How could Sony be low on cash when
October 26, 2000 5:38 AM   Subscribe

How could Sony be low on cash when Target, Wal-Mart, Best Buy and Circuit City all have lines of people around the corner who have been waiting since yesterday morning? All waiting to get their very own PX2.

Think about this - approximately 500,000 of the units will sell today, at $300 a pop, plus numerous purchases of games in addition to the console. Let's estimate that each lucky customer will spend $400 (1 PX2, and 2 games per customer - a modest estimate). That's a one-day gross of $200,000,000.

My bet? Sony will not only turn itself around by the end of the day today, cause a major boom in US currency flow, but also cause a sharp decline in spending for the next month - people will be at home playing their new games, and will have little interest in going out to buy anything else!
posted by tatochip (31 comments total)
I saw a show on the history channel about the history of video games. It was a great show. In anycase, Sega said, in the show (I can't find it on Sega's website) that they made more money then anyone else EVER, in terms of media (records, movie, etc), the first few days after the release of the Dreamcast.

I don't know if the psx2 will pass it or not. (I wish I could find those numbers somewhere).
posted by jamescblack at 7:16 AM on October 26, 2000

I found the DC record numbers. 372,000 Sega Dreamcast systems in just four days
posted by jamescblack at 7:31 AM on October 26, 2000

Well, judging by the line I was on to pick up my PS2 (Which I did), Sony might break that record. I haven't any problems with Sega, save for the fact that they spend too much time marketing their own games. They don't rely enough upon 3rd party support, and when they do, they get some strange titles cranked out. I would've definately bought a DC hadn't I owned the Saturn first. That was a bad moment in Sega's history.
posted by Cavatica at 7:35 AM on October 26, 2000

Er, well, for one thing, the article didn't say Sony was low on cash, just that they had a big drop in profit, mostly due to changes in the value of the dollar versus the yen.

Secondly, even though sure there might be a $200 million gross revenue on the first day, Sony doesn't get all of that. I dare say a significant portion goes to the retailer, some to the distributor, some to the shipping company that shipped those 500,000 boxes over the pacific ocean. And on the $100 worth of games bought, only a portion of that goes to Sony. The company that wrote the game gets a portion, too, in addition to the other costs I mentioned.

Then there's the fact that it costs Sony more than $300 to build a PS2. No console maker sells the console at a profit, not at first anyway. Maybe after a year or so they'll be able to make the console for less than they sell it for. But for now, the whole point is to get the consoles out there so that they can make profit off license fees for the games. That's where console makers make their money, in the games.

Sony may indeed turn around, but not today. Today will be a big loss day for Sony in terms of accounting. But as more and more PS2 consoles get out there and people start buying PS2 games and more DVDs, Sony will probably make up their investment and then some. Revenue will be way up this quarter, but probably not profit.
posted by daveadams at 7:41 AM on October 26, 2000

You might be surprised to find that the PS2 is being sold at or below the cost to produce it. Sony, like Nintendo, tries to make this up by getting a few bucks on every game sold through liscencing fees.

Add it up: a 300MHz MIPS processor, 32M ram, 8M memory stick, 3D chip w/4M ram, 4x24 DVD/CD ROM, circuit boards, plastics, controllers, ROM for its OS, power supply, packaging, documentation etc. This doesn't include the engineering costs, marketing costs, licensing for DVD codecs, and a pile of other fees.

No way they're making money on the console. Make the needles cheap and the drugs expensive.

posted by plinth at 7:45 AM on October 26, 2000

Cavatica, a friend of mine has a Dreamcast. The console is probably worth the money for "Crazy Taxi" alone. That game is awesome... it's almost my dream perfect driving game.
posted by daveadams at 7:57 AM on October 26, 2000

the dvdrom is only 4x24 on the ps2?
I personally enjoy my dreamcast, because while Sony might have some of the big names backing it up (square, ea), I enjoy the originality of dreamcast games.
not to start the console wars here or anything...
posted by starduck at 8:17 AM on October 26, 2000

I want one so bad. I have held off on buying a DVD player for a year now, and my old playstation is starting to die. I have games sitting around unplayed because my chip is detected! SONY make me clean!, I won't modify the guts this time around, honest.
Anyone know when they are expected to be available to those who did not think ahead and get themself on a waiting list?
posted by thirteen at 8:21 AM on October 26, 2000

Well, last night, there were people who signing up for the list, which means that they won't be receiving PS2's until Spring 2001.

What was strange was that we were part of Software Etc.'s (on 33rd and Broadway) second shipment reserves, and weren't meant to get ours until November.

One of the heads of Sony was on hand last night, along with the actual designer of the PS2. They also had consoles set up outside so you could play one of the following Games:

Madden 2001 - Fantastic, every bit as good as the commercial.

NHL Live - 3d Fights, a better zoom than last year's edition.

Dynasty Warriors - This one I didn't really like. While you could fight in an army, taking on dozens upon dozens of people in battle (with no slowdown whatsoever), it became repetitive pretty fast.

There was also a Snowboarding game from Konami that looked really good. You really felt the height when you jumped.

I own Tekken Tag Tournament. It's a great big step up from the first console, but I wouldn't recommend it for anyone who already owns T3. It's basically the THX edition of the same game, with a few extra characters.
posted by Cavatica at 8:44 AM on October 26, 2000

The development costs of the PS2 seem to have been the biggest hit to Sony's profits.
posted by harmful at 9:31 AM on October 26, 2000

Any idea how long it would take for someone like me, who will simply waltz into a store and ask if they have any PS2's in stock instead of reserving one, to get their hands on one of these beasts?
posted by tomorama at 10:23 AM on October 26, 2000

Playstation 2 sucks. I don't really follow these game systems, but reports say that Dreamcast is more powerful, and has better games.
posted by tiaka at 10:27 AM on October 26, 2000

"Dreamcast is more powerful, and has better games."

You mean that a game system that's been out for a while now has better games than a system that was just released today?


(Note: I'm game-system agnostic, and I don't want either a DC or a PS2, so don't take this as a defensive remark. It's just a "Well, duh" remark.)
posted by CrayDrygu at 10:33 AM on October 26, 2000

Platform is irrelevant. It's all about the games. Give me Starcraft on my N64, Tetris Attack on my old Super Nintendo, and I'm in good shape for gaming. Next year, if the games REALLY do rock, I'll pick one up for $150, get a package of games cheap on Ebay, and hit it.

posted by norm at 10:58 AM on October 26, 2000

[tiaka] Playstation 2 sucks. I don't really follow these game systems, but reports say that Dreamcast is more powerful, and has better games.

Er, you don't follow the systems or play the games, but you have an opinion about them? Regardless of whether the PS2 is better or worse than Dreamcast, it does have a much better chance of succeeding. For one, Sega has all but given up on Dreamcast. For two, the Playstation 2 is backwards compatible with old Playstation games, plus it plays DVDs, so it's already got the largest software library of any console system short of maybe the original NES or the 2600.

So in other words, even if the PS2 sucks, it's still probably going to win out. At least this year. But the XBox and GameCube are going to have to be phenomenal to hope to take over the lead from Sony.
posted by daveadams at 11:44 AM on October 26, 2000

Given up on Dreamcast? According to a Time article I just read (hardcopy, no linkage available to the programmer's lounge, sorry :-) Sega's investing more money in the 90 days surrounding the PS2's launch then in the past year the Dreamcast's been available.

By dropping the DC price to $149 USD, Sega's going to make a killing from now until Christmas too.

Console systems don't stagger releases because they're concerned about competition, by having a new, different console come out every fall, all the preceding consoles have a good excuse to drop their prices, and get a wave of new buyers for (as the analogy above indicated) the drugs, where the real money is.

Sure, each company wants to dominate the market, but they also know that multiple console companies is great for sales. Competition makes for the best market.
posted by cCranium at 12:31 PM on October 26, 2000

I agree with Norm above, I'll wait 'til next year and get it cheaper (not to mention the fact that all of this initial shipment's probably already gone).
posted by SentientAI at 1:53 PM on October 26, 2000

The PS2 is one of the two main target markets for RDRAM (Rambus) and prices on Rambus have always been preposterously high. It wouldn't surprise me to learn the fully half the cost of manufacture of a PS2 is the RAM.

Now that Intel has publicly repudiated Rambus, and now that Via and Ali (and maybe Micron) are bringing out chipsets for the P4 to support DDR-SDRAM, the percent of RDRAM which will get sold into the PC market looks to be in the low single digits, possibly only 1 or 2. AMD isn't even bothering to support it for the Athlon, and it looks like nearly every P3 and P4 sold in the next two years will use SDRAM or DDR-SDRAM.

What that means is that the PS2 is the only serious market for the stuff. That in turn means that there's going to be no economy of scale in its production; there's every reason to believe that some of the RAM makers who were "coerced" into making at least a token attempt at production of RDRAM by Intel are going to cease doing so (and Micron refused to even try and has never done so). It's possible that the cost of RDRAM may rise. The commitment to RDRAM by the "DRAMURAI" has always been half-hearted anyway, except for one maker who is actually responsible for more of the stuff than everyone else combined.

That would be very bad news for Sony, because the processor in the PS2 is actually designed around the virtues (and there are some) of RDRAM and can't be made to run with SDRAM. If the PC market for RDRAM collapses (and it shows every indication of already being DOA) then overall demand drops, production decreases and in semiconductors that usually means prices rise because of loss of economy of scale. Sony may never be able to sell the PS2 for above cost.

As was pointed out, the real money is on their royalties on the games. And there, too, there may ultimately be problems. Microsoft has been going around throwing money at video game developers to get exclusive rights for their games for the XBox. (This is legal; the other console makers have been doing this for years.) There will be many games released for the PS2, but will they be the games the public wants to buy in huge quantities?

I hold no ill-will for Sony (I love my Vaio), but I despise Rambus, so I confess I hope the PS2 goes down in flames because it will leave Rambus with no markets at all. An initial burst of sales is fine, but Rambus needs continuous sales extending over a long period of time, and I hope they don't get them.

posted by Steven Den Beste at 1:54 PM on October 26, 2000

I'm with Norm on this one too, but I was even cheaper: I got myself a VIC-20, monochrome monitor, joystick, and games via eBay for the princely sum of perhaps $30, all told. Gaming experience AND kitsch value, all in one discrete package!
posted by youhas at 2:18 PM on October 26, 2000

Don't underestimate the open source movement. A company called Indrema is working on a Linux-based console that has almost identical specs to that of Microsoft's Xbox. This Feed magazine article says that where Sony charges a $25,000 fee to game developers in order to develop games for the PS2, Microsoft plans to charge no fee. It's a safe bet that since Indrema is an open source company [developer site], that the game development specs will also be open source, available to any developer who wants them. My bet is that the 2001-2002 gaming console market will be a tough fight between Microsoft and a number of competitors, including Indrema, but not necessarily Sony.
posted by camworld at 6:23 PM on October 26, 2000

Whoops! Here's the correct Feed magazine article that talks about developer fees for the PS2 and the Xbox.
posted by camworld at 7:03 PM on October 26, 2000

it has to be the worst system ive ever played on. the graphics are horrible, there are tons of little glitches (typical psx style) and the fucking DVD doesnt even work correctly. The sound goes in and out, and it seems everytime you restart it something is better or worse about whatever game is in there. I carefully put it back in its packaging and with a friend am selling the piece of shit on ebay. i suggest a dreamcast. Ive found nothing wrong with it at all.
posted by Satapher at 8:03 PM on October 26, 2000

For me it's about the games, not some system jihad. I really enjoy the games on the PS2. SSX is incredible. Worse then crack it is. I have people calling me asking to come over just to race, just once, please...

But really, why do people have to blast things so much. If you don't like it that's cool. I have fun with it. The Dreamcast never had anything that grabbed me so I never bought it. I'm not going to go ripping it to pieces because of that.
posted by Animus at 9:35 PM on October 26, 2000

One of the sites I frequent did a review on a prerelease PS2 of Unreal Tournament, and they found something a bit surprising: the CPU was too gutless to really handle the game properly compared to a high end PC.

Now we all know that the PC is going to be using substantially higher screen resolution, and it's no surprise that the graphics were more blurry on the PS2 due to inherent limitations in NTSC, but what they found was that they had to limit the number of 'bots in the game because if there were too many, frame rate would sometimes plummet into the low teens (which is unplayable). Considering how the CPU in the PS2 is being trumpetted as a supercomputer, either it means they've been exaggerating, or else it means the guys doing the UT port screwed up. I refuse to speculate about which.

I've also been reading that the shortage of consoles is nothing compared to the shortage of memory cards; apparently there is a virtual drought of them and a lot of the games you want to play you really need a memory card to save your state -- or else leave your PS2 powered up.
posted by Steven Den Beste at 12:12 AM on October 27, 2000

Steve, I have yet to see a Console game be as complex as a Computer game. Delta Force, Tachyon, Soldier of Fortune, Age of Empires. Computer games are usually much more elaborate than Console ones. With the Dreamcast being able to play by Modem, that should slowly begin to change though. That's just my opinion.
posted by Cavatica at 1:59 AM on October 27, 2000

Playstation 2's are going for $700-$800 on e-bay if anyone really wants one.
posted by phooey at 7:26 AM on October 27, 2000

that where Sony charges a $25,000 fee to game developers in order to develop games for the PS2, Microsoft plans to charge no fee

This sounds about right, MS makes all its development kits available for free for all its platforms. But do I remember correctly that MS asked the game companies if they wanted to go without a royalty/approval scheme like Nintendo, Sega, and Sony use (that's where their revenue really comes from), and the developers pretty much unanimously wanted the royalty/approval system because it encourages higher-quality games and less glut and therefore a better platform. So of course, if the Xbox is a success, MS will really rake in the dough.
posted by daveadams at 7:54 AM on October 27, 2000

phooey, check the end-of-auction prices, they go way up in the last minute or so. Last night, anyway, they were selling for $1200+.
posted by daveadams at 7:55 AM on October 27, 2000

Cavatica: the claims made have been that with this product, the consoles were finally going to actually exceed the PC in graphics and game complexity.

I never believed it, but there's been a lot of hype of the PS2's new CPU architecture.

The problem with it is that it really is radically different, and programmers need to learn an entirely new way to write their games to truly take advantage of it. (The UT programmers may not have fully understood what they were doing, since it was a PC port.) In particular, the bottlenecks are in different places, and it completely changes how you structure your program.

In any case, no matter what else it may offer, it's still stuck with NTSC video.

By the way, the PS2 can network locally. I don't know if they have plans for a wide area networking capabililty. The review of UT I read wasn't able to test how it worked in a local network because they were only lent one unit for evaluation.
posted by Steven Den Beste at 11:31 AM on October 27, 2000

Anybody got any news on the rumor that the development platform was a linux port and there's a version hiding inside the building somewhere that might leak out?

Those graphics would make it a *killer* CG if I could get some software onto it...
posted by baylink at 12:05 PM on October 27, 2000

NTSC, duh. It's a game console. Though HDTV capability would be cool.

Gamers either get one of every console or stick to their favorites. The relative performance doesn't matter too much either, but it gives us something to fill message bases up with.
posted by john at 3:08 PM on October 27, 2000

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