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Price drops coming?

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Here's an article from CNNmoney quoting an analyst who predicts they are coming.

 

"It is our belief that the price on the consoles in North America could see a stepped drop this year, with both the PS2 and Xbox being cut to $129 between now and the May E3 trade show, with [Microsoft] then cutting the Xbox further to $99 in the late summer,"

 

McNealy also believes Microsoft will launch its next generation console in late 2005 ? a year earlier than has been previously rumored. That would put the Xbox 2 on store shelves up to a full year before Sony's PlayStation 3.

 

 

Pure speculation, I know. But at $99 I would definitely get a second xbox.

 

Carlos.

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I'd be shocked if the Xbox or PS2 hit that price point this year. I just don't know how much of a benefit in sales either machine would see at that point.

 

Although, the Gamecube dropping to $79 or so... would make it more tempting to get a 2nd one for lan play at home.

 

Glen

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I agree....there's no need for a $99 price point. It's been said that the XBOX loses close to $100 per console sold at the $179 price tag. Whether that number has decreased or not, there's a good chance that MS still loses money per XBOX sold.....I don't think they'd be too quick to lose further money on it.

 

I look to see the consoles drop to $149 come E3 time. I know EA said that it would drop to $129, but EA said that XBOX and PS2 would drop to $149 in May of 2003. Sony and MS seem to be happy enough with the console sales at the $179 price tag that they didn't feel a need to drop back then. I'm sure the same will said this year....and I'll bet we see them drop to $149 in May.

 

If the consoles do drop in price to $129, I look for it to be closer to fall time to build momentum for the 2004 holiday sales.

 

$99 I think is a pipe dream at this stage in the console's lives. Chances are the next gen consoles won't be coming out til 2006. There's no reason to drop this gen's prices to $99 when you still got about 2 more years of good life in them. Maybe in 2005 we'll see a $99 price tag on XBOX or PS2.....but definitely not this year....it's not necessary.

 

What I'm curious about most is how will Nintendo react to ANY price drop from XBOX and PS2. Will Nintendo try and cut their console more or maybe try and bundle a game with it? Nintendo needs to stay competetive against PS2 and XBOX if it wants to help drive future console sales.

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I would think a price drop to $149 this year and the new big games hitting by xmas would give another bumper crop year for consoles (like GTA5 for PS2 and Halo 2 for Xbox.) $99 would be great, but I seriously doubt it.

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It's been said that the XBOX loses close to $100 per console sold at the $179 price tag. Whether that number has decreased or not, there's a good chance that MS still loses money per XBOX sold
Just wondering but, do YOU have any info to back that statement up?

From the article:

When Microsoft launched the Xbox in 2001 for $299, it reportedly lost $100 for every unit it sold.
Reported by who(m)? Do YOU know, 'cause the author apparently doesn't.

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Originally posted by danger9777@Jan 29 2004, 09:42 AM

... It's been said that the XBOX loses close to $100 per console sold at the $179 price tag...

Unless I read it wrong (very possible since I just scanned it), Microsoft's Annual Report does not suggest this.

 

EDIT:

 

Here we go, I just read their last quarterly report more closely.

 

Home and Entertainment operating loss for the first quarter of fiscal year 2004 increased 11% from the first quarter of fiscal year 2003 driven by 17% growth in operating expenses related to increased product costs associated with higher consoles sold and higher sales and marketing expenses, partially offset by 20% growth in revenue. ...

 

Cost of revenue as a percent of revenue was 17.4% and 18.0% in the first quarter of fiscal year 2003 and 2004. For the first quarter of fiscal year 2004, cost of revenue was $1.48 billion compared to $1.34 billion in the first quarter of fiscal year 2003. The increase in absolute dollars, as well as percentage of revenue, resulted primarily from a 27% increase in Home & Entertainment costs, due to increased Xbox console units sold partially offset by lower costs of producing the Xbox console and an 11% increase in product support and consulting services.

 

So, again, unless I missed something, it looks like they are losing something in consoles sales. I don't know how much. Maybe if I look again I'll find the Cost of Goods Sold entry.

 

-j

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danger, they used to lose $100 per console, probably not true anymore. They still probably lose some $, but likely it is in the mid double digits. Prices for HDD, Pentium 733 MHz, and 64 MB RAM have all fallen drastically in price I'm sure since launch. Add in the pricing pressure MS inevitably has put their vendors through and streamlining of the manufactoring and they aren't doing that badly.

 

Once they cut it to $149 or $99 though, they'll be right back in the deep red ;)

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I don't think anyone (outside of MS) knows how much the Xbox costs to manufacture, but I've seen articles that break down the list of parts and vendors, factor in the volume discount of the parts, add the cost of labor (in the different locations they are built in), and deduce a number. I think the number I've seen is something like $290 worth or parts and labor, that was early last year, IIRC.

 

I don't think there's any way to prove that's what it costs, but it's very likely that MS does loose money on every one they sell (loss-leader).

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I have no clue how much XBOX loses per console. I've heard its about $100 right now, but chances are that number has dropped with the costs of the items inside the XBOX. However, dropping to $99 would definitely increase that loss again.....it just doesn't seem wise to me at this point in the console's lifespan when we're still a good 2 years away from the next gen of consoles.

 

This is all my opinion and me speculating. I don't have proof and really don't feel inclined to search the web for any. Just basically stating what I've read in the past. I apologize if I ruffled any feathers.

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FYI, I e-mailed the author of that article, a Mr. Chris Morris, about the "MS is losing money on every Xbox sold" thing.

Basically, I asked him if he had a reliable, verifiable, quotable source for this info. Because, thus far, even though it's been mentioned countless times, I've yet to see A SINGLE PERSON prove that MS is (or was, for that matter) losing money on the Xbox.

I hope he e-mails me back. :twisted:

 

From Jay's link:

Home and Entertainment

 

Home and Entertainment revenue was $485 million and $581 million in the first quarter of fiscal year 2003 and 2004. Home and Entertainment includes the Xbox video game system, PC games, consumer software and hardware, and TV platform. Home and Entertainment revenue increased 20% from the prior year?s first quarter. Xbox revenue increased $53 million or 20% from the prior year?s first quarter, with $85 million related to higher volumes of Xbox consoles, peripherals, and games offset by a $32 million decrease related to price changes. Revenue from consumer hardware and software and PC games increased $43 million or 19% compared to a year ago. Home and Entertainment operating loss for the first quarter of fiscal year 2004 increased 11% from the first quarter of fiscal year 2003 driven by 17% growth in operating expenses related to increased product costs associated with higher consoles sold and higher sales and marketing expenses, partially offset by 20% growth in revenue.

Now, I don't care how you crunch those numbers, but there's NO WAY you can tell me (from that) how much an Xbox costs to make OR if MS is losing money on it.
I don't think anyone (outside of MS) knows how much the Xbox costs to manufacture
Exactly.

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Well, realistically, the X-Box is a more powerful machine versus the PS2, and it has a built-in HD. The PS2 and the Box retail for the same price, do they not? Does Sony make money on sold PS2s? If we could just find that out it wouldn't be terribly hard to extrapolate forward for the Box as well.

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Originally posted by A CLAN OF ONE@Jan 29 2004, 05:30 PM

Now, I don't care how you crunch those numbers, but there's NO WAY you can tell me (from that) how much an Xbox costs to make OR if MS is losing money on it.

Perhaps you're seeing something different, but MS's financials seem pretty clear to me that they are losing money on each console sold.

 

MS says the operating loss was driven in part by increased product costs associated with higher consoles sold. Unless MS has a strange deal where they pay the opposite of a volume discount, that indicates to me that MS loses money on each console sold. They sell more consoles and the total operating loss amount increases.

 

Now, I'm rereading their document in between cooking, playing with the dog, and so on, so please correct me if I'm missing something obvious.

 

-j

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Please, dumb it down for me because I'm having a hard time separating the Xbox from the other H & E stuff. It would seem they ARE losing money on the 'box, so I stand corrected, but how much per console sold?

Again:

Home and Entertainment operating loss for the first quarter of fiscal year 2004 increased 11% from the first quarter of fiscal year 2003 driven by 17% growth in operating expenses related to increased product costs associated with higher consoles sold and higher sales and marketing expenses
See all those "and"s. They're lumping everything together. I understand: "growth in operating expenses related to increased product costs associated with higher consoles sold", but how much BY ITSELF?

Maybe the answer is here (or is it ;)):

a 27% increase in Home & Entertainment costs, due to increased Xbox console units sold partially offset by lower costs of producing the Xbox console and an 11% increase in product support and consulting services.
Another one of those pesky "and"s. Is the Xbox responsible for the other 16% "increase in Home & Entertainment costs"?

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"With the current cost of goods, there's no way to make

money with this generation of the console,'' Chief Financial

Officer John Connors said at an investor presentation in Boston

 

http://www.taipeitimes.com/News/worldbiz/a...1/29/2003096674

 

http://seattlepi.nwsource.com/business/158...msftxbox28.html

 

How's that for verifiable?

 

There's no published hard & fast numbers on how much they lose per Xbox, much the same as Sony don't distribute similiar numbers for the PS2 - it's crucial info that they do not want to divulge. Early 2002, analysts came up with the number of ~$100 cost on top of the price of the Xbox at that time. I'm sure that cost has fallen.

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Originally posted by A CLAN OF ONE@Jan 29 2004, 06:26 PM

See all those "and"s. They're lumping everything together ... Another one of those pesky "and"s. Is the Xbox responsible for the other 16% "increase in Home & Entertainment costs"?

I can't conclude much more from the report than the indication that they are indeed losing money on console sales. I'm not very troubled by those "ands". Dunno what GAAP is on that, but I suspect that "material" or something along those lines is the standard.

 

Dunno about the actual loss per console.

 

-j

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I like Chris Morris' column. I've written him before (a complimentary email) and he responded quickly. I find it interesting that people (not only here but on various forums) whose primary tangential connection to the videogame business world is the purchasing and playing of videogames have such vociferous opinions about Morris' financial claims. Particularly the Xbox cost breakdown. Isn't it generally accepted that the console is considered a loss-leader and profits are built on software sales? I think only Nintendo has ever claimed to make an initial profit on their console sales, and that might have evaporated at the $99 price point.

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Originally posted by adamsappel@Jan 29 2004, 07:41 PM

... I find it interesting that people (not only here but on various forums) whose primary tangential connection to the videogame business world is the purchasing and playing of videogames have such vociferous opinions about Morris' financial claims...

I don't about anyone being vociferous here. There was a concern over a statement (MS losing $100 per console) that lacked a cite and isn't generally accepted knowledge.

 

That people are skeptical of claims and willing to question sources is a good thing, IMHO. If you are comfortable with Morris' reputation and analysis (and I probably would be as well if I delved into his writings), then great. That helps us vet the source.

 

-j

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This eetimes.com article mentions an estimated $323 cost of materials at launch. This purchasing.com article reports $150 below cost of manufacture. cnet.com offers several different cost estimates, all losses. internetnews.com thinks Microsoft spent $450 initially to produce the Xbox. zdnet.com says $320-$400.

 

Prices of manufacturing and costs of materials have surely gone down, but have they outpaced the price cuts? Microsoft will never (and I don't think ever expected to) profit from Xbox console sales.

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NY Post abstract re: Xbox price drop in April.

 

Any of you New Yorkers read the Post and can confirm?

 

Denial:

No Xbox Price Cut

By Mike Viscel -- Staff Writer

Published 11:52 AM CDT, February 18, 2004

 

Some people are reporting that we will see an Xbox price reduction this April...Not so fast.

 

People have been anticipating a price drop from either Sony or Microsoft for months. It is assumed that a price reduction by either company would cause a price reduction by the other. Both consoles currently retail for $179.99.

 

Today a report was released by the New York Times claiming that Microsoft is planning on a price reduction this April. The reduction is said to drop the price of the Xbox to $150.00. Sites across the world wide web have been reporting this news today.

 

Unfortunately for those waiting to save a few bucks on the big black box, it seems the report in the New York Times is false. Microsoft has publicly denied the reports that we would see a price reduction this April. Microsoft claims that there are no plans to reduce the console's cost.

? Mike Viscel

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A drop that severe would be almost unheard of unless Microsoft is planning on a major marketing psuh for the console in bundles or as a means to push additional software sales later in the year. I don't think $99 is realistic, though.

 

As far as the interest we all show, I don't necessarily find it all that unusual. The members of this forum are of the class of game enthusiast that is generally well educated, well read, and well informed. Our hobby is one that is expensive and often under political attack. The best thing we can do to avert wasted money and defend against political attacks is to be educated about the industry that gives us the games we love.

 

I for one am proud to be a gamer and wear the term geek proudly. Part of that is being educated about the industry and having discussions about the industry in general.

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