag Reportedly Slashed by Sony to Match up With Xbox Series X and S
... the price point Sony originally had in mind for the PS5 was “considerably” higher than the $300/$500 Microsoft settled on for their new consoles...thankfully, Sony has since chopped the price of the PS5 to bring it in line with the competition...
This is normal for consoles. They are sold near or below cost to get you into their ecosystem, then they make money from license fees for every game sold.
 

vegeta535

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Both PS4 and Xbox One were sold at a profit.
Bit much of a profit and it was a outlier. Sony lost a lot on each ps3. Nintendo never loses money on consoles but year look at the shitty consoles they release.
 

Sycraft

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This is normal for consoles. They are sold near or below cost to get you into their ecosystem, then they make money from license fees for every game sold.
Something to note though is that cost is actually more than people think, because of markup of retailers. So if it costs a company $400 to build something, and the retail price is $400 you might think they are breaking even. Nope, they are losing a LOT on that, probably $200 per. The reason is that normal retail markup is generally around 100%. It varies by item to be sure, but when you take in all the costs involved with getting an item to consumers, it just about doubles the price. So that shirt Target sells for $10, they bought for $5-6, but despite that they only make maybe 30 cents of actual profit after all the costs are factored in.

Thus if you want a console to retail for $500, you have to sell it to retailers for a lot less. May not be a 100% markup, since it is a more expensive good and not all that large and heavy, but you are selling it to them for $300-$350 at most probably. So the losses can be more serious than they might seem if you compare retail price to production cost.

Companies also have to be careful with it, because while licensing is where the money is, if there's too big a loss it can sink you. I mean suppose you lose $200 per console sold and you do a nice, brisk 20 million sales before you can bring that price down. That's $4 billion in losses you ate and have to make up. Takes a veeery high attach rate to make that up.
 

Mylex

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So I'm going to say this and probably make some people mad, oh pc people don't care about consoles and such. Sony has made a well thought out decision to do the reveal of the ps5 release and its price on the 16th. What is happening around there??? The release of the 30 series. The are going to be mentioned with that launch and get extra mindshare. Will they divert any sales away probably not much if any but their will be some that have to make a choice and if they are influenced by kids or friends they may choose a ps5 for now waiting to upgrade later.

Sony announcement
 

vegeta535

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Something to note though is that cost is actually more than people think, because of markup of retailers. So if it costs a company $400 to build something, and the retail price is $400 you might think they are breaking even. Nope, they are losing a LOT on that, probably $200 per. The reason is that normal retail markup is generally around 100%. It varies by item to be sure, but when you take in all the costs involved with getting an item to consumers, it just about doubles the price. So that shirt Target sells for $10, they bought for $5-6, but despite that they only make maybe 30 cents of actual profit after all the costs are factored in.

Thus if you want a console to retail for $500, you have to sell it to retailers for a lot less. May not be a 100% markup, since it is a more expensive good and not all that large and heavy, but you are selling it to them for $300-$350 at most probably. So the losses can be more serious than they might seem if you compare retail price to production cost.

Companies also have to be careful with it, because while licensing is where the money is, if there's too big a loss it can sink you. I mean suppose you lose $200 per console sold and you do a nice, brisk 20 million sales before you can bring that price down. That's $4 billion in losses you ate and have to make up. Takes a veeery high attach rate to make that up.
It is true for most things but i have read when it comes to console they stores don't make much profit off consoles. It is the volume of games and accessories that they do.
 

Sycraft

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It is true for most things but i have read when it comes to console they stores don't make much profit off consoles. It is the volume of games and accessories that they do.
I'm sure it is lower than the 100% markup, it usually is more things that are expensive, not large/heavy, and sold in large numbers... However it is still more than you'd think. While stores may not make much profit, there is still just a lot of costs. I mean you look at Target and their profit margins are usually about 3-4% after all is said and done. Business is just expensive. If you look at their balance sheet their gross revenue is $85 billion but it's gross profit is only $23 billion. Revenue is the amount of money taken in from sales, gross profit is what is left over after you subtract out the variable costs like the cost of purchasing the goods, credit card fees, shipping, etc, etc. Then when you subtract out taxes, interest on debt, fixed costs like mortgages, repairs, all that other jazz total actual "income" is $3.5 billion.

It is just a lot of money to run a business so while markup does vary per item (some like cables are waaaay over 100%) they still have to have a pretty significant markup for everything to pay all the costs. Goes double in this day and age of digital sales, where stores don't get as many sales on those. That aside they can't afford to take a loss on the product sold because they can't gamble on you making any additional purchases from them. Sony knows if you are buying PS5 games, you are, indirectly, paying their license fee. However you can buy a PS5 at Target and then never buy another related accessory or game there.

Regardless, just making people aware that if the PS5 really is costing Sony $450ish to produce, that a $500 sale price is a significant loss to them, despite how it might seem, because they aren't selling it to stores for $500.
 

Axman

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Wasn't the Gamecube one of the first, if not the first console sold at a profit at launch? I'm 90 percent sure it was a Nintendo console. Nintendo's audience is more content-focused than performance-focused and has been for a long time. I don't think Sony or Microsoft can get away with selling hardware at a markup without colluding, and even then, they'd both lose an amount of those profits to PC, Nintendo, and other gaming platforms.

Anyway it just seems kinda normal to me that consoles get sold at a loss initially. They have 5+-year production runs and are essentially legacy hardware for most of their relevance.
 

Archaea

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True, still it's not quite as cut and dry. The PS5 probably costs more, but not by much.
Why?

the MS console is ~> 10-20% faster.
The MS console has to pay royalties to Dolby for Dolby Atmos Use and Dolby Vision use. PS5 is paying royalties for neither because Sony has chose not to license them
 

kamikazi

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Something to note though is that cost is actually more than people think, because of markup of retailers. So if it costs a company $400 to build something, and the retail price is $400 you might think they are breaking even. Nope, they are losing a LOT on that, probably $200 per. The reason is that normal retail markup is generally around 100%. It varies by item to be sure, but when you take in all the costs involved with getting an item to consumers, it just about doubles the price. So that shirt Target sells for $10, they bought for $5-6, but despite that they only make maybe 30 cents of actual profit after all the costs are factored in.

Thus if you want a console to retail for $500, you have to sell it to retailers for a lot less. May not be a 100% markup, since it is a more expensive good and not all that large and heavy, but you are selling it to them for $300-$350 at most probably. So the losses can be more serious than they might seem if you compare retail price to production cost.

Companies also have to be careful with it, because while licensing is where the money is, if there's too big a loss it can sink you. I mean suppose you lose $200 per console sold and you do a nice, brisk 20 million sales before you can bring that price down. That's $4 billion in losses you ate and have to make up. Takes a veeery high attach rate to make that up.
I read your post and estimated that you are nowhere close to being right on retailer markup on consoles. So I searched real quick and this the first thing I found, an article on cnbc.

https://www.cnbc.com/2013/11/27/teardown-of-xbox-ps4-reveal-tight-margins.html

"The PlayStation 4, which sells for $399, comes with a manufacturing bill of $381. Despite the fact that the Xbox One retails for $100 dollars more than the PS4 ($499), Microsoft’s margin is just as shallow, costing $457 to manufacture."
...

“The IHS teardown is just a bill of manufacturing, it doesn’t take into account a whole slew of other costs that include assembly, shipping, marketing, royalties ... We estimate a loss of $150 per PS4 unit this year, The Xbox One losses might be lower than for Sony on a variable cost basis, but the point is that both are making money on the games."

So, a $150 loss leaves $168 to split between assembly, shipping, marketing, royalties and retailer markup. I would estimate retailer markup at less than half that number. What do you think?
 
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