"Losses arose from the strategic pricing of PS3 hardware at points lower than its production cost".
Sony’s financial report for the last financial year (i.e. 1st of April 2007 to the 31st of March 2008) shows that the PS3 really wasn’t money-spinner that, well actually no-one thought it would be from launch. Apparently selling the console below cost lost Sony about 1.10 billion and £589 million in 2007 and 2008 respectively. Hardly pocket change – even for a company of Sony’s size.
Specifically Sony recorded “losses of 232.3 billion yen and 124.5 billion yen within the Game segment for the fiscal years ended March 31, 2007 and 2008, respectively. These losses arose from the strategic pricing of PS3 hardware at points lower than its production cost“.
The report further comments that “The large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered” continuing that “in addition, even if Sony is able to sufficiently recoup its investment, significant negative impact on Sony’s operating results could occur during the introductory period of the platform. Further, even if the platform is ultimately successful, it may take longer than expected to recoup the investment, resulting in a negative impact on Sony’s profitability.
In layman’s terms: Sony gaming division lost quite a bit of money developing and introducing the PS3 before then selling it at a loss, but that’s to be expected. This loss probably won’t be recovered for a while or, in the worst-case scenario, at all. Sony’s overall profitability is, obviously, going to be effected by this.
It isn’t all bad though as “although there was a loss arising from the strategic pricing of PS3 hardware at points lower than its production cost, the operating losses of the PS3 business decreased as a result of successful hardware cost reductions and increased sales of software“.
So, while profitability hasn’t exactly been a strong suit of the PS3 thus far, that should change going forwards as the console is now cheaper to make. Moreover, software sales are at least making Sony money and will continue to do so increasingly as more people buy more games.
Full report. (PDF warning!)