500 Euros ~= $615.

IMHO, that's their whole problem.

From a gamer's POV (who has no interest in watching movies in HD), they're paying more for less... If there was a standard DVD drive (~$20) in it, the PS3 price would be in line with the competition's price. Since the BR drive that PS3 uses costs around $200, it adds a lot of cost that doesn't need to be there for these people. (The manufacturing cost of a PS3 will be about $800 with more than 33% coming from the BR drive itself.)

From a movie collector's POV (who has no interest in gaming), they're kind of getting a deal vs. a stand alone player, but the downside is the PS3 won't be the best movie player vs. a stand alone player. So they'll probably be planning to upgrade in the future... but it won't be worth the upgrade until the stand alone player is around $400 (because they could have bought a stand alone BR player for $1000 instead of a $615 PS3 + $400 stand alone player). Meanwhile, an HD-DVD player starts at $500 (cheaper than the PS3) and by the time a BR player reaches $400, an HD-DVD player will probably be $200 or less.

Now, I realize these two groups can overlap and good for them. But not for those who have no interest in gaming. For the "trojan horse" strategy to work, I believe they have to appeal to both groups and I'm not sure this is going to work out.

I think they're trying to please two different market segments and the problem is they can't be truly competitive in either market by doing this. This wouldn't be such a problem except HD-DVD is going to prove a fierce competitor and put a lot of price pressure on BR.

I also found it interesting that a key reason BR was backed by so many studios was because they were going to have 10 million BR players in homes via the PS3 in the first year and a half. The latest delay has called that into question:

From Sound and Vision:

I agree with that. The Home Theater buyer is already an upper end buyer because it is an upgrade over regular DVD, so they will want a very good player. If Sony puts the stuff in it to make it a very good player, it will cost, and the gamer will suffer because of the price. Definately makes me think they should just put in a dvd and compete on price. If they did, they would outsell the 360 in a hearbeat. But they want to overlap, and I don't think that if the PS3 is as subpar as a movie machine as the PS2 was that they will get far with that as the selling point.

While multiple discs aren't ideal, most people won't care if it's a good game. You never heard complaints about Final Fantasy and other RPGs on the PS1. No complaints over the handful of multi game discs on the Gamecube either.

Regardless of whatever you want to call it, the people who are forced to pay more for a feature they don't want are getting fucked.

If it's over $499 that is.

Then don't buy one. However, the games are supposed to be in BD format, as well. RPG players need the feature of greater storage space. And so does Japan for almost everything. Huge market over there, the US is really a secondary game market in the world. A big one, no doubt. But don't make the mistake of assuming every game or technological advance is because of the USA. Most are not. I guess if greater storage space means you get fucked, I'll sell you my PSOne to make you feel better.

But most of the discussions here this year are about the format wars. MOVIE format wars. The PS3 is a game machine first, and a potential wrench in the BD/HD-DVD movie war 2nd. That is why it is called a trojan horse, or whatever term people like. The question is, will the millions who buy this for the games take advantage of the new movie format and turn the movie war on its ear and win the battle for BD?

500 Euros = $500 in the gaming universe.

That is the way its been for over 10 years.

The Euro was introduced to financial markets on January 1, 1999 and was launched as a currency on January 1, 2002.

I don't see how Sony can put a decent BR player into the PS3 and sell it for as low as $600. If the first-gen BR players cost $1000, how on earth can Sony sell the PS3 for $600? The answer that occurs to me is the same as for the PS2 - the unit will be an awful, damn near unusable BR player.

Sony (nor Samsung) have ever said they needed to charge $1000 or what the cost to manufacture these players is. Perhaps there is a decent margain on the first-generation Blu-Ray players. It's not like this is an uncommon practice to gouge the early adopters.

There is some reason for gouging early adopters. It is so the business doesn't go under. Although someone as large as Sony could take a large hit. Here's some exciting accounting....

Most companies making products like this (call it Z) assume a certain number of sales at first, perhaps using a 2 or 3 year period where they have to make the assumption that Z might fail and never be made again. They then take most/all of their R&D costs and hammer the pricing for the first couple years of Z's existence. If they don't and it fails, they've just lost millions on R&D. Plus manufacturing costs will be higher at first, too. Pricing will be high because they try to recoup as much of that R&D cost as possible, even if the product fails.

If Z takes off (ie: DVD), prices will come way down in a couple years because the huge R&D is already paid off. Plus manufacturing demands will go up, and cost per unit will go down since they are making so many, eventually lowering price as well. DVD took off better than almost anything ever has, that's why we see such low prices these days, machines for $30, etc.

If Z never becomes that mainstream, or they don't want it to (ie: pro SLR camera lenses), it will stay high priced forever. The R&D will get paid off, probably in that same time period as a mass market product, but manufacturing runs will be limited so per unit cost remains high. So cost goes down somewhat, but price may never change. The somewhat lower costs will raise the margin (markup) from a tiny amount (or even from a loss, like the PS2) to the 45% that is common with most electronics.

I don't doubt that the margins may be high on the first-gen players, but even assuming the margin is 100%, then cost for a basic BR player is $500. The console parts cost of the PS3 is over $500 (cell processor, RAM, HD, video card, etc.). Can Sony take a $500 hit to sell this thing at $500? I don't think so. So that leaves us a crappy BR player in the PS3.

I'm just speculating based on the cost estimates that have been flying around and my experience with the PS2 as a DVD player. I'd love to be proven wrong!

CNET news says they estimate the cost of the PS3 (Bill-of-Materials cost) to be about $790: article here.

That is very interesting. They show MS taking about a $100 hit on each 360 currently. If that were similar for Sony, it would put the PS3 at around $699. There may be some decline in the price of the BR drives by the time Sony actually gets around to releasing the PS3 and they do have an added incentive in getting the BR drives into as many homes as possible, so maybe they can justify a $200 hit. That still puts it at $599.

Seems high for a console, but not bad for a BR device, assuming it is a better movie box than the PS2 was.

It seems like you might be mistaking my comments to be anti Sony or anti PS3. I'm not, I always buy all consoles and will own a PS3 and most likely watch BR movies on it. I was just stating that people who only want it to play games are going to have to pay more for their console when in reality it's not needed.

If you think Sony is putting games on BR discs so devs have more space, you are wrong. It's all about getting the format into homes. They aren't going to lose substantial money on putting a BR drive in so people can avoid playing multi disc games.

The US is the biggest market for gaming BTW.

There's only three ways I see the PS3 having a real effect on the format wars.

1. If there's a dramatic increase in HDTV sales by PS3 owners.

2. If the extra content on BR discs excites non HD equipped consumers to the point of buying the more expensive disc.

3. The format wars last long enough that HDTVs dominate SDTVs and there's a massive install base of PS3s. I think this is most likely what Sony is going for, but this depends on HD-DVD adoption rates as well.

Yeah, both these formats are going to need some balls to keep going. The opposite of Cablevision's Voom, for example. It's still relatively early in the HD era and they will need some staying power to survive. It's almost too early for HD discs to come out, due to the meager number of HDTVs actually in homes. They are going to be in the red for awhile.

This is one reason I tend to lean toward the BD side, I know Sony will continue to throw money at it for a long, long time. See Beta, MD, etc. If nothing else, they could outlast Toshiba. They have the egotistical tenacity and the PS3 to help that along.

Depending on how they relate their accounting, $200 under cost may be perfectly ok and still give them a profit overall. Accounting is semi-fictional, even when it is done legally. You use one set of calculations for figuring wholesale prices and then consumer prices. And other numbers come into play once actual costs and revenues happen.

But half the time with companies like Sony/Microsoft, they own the smaller company that they are "paying" for some of the parts. Obviously, not the graphics in this case, since ATI/Nvidia are separate, AFAIK. But the $2-300 for the BD drive is probably an internal transaction in Sony's case. This means there is some profit in another division that is not reflected in the cost/price of the PS3.

So, Division Playstation claims they are paying $800 for the parts and they are making sales prices and marketing releases off that. And, with current accounting law, that is correct and legal. But reality to Sony Corporate's overall bottom line may end up being more like $600 once you factor in certain ICs from different divisions. If it is $600 sales price on the shelf at Walmart, Sony is barely losing any money on day one. And once the cost goes down in 2007, they start making money real fast.

And, because this is all semi-fictional, I could be completely wrong. Everything I've just said could already be factored into the prices estimated in that article. Don't really know unless I get into the right drawer somewhere at Sony and check out some numbers. Which wouldn't happen.

Those are all very good and interesting points, Spiky...

The big question is how much can/will Sony be able to lose in order to get the "Trojan Horse" out there.

The Sony stockholders don't really care if Sony is paying a sister company to produce product. The bottom line is Sony is losing money and that can't go on for too long because it affects the health/stock price of the company. I believe I read an estimate that Sony would lose 2 billion dollars by selling PS3 at $200 below their costs. That's a big risk and if BR doesn't become the next big media format I don't know where that leaves them... if they lose to HD-DVD they've lost a lot of cash for nothing.

I guess the theory is if the PS3 didn't have the BR drive up front then they could minimize the losses (especially if most people buying a PS3 didn't care about HD at the moment). Then, those who wanted HD content could add on a BR player. But Sony may be too far down the road to reverse course now. It would definitely be a huge blow to Sony to remove BD from the PS3 at this point. It would be tantamout to admitting defeat.

That would assume they sell 10 mil units at that loss. Very possible. But how many games do they sell with those 10 mil units with $10 profit each? And at some point they start making money on the machines, too.

That's the gamble/strategy.

Big gamble in their financial situation. A $2 Billion loss without coming out the victor could cripple the company.

What's their financial situation?

My guess is that a 2 billion dollar loss would hurt, but Sony would keep being Sony. I know that not too long ago, most every division lost money except the video game arm, though.

It's a non-argument. If Bethesda can easily fit Oblivion on a DVD, then there are no legitimate storage problems, except maybe for those who like to utilize numerous CG cutscenes that take forever. Those are pointless anyway in this day and age. Even then I can't see it being a problem. I don't see any game being made for either console that will be bigger than Oblivion, which is absolutely massive.

Since the 360 already offers 720p gaming, which will be the case with the vast majority of PS3 games too, Sony's console offers no real advantage where gaming is concerned.

This explains all the extended DVD rereleases Sony is putting out.

I believe the movie division is still pretty strong. Sony's problem the last decade has been their huge losses in the home audio/video realm. The constant push to dominate with proprietery media has failed so far and companies like Samsung have taken away huge chucks of their TV and electronics business not to mention Apple pretty much killing the Walkman legacy. The Vaio hasn't really been a strong brand either. Blu Ray winning (and all the royalties that go with it) is part of Sony's long term plan to get back on top so they will do everything in their power to defeat Toshiba.

Sony has been pretty smart this time around with Blu Ray though and I think they will avoid all their previous mistakes with Beta, minidisc, memory stick, etc.

Pricing their players at twice the competition doesn't strike me as a smart move.

I always thought minidisc did quite well. It filled the transition period between portable CD players and MP3 hard drive players. I had two and I remember quite a few other people who had them at the time too. CD players were too big so it was the ideal choice before MP3 players came out with a larger capacity and at a reasonable price.

I don't think Blu-ray will make the PS3. I think many people will go out and buy it simply because of the name (given that the first two machines were so popular). £399 is exactly the start price I was expecting (we tend to get ripped off here in the UK). I'll be getting one for the Final Fantasy games (exactly the reason I bought a PS2 combined with the fact that my DVD had broken and a new standalone player was still about the same as a PS2 if not more at the time).