How Much Are The PS3 Price Cuts Costing Sony?

While Sony fought the Xbox360/Live revolution by pushing their console out as quickly as possible, it is now clear that the introduction of this juggernaut has had deep financial repercussions amongst a myriad of other woes. The birth year of the PS3 was criticized heavily and had an initally weak game library. In typical Sony fashion, the PS3 models offered to consumers was confusing and the software came out bare (Sony loves to do hardware first, features later, which tests the patience of consumers). 2008 is regarded as a power year for the PS3 which would enable more sales since a slew of incredible games are now being released consistently and the console is becoming so flexible. There is one caveat – the American economy is struggling.

Consumer confidence in America and many other countries is slumping, so its natural for the common man to balk at high console prices. The true price in console gaming isn’t just the system, but the games and everything else associated with it. Sony took a huge hit by dropping the price of the PS3, but they had to adapt to the dawn of a new financial era, where they couldn’t rely on America for a strong launch like they could before. The figures are staggering, as stated by Kotaku:

Pricing the Playstation 3 below its production cost caused Sony to lose $2.16 billion in 2007 and $1.16 billion in 2008, the company revealed today.

Sony’s fiscal 2008 annual report delineated potential risk factors to its investors, outlining that “the large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered.” The loss figures were provided as an example of the “significant negative impact” introducing a new platform can cause at first.

“In the past, large-scale investment relating to capital expenditures and research and development for the manufacture of key components, including semiconductors supplied for [PlayStation 3] was also recorded within the Electronics segment,” the company said.

In order to stay competitive, said Sony, it had to invest large amounts of money in research and development to introduce the PlayStation 3 into the market, and these sorts of expenditures don’t always get recouped, especially if a platform “fail[s] to achieve such favorable market penetration… resulting in a significant negative impact on Sony’s profitability.”

Even if it can recoup its investment, Sony said, it’s still possible to have lost large amounts of money on the platform’s introductory period, and even a successful PS3 might take a while to replace what it cost to produce. These possible outcomes are currently a risk for the company, Sony said.