Why Is Sony OK With Taking a Loss on PS4′s Launch?

PlayStation 4 Hardware

It’s long been known that Sony (NYSE:SNE) expects to take a loss on hardware when the PlayStation 4 is initially released. But for the electronics company that saw their stranglehold on the video game console market shrink in the previous generation, a loss of revenue through hardware is being seen as a necessary step to take the lead in the next generation of consoles where early users can mean everything.

Sony Japan executive Masayasu Ito told videogame publication Eurogamer on Friday that while Sony will operate at a loss on hardware alone, the company will recoup most, if not all, costs when the average consumer purchases at least one game and a PlayStation Plus subscription along with it. As for the specifics of Sony’s operating loss on hardware, Eurogamer cited reportedly “well-placed sources” that said Sony expects to take an approximate $60 loss on each $399 PayStation unit at launch.

The average purchase of at least one PS4 game and PlayStation Plus would immediately add at least $60 to initial sales for Sony and Ito also explained that, even without the purchase of games or Playstation Plus, PlayStation 4 would actually turn a profit sooner for the company than the PlayStation 3 did.

 

xbox-one-xl

Andrew House, Sony Computer Entertainment president and CEO, said last month that launch-related losses for the PlayStation 4 are expected to come in lower than the those for PlayStation 3. “We will not generate anything like the losses we did for the PlayStation 3,” House told Bloomberg in early August.

Even if Sony was operating at a loss similar to PlayStation 3, if the company’s learned anything from the previous console generation it’s that overly expensive hardware can negatively affect a new system’s user-base. A combination of expensive hardware and a lack of popular software when the PlayStation 3 was released led Microsoft’s (NASDAQ:MSFT) Xbox 360 to take an early lead in the console battle before Sony began to catch up towards the end of the generation.

Sony has also learned that timing can be anything. Sony’s PlayStation 4 will be released on November 15, 2013 in North America and November 29, 2013 in Europe and Australia. As part of the eighth generation of videogame consoles, the PlayStation 4 will be up against Nintendo’s already-released Wii U and Microsoft’s Xbox One. Microsoft’s newest console, which will cost $100 more than the PlayStation 4, is set to be released on November 22, 2013 in North America while Japan and any remaining European markets get a release in early 2014.

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