The Wizeguy: Price Point

Both the PS5 and Xbox Series X are planned to launch during the holiday quarter this year, and are expected to have similar price points. The current manufacturing cost of the PS5, Bloomberg is reporting, is around $450. In North America, the PS1 launched in 1995 at $299, the PS2 in 2000 at the same price of $299, the PS3 in 2006 at both $499 and $599, and finally the PS4 in 2013 at $399.

So, what PS5 price would be too high?

I totally wouldn’t be surprised with a $499 price point. Cell phones are $500 to $1200 now. A good computer is at least $800 for those kind of games and maybe more like $1000. A PlayStation 5 at $499 seems like a totally normal price point to put it at and a bundle with an updated VR at $799 or MAYBE even $899 (depending how updated the display on the VR set is) seems about right.

There are very few examples where a console was sold at less than cost. It’s basically just that particularly bad PS3 launch. The original Xbox arguably counts. Although they apparently didn’t sell the hardware at less the cost, the entire Xbox division apparently lost money until just before the 360 launched. Development costs on this sort of thing are very high. And component costs, tooling, and manufacturing costs (particularly with new hotness parts) are highest at launch. So the hardware group or division of a console company is run in the red early in the process.

The PS5 is likely going to be a smash hit and the revenue from ‘services’ like digital game sales and loot boxes will, over time, easily take over from the fluctuations in component costs (and the impact of the Coronavirus) in the short term. Unlike in the days of the PS3, it’s not just game sales that they can make their money back on. They get a huge margin on all PS5 game sales via the Playstation store (and a complete monopoly on first-party Playstation games that aren’t on PC) and going forwards, physical game sales are going to keep decreasing. In the future, if you want a Playstation game, you’ll have to get it from Sony on their store.

Side note: PlayStation is pulling out of PAX East this weekend due to “increasing concerns” related to the illness colloquially known as the coronavirus. This one reeks of an easy out. This is just another case like E3. These shows really are not worth it to these companies anymore. Especially in this case where they are not showing anything you haven’t seen before. You know The Last Of Us and you know FF7. There is no PS5 content on show. I’m not convinced that we’re getting a PS5 event before the end of the month, we can definitely see Sony breaking its silence in the relatively near future. As hinted by Sony senior executive vice president and chief financial officer Hiroki Totoki during their most recent earnings call earlier this month “When the time is right, we will disclose the new product.”

In the meantime, the solution is to spend $130 on Stadia and lag out every night during peak hours.


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