Are consoles made at no profit? Plus all this other stuff.

News & General Discussion
1

I once heard that some consoles are sold at no profit, meaning when i.e. sony makes the ps4 for a cost of $400, they then sell it off at the same price they made it at, $400. They make their money from the games put on it, I know a game developer has to pay a fee to put a game on the ps4 and that’s where the money is made. Is it true?

I was wonder all this, 'cause if you ever seen some topics on sweatshops, in 3rd world countries where they make products for the U.S., the labor wages is like 25 cents per hour.

Therefore a console to make could be hypothetically $12, but sold for $400. Now I’m thinking about getting into the console market and dump like $200 to make a console and then sell for like $400. Some plp may cry “you’ll make less money,” but there’s so much other crap involved rather than money.

In life money pays your rent, food, heat, electric, etc, money has been build to a point where it equals staying alive. In a way your life depends on paper. So no wonder why a console maker may be interested in making a console as cheap as possible and sell it for as much they can, but there are the circumstances of wages and other problems that naturally come along with it.

Now here’s a weird idea of a solution, an old way of living, plp from the 1950 might remember it, may also sound funny it’s called “It takes a village to raise a child.” Kind of like saying 2 minds are better than one. What if we could instead get a whole village of people to make a console together. You get the idea still done in some ways today. Kickstart is kind of like that. Get a whole bunch of people together to donate a few dollars each and if you get enough you may have a lot of money to make you project. Ideally get a whole bunch of gamers together and donate whatever you can for the next console. Now the effort you donate may not always be money based too. If you know electronics you could donate some time, give advice to the electronics end of console making. Sounds weird if you were a gamer but knew nothing of game development, but worked as a delivery man delivering ice cream, you could get down on the delivery part of the console to stores. I mean consoles do got to be delivered to e.b. and toys r us and such, right? I think the idea is exciting, imagine being asked to work on the next Halo. It could work in other ways too imagine being asked to come together and let’s make the next mission impossible movie, meet Tom Cruise and Ving Rhames, etc. American Idol is another idea where people come together and chose the next music superstar. Imagine an ad at this web site saying, “Come together all Unity game developers and let’s make the next, super game engine.” Ideally with like a million game developers if we wanted to build a level 60 miles long everyone may have the responsibility to design 3 feet of it, so many people the amount of work is greatly reduced.

There’s probably a few small ideas here and there to mention to really get it working just right, but I wanted to throw out the basic idea at least.

2

Yes, it is true that many consoles are sold for no profit. In fact, it has not been unusual in the past for home video consoles to be sold at a loss. (where the console is sold for less money than it costs to manufacture) This is often called “subsidized” hardware, and it has been a common competitive practice in the video game industry for quite some time.

Some of the big offenders of this practice have been the earlier XBox models and the Playstation line. Generally, Nintendo has shied away from this practice, and usually sells their hardware for a profit. (even if only a narrow one) But the first XBox, as well as the 360 were both sold at a loss out of the gate. Most of the Playstations were also sold at a loss initially.

Normally, thanks to volume discounts, hardware revisions, and technology aging the cost of production reduces after a console has been on the market for a few years. It’s common for a console manufacturer to be able to sell their hardware for a profit later in the console’s lifespan, even taking price drops into account. So the hit they take is more about the early game of establishing a user base than it is a long-term strategy. This is also why it is a common practice for successful consoles to get “re-designed” slim versions later in their life cycles. The smaller, slimmer versions are usually designed to be more efficient, and considerably cheaper to manufacture. (and thus easier to sell at a profit instead of a loss)

With the most recent console cycle, we’ve seen a considerable reduction in this “subsidized” strategy. Both Microsoft and Sony saw a considerable hit to their wallets with the XBox 360 and PS3. (while Nintendo made money hand over fist with the Wii, which they were selling for a profit) So the One and the PS4 were designed to be leaner machines, and were sold for a slight profit at launch. I imagine both companies were hard-pressed to convince their shareholders of the benefit of another round of subsidized console launches. The relative success of the One and PS4’s launches would indicate that the strategy they settled on was the correct one. (at least where selling their hardware at a profit was concerned)

3

Console makers like Microsoft and Sony also make a profit from their ancillary services (like PSN, Xbox Live, etc) so the console is really what you would call a “loss leader”.

4

Well, the real profits from any gaming console come from the software licensing. This is why 3rd-party support is so crucial, especially for manufacturers like Microsoft and Sony. It’s also why manufacturers like Nintendo can keep the lights on even when their home console platforms aren’t doing so hot in sales. PSN and XBL are newer services, and didn’t play as big a part in the earlier days of either company’s gaming efforts. (though clearly they factor into modern consoles)

But the licensing is what really rakes in the money, and it’s why a loss-leader strategy is considered viable. Getting that sizable install base is crucial in insuring continued development support from 3rd-parties. Developers go where the money is. With the current nature of the industry, they have to. And having that install base of potential customers is the only way of insuring development support. The only alternative is investing big on first-party studios, and that has it’s own significant risks.

This is all part of the reason why the loss-leader strategy is falling out of favor, and no longer being considered the default strategy to adopt. It also involves a significant amount of risk. And modern tastes in gaming have clearly demonstrated that uber-powerful hardware is not the selling point that some people thought it was. So settling for lesser hardware that has been optimized well is now the order of the day.

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5

“I know a game developer has to pay a fee to put a game on the ps4 and that’s where the money is made. Is it true?”

Well, which is it? Do you know the facts… or are you asking for facts?

Nintendo always initially sells hardware at some sort of profit from launch date. Microsoft and Sony have never been able to accomplish this. It’s just how they all do business.

6

So wait - you want to make a console, and try to compete with the big dogs who sell consoles at a loss?! I mean if you are a billionaire go ahead and take a crack at it, but I don’t see a kickstarter or something being capable of realising a new modern console… I’d be more than an uphill battle, it’d be a vertical battle haha.

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7

Its been done before. It wasn’t successful, but its been done.

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8

I thought ouya had financial backing outside of their crowd funding? Idk, but I can’t imagine a new contender - without serious financial backing - even standing a chance against the existing regime of console manufacturers. I’ve been wrong before though :slight_smile:

9

By this logic, all video games should be free. After all, they are composed of bits, bits are free, so it costs $0 to make a game, right?

To make the leap that a modern console “costs” $12 (or whatever the constituent parts and final assembly costs are), is profoundly ignorant of what the “costs” to create a console are. Development costs != final manufacturing costs.

10

A better example would be the 3DO. This was an example of a home video game console that was designed and released with some very high-minded concepts, but failed to gain serious traction thanks to poor developer support and competition from home consoles that were being subsidized via software licensing. The higher price point of the 3DO prevented it from acquiring an early user-base that developers could sell to, and this lack of traction ultimately destroyed a potentially beneficial system.

11

I don’t believe they lose money when making consoles. They surely tell people they lose money to appeal like very generous and kind but it’s actually illegal to do that kind of activities. They aren’t making the same profit as smart phones but at least they make some small profit out of them that’s for sure.

12

Loss leading generally isn’t illegal. Its generally not generous either. Consider these two points.

  • No one will buy a console that doesn’t have games and other content
  • No one will develop content for a console that doesn’t have a huge user base.

Based on those points, getting as many consoles out as quickly as possible is generally in the console manufacturers best interest. Thus the price point and loss leading.

Its a common tactic used by big businesses all over the world. Run a loss on high volume commodity products to draw customers in. Then make a profit from higher margin, lower volume stuff that people buy because they have brought your commodity product.

This strategy is employed by everyone from super markets to game developers to agriculture chemical manufacturers.

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13

They are publicly traded companies, they can’t just make up figures, that would be a violation of trade laws. Also they downplay those things, not using them for appeal. The PS3 was sold at a bigger loss than the PS4, and the PS4 was around the same as WIIU. Around a $50 loss on each console. In both WiiU and PS4, they pretty much covered their loss when they sold their first game.

The money is the games, not the hardware. Usually Sony’s revenue from games is around 15-20% of their overall revenue. When you consider that their margin on a game is massively larger than say, a large screen tv, the profit is substantial. Depending on the report, Sony’s profit from games ranges from 50-80% of their total profit. It is often surprising where large company’s main revenue comes from. Most people would probably be surprised where Disney’s main revenue comes from. :wink:

14

Inkjet printers, for example.

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15

Disney’s main revenue is from inkjet printers. I knew it. Actually could it be merch licensing?

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16

** @zombiegorilla ,**
Well, if you make those consoles anywhere outside third world/developing countries maybe, but just look the massive profits hardware manufactures makes in those countries.
Inkjet printers still make profit out of their printers. Sure Inkjet is another revenue/profit for printers but you are not even forced to buy original brand Inkjet, customers can refill their cartridge with any Inkject refill kit for much much less. I don’t believe either it’s their only source of revenue.

17

Sports broadcasting. :wink:

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18

This guy is the same troll from another thread, right? Mods, I implore you to unleash your might upon him.

19

The entire free to play scene is loss leading. And some of those studios are up there in terms of total revenue.