Kutaragi refutes $1 billion PlayStation 3 hole will bring SCE to its knees

December 19th, 2005, 17:53 Posted By: wraggster

Analysts have warned that the release of the PS3 could backfire on gaming giant Sony Computer Entertainment, bringing the Sony subsidiary to its knees. Merrill Lynch Japan has stated it expects Sony to lose more than $1 billion on hardware manufacturing alone during its next-gen console's first 12 months on sale, a figure that may prove unrecoverable.

Merrill Lynch Japan Securities, quoted in the latest issue of Toyo Keizai, states that it expects core production costs of PlayStation 3 to be around $500, with the machine likely to ship at $399 – equating to a loss of around $1.18 billion in the first year the machine goes on sale. It should be noted that these losses are based purely on manufacturing costs and do not factor in the colossal marketing budget SCE has undoubtedly prepped for it's next home console launch.

Merrill Lynch warns that these losses would normally be absorbed with ease by Sony as it has previously entered markets lacking any serious competition. This time however, it will put a new machine on sale, its most expensive to date, to consumers who, in the West, have shown eager acceptance of Microsoft's Xbox 360 and a worldwide audience showing interest in Nintendo's budget innovation machine. Analysts warn that should Microsoft cut the price of Xbox 360 when Sony launches, the entire project could backfire. Should consumers be tempted with a next-generation console at a budget price, complete with a significant library of high-quality software and the option to augment this with something new, as offered by Nintendo, Sony might find its space under televisions around the world, its own for more than a decade, has been usurped.

Toyo Keizai goes on to publish comment from SCE head Ken Kutaragi, who understandably refutes MLDS' analysis; "Whether consumers think a product is expensive or cheap all depends on the balance between its appeal and price," said Kutaragi, again hinting that the PlayStation 3 may indeed be a pricy piece of kit. "Our idea is for consumers to think to themselves, 'Right, I'll work more hours and buy it.' We want people to feel that they want it, no matter what. When Nintendo was selling its 16-bit machine at around 12,500 yen ($114), we sold the first PlayStation at 39,800 yen ($364). The press was saying that it was expensive, but it was a huge hit. It's the same thing with the PlayStation Portable from last year. The Game Boy Advance is a similar handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). And there were people lined up overnight to buy it, and it sold out on the day of launch. It all depends on whether people want it. Of course, I'm confident that PlayStation 3 is a product that people will definitely want."

As you will have noticed, there are few sizable holes in Kutaragi's assertions. To equate the PlayStation launching against the Super Nintendo, a machine towards the end of its lifecycle and with less than half the power, to the PlayStation 3 entering the market against Xbox 360 is absurd. Again, to compare the PSP's launch against the Game Boy Advance, another machine nearing the end of its lifecycle and, interestingly enough, loosely based on the SNES from almost two decades ago is again, unquestionably ridiculous.

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