Console Post Of The Week: It's Just Math
Here are the responses Sony executives have given recently to questions about the price of the PS3.First, Howard Stringer:
Asked about the logic of not cutting prices, Stringer said, "I (would) lose money on every PlayStation I make -- how's that for logic."
He also had his to say about Activision CEO Bobby Kotick:
"He likes to make a lot of noise."
Next,, Jack Tretton:
We could've come out with a PlayStation 2.5 for $299 or less, and in the first two or three years it would sell extremely well. But there would be a point where people would be going, "I am not really seeing the incremental leap." We feel that we're sacrificing the short term to pay dividends in the long term. People are having short-term thinking--the platform is not even three years old. It was $599; it's now $399.
Amusingly, their responses are complete and unadulterated bullshit. These guys are all pretending that they have no intention of cutting the price of the PS3, when, in fact, that's their number one priority.
Why? Well, just look at their FY09 projections for the game segment. The company is projecting sales of 13 million PS3s--a 30% increase from FY08.
In the U.S., for the January-May period, PS3 sales are down 20% from FY08. In June, it's going to get worse, because last year saw the release of Metal Gear Solid 4. If we project that the PS3 will sell 175,000 units in June (which is extremely generous), then after June, sales year-over-year will be down 30%.
Is there any reason to think that Europe is different? No. And while the PS3 is definitely having a better year in Japan, the market in Japan is small enough that it won't cushion drops in the U.S. and Europe.
For discussion purposes, let's say that in July and August in the U.S., PS3 sales are down 30% this year from last year (which would mean sales of 287,500 units total). At that point, here's what we'd have:
2008 January-August: 2,019,100
2009 January-August: 1,417,700
At this point, Sony is stuck under The Big Wheel Of Math™. Sales from September to December would have to DOUBLE compared to last year to hit that 30% growth target. That's why I said last month that the longer Sony waits, the more likely it is that we get a $100 price cut, not $50. A $50 price cut might bump sales by 50% (temporarily), but that's not nearly enough.
Wait a minute, though. Sony gave us that projection for their fiscal year, not the calendar year. How do those numbers look?
Well, they look somewhat different, because the fiscal year started April 1. Let's take out Jan-March but keep the same assumptions for sales in June through August. At the end of August, here's what we'd have:
Partial FY08 (April-August): 1,212,100
Partial FY09 (April-August): 720,500
Oh, hell--that's even worse. That's down 40% year-over-year.
Remember, though, that we're only talking about five months of the fiscal year at the end of August, as opposed to eight months of the calendar year. And since Sony sold 3,435,700 units in the U.S. in FY08, they would still need to sell 3,745,910 units in the last seven months of the fiscal year to hit 4,466,410 units for the fiscal year (30% growth).
So what's the needed growth rate for the last seven months of this fiscal year compared to last year for Sony to reach their full fiscal year target? 68%.
In a word: ouch. Not as bad as needing to double sales, but still: ouch.
Sure, this is only one territory, and sure, there's a slight bump from Japan, but those numbers still represent an orbit that they're nowhere near right now.
If you're in charge of a business, and you wind up 40% under plan for the fiscal year, would you keep your job? No, you wouldn't. And neither would these guys, which is why they're lying out their ass when they're saying they're not going to cut prices. Of course they are.
So when might this price cut happen? The way volume in the console market is seasonal, it's inefficient to have a price cut any later than September (even though Sony did it once already this generation). If they want the most bang for their buck, they'd roll out the price cut by the end of September.
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