The signs were there. You saw them. I saw them. Yet we held out hope that the Sony PS3 MIGHT be a game system and not he frantic death spasm of a huge media conglomerate in its final days. As we are beginning to piece together this morning, the PS3 launch is shaping up to be something of a letdown. We have fewer units offered worldwide than even the reduced number Sony actually promised. Apparently fewer than 400,000 shipped to the US. Many of the units sold here were bought by so-called system flippers, hoping to sell their new (if not shiny) Playstations for literally $15,000 on Ebay. As of this update, over 10,000 units were available for auction.
(*edit* think I'm kidding? Check this out. And This.)
Add to this an HDMI issue that leaves owners on non-720p ready televisions looking at 480p resolution (or worse, blank screens). Also note that very few if any PS2 and PS1 games actually function on the new system with audio. Worse still, most of the launch titles seem to be unfinished or at the very least finished hurriedly and one wonders why anyone would line up on a rainy night for this system.
In fact, at $600 US are we really talking about a next-generation system in the first place? By my way of thinking, a next-gen system has two major components: One, a tremendous leap in the quality, duration and complexity of game play and Two, an offering at a price comparable to previous consoles (allowing of course for inflation). Price is a big deal. Sony could have produced the PS3 ten years ago if it felt the public were willing to pay nearly $20,000 US per unit to own one. Would that have truly been a next-gen system? Perhaps what makes a nex-gen system next-gen is that the technology has matured and become affordable to the average gamer. I wouldn’t call a multi-million dollar combat flight simulation system a next-gen system simply because it has superior graphics and sound.
So where does profit fit into this scenario? Sony is officially losing around $300 per unit. The logic of this arrangement is that Sony makes money per license and sometimes per unit on games sold for the PS3. Yet with fewer than 500,000 units sold worldwide, how does any game developer make money? If you assume that any game will only sell to about half of all system owners, at this point any game stands to sell at a maximum around 250,000 units worldwide. At $60 US a pop, there is no way to make a return on your estimated $15,000,000 US investment in that title. At this point, there is no way that enough PS3 consumers can materialize to keep developers working on PS3 titles. Even if Sony manages to produce one million units by Christmas (which they assuredly will not), developers are likely not going to get a title into the black before third quarter 2007. Where is the incentive as a game designer in that market?
None of this should come as a shock to us. None of this came as a shock to me. All anyone had to do was add the numbers. With an average game costing $4,000,000 to $20,000,000 US to develop you start to realize that you need to be selling in a market with well over 100 million informed buyers to make any money. With obvious exceptions like Halo and Final Fantasy, most titles are going to appeal to about one in ten consumers on a particular system. From that pool many if not most will wait for the price drop or resell market before acquiring a title. Granted, yes, retailers actually buy the titles and retailers bear the risk of sales or languishing overstock but the developers still have to move a staggering number of units simply to break even.
Let's not even address how one goes about buying a game after laying down over $700 US after sales tax...
So I ask again - why would you pour millions of dollars into a title - especially in the final months before launch - when it has become abundantly clear that the console for which you are developing will simply not exist in the numbers necessary for you to stay in business? Perhaps the answer is that you would not. Perhaps the answer is that you would cut corners. Perhaps the answer is that you would be sure to make that title available for the PC as well. Either way, you know there is a very large risk associated with putting in the kind of resources necessary to make a very polished final product.
Final analysis - I'm not going to call the PS3 a failure. Likely firmware patches will address if not remove all the technical issues associated with the unit at launch. Games, of course, are always a bit anemic at launch. Every system has its stinkers. What I am trying to stress (and what it has become clear that Nintendo already knows) is that being the next top-end system may not be the wisest way to win over a market. Clearly those who own the new PS3 are pleased with their purchase. What I am saying is that Sony may have (once again) pushed the basic cost of doing business so close to the limit of what the market will bear that there simply may not be any margin for profit.
At all.
And all it took was a Bachelors of Science in Economics to tell me that there might not be a long, robust future in purchasing the PS3 at launch. So, want not to be burned by this decade's next 3DO? Stay in school kids.
