NXGamer: The price of next-generation?

Brohan · Jul 2, 2020

I feel like some are missing how powerful it would be for Sony's marketing if they can say: "Get the PS5 now! Starting from $399! "

Microsoft will be able to do the same: "Get the Next-gen series of Xbox now! Starting at $299!"

brawndolicious · Jul 2, 2020

What kind of person would be "converted" from physical to digital?

I ask because the market is already moving in that sort of direction and most game sales are digital at this point. So while some of us armchair analysts are projecting how much extra Sony/MS could make per game with an all-digital console, and expanding that over the consoles lifetime to predict the possible margins on dropping a disk drive, it may be that you're just selling a cheaper console to people who were already going to buy everything digitally anyways.

Between PS5DE and Lockhart, I guess you could try to predict their "conversion" rate based on the price and performance tier they're targeting? PS5DE would potentially convert gamers that want a better graphical experience and that have more disposable income. Lockhart might convert someone who doesn't care about 4K and is more persuaded by the cheapest price for entering next-gen.

Personally, I don't think there's going to be a big jump in digital sales between the full fat consoles and their siblings that don't have a disk drive. Another thing to consider is that brick-and-mortar retailers are more likely to run discounts on the models that have a disk drive as they know they might get future disk sales that way.

avaya · Jul 2, 2020

brawndolicious said:
What kind of person would be "converted" from physical to digital?

I ask because the market is already moving in that sort of direction and most game sales are digital at this point. So while some of us armchair analysts are projecting how much extra Sony/MS could make per game with an all-digital console, and expanding that over the consoles lifetime to predict the possible margins on dropping a disk drive, it may be that you're just selling a cheaper console to people who were already going to buy everything digitally anyways.

Between PS5DE and Lockhart, I guess you could try to predict their "conversion" rate based on the price and performance tier they're targeting? PS5DE would potentially convert gamers that want a better graphical experience and that have more disposable income. Lockhart might convert someone who doesn't care about 4K and is more persuaded by the cheapest price for entering next-gen.

Personally, I don't think there's going to be a big jump in digital sales between the full fat consoles and their siblings that don't have a disk drive. Another thing to consider is that brick-and-mortar retailers are more likely to run discounts on the models that have a disk drive as they know they might get future disk sales that way.

Full game software unit sales between digital and physical is near enough a 50-50 split for FY19 as per Sony (4Q19 was 66-34 due to lockdown). The value generation (gross profit) however is something like 80-20 nearing on 90-10 on total value of digital vs. total value of physical. Whilst they won't ignore physical entirely, since the contribution to gross profit is still in the 20% range for SIE, the actual contribution to that from brick and mortar is probably in the <10% range.

Shpeshal Nick · Jul 2, 2020

Digital $499
Disc $549

Manmademan · Jul 2, 2020

Brohan said:
I feel like some are missing how powerful it would be for Sony's marketing if they can say: "Get the PS5 now! Starting from $399! "

Microsoft will be able to do the same: "Get the Next-gen series of Xbox now! Starting at $299!"

Why would Microsoft sell hardware at a loss to get to $299 when Sony will easily speed past 130m consoles on a $399 console that rarely if ever got price cuts

Brohan · Jul 2, 2020

Shpeshal Ed said:
Digital $499
Disc $549

And let me guess, XsX at $499 and Lockhart at $250?

Brohan · Jul 2, 2020

Manmademan said:
Why would Microsoft sell hardware at a loss to get to $299 when Sony will easily speed past 130m consoles on a $399 console that rarely if ever got price cuts

I'm not sure if I understand your question. Are you saying the Lockhart wont be succesful at $299? Because i'm pretty sure that it will be succesful even if Sony does have the PS5DE at $399.

This current gen Sony got alot of help by Microsoft messing up with awful messaging and a weaker console that was a $100 more expensive. I don't think it is in any anyway comparible to what we are going to see this upcoming gen.

avaya · Jul 2, 2020

Manmademan said:
Why would Microsoft sell hardware at a loss to get to $299 when Sony will easily speed past 130m consoles on a $399 console that rarely if ever got price cuts

This generation will not be the same as the previous. There is no guarantee whatsoever that Sony will repeat PS4 sucess if MSFT undercuts them from the beginning. If you look at Sony's financials the implied ASP of the PS4 including the Pro is $251 for FY19.

disco_potato · Jul 2, 2020

avaya said:
Full game software unit sales between digital and physical is near enough a 50-50 split for FY19 as per Sony (4Q19 was 66-34 due to lockdown). The value generation (gross profit) however is something like 80-20 nearing on 90-10 on total value of digital vs. total value of physical. Whilst they won't ignore physical entirely, since the contribution to gross profit is still in the 20% range for SIE, the actual contribution to that from brick and mortar is probably in the <10% range.

Sony's fiscal year 2019 ended in march. Did those few days affect the spit that much?

avaya · Jul 2, 2020

disco_potato said:
Sony's fiscal year 2019 ended in march. Did those few days affect the spit that much?

Yes. I'm expecting the digital ratio to be 80%+ when they report calendar 2Q in a few weeks.

Cliff Steele · Jul 2, 2020

PS5 DE at 399 would be a megaton. And I sure as shit would buy one Day1. I'm already 100% digital on PS4.

Prine · Jul 2, 2020

Manmademan said:
Why would Microsoft sell hardware at a loss to get to $299 when Sony will easily speed past 130m consoles on a $399 console that rarely if ever got price cuts

Really unsure of that, given post-covid economic factors as well as better management of Xbox compared to how the current gen started.

Manmademan · Jul 2, 2020

Prine said:
Really unsure of that, given post-covid economic factors as well as better management of Xbox compared to how the current gen started.

Consoles are breaking sales records across the board during COVID and I believe it was Sony specifically who mentioned this.

So once again, if Sony can easily sell 130m units of Ps4 at 399, and do so being extremely resistant to price cuts- what incentive is there to take a loss to hit a 299 price point?

Hint: there isn't one. It's nonsense

BIG J · Jul 2, 2020

im of the opinion that if the consoles were less then 499, the price would have been announced

avaya · Jul 2, 2020

Manmademan said:
Consoles are breaking sales records across the board during COVID and I believe it was Sony specifically who mentioned this.

So once again, if Sony can easily sell 130m units of Ps4 at 399, and do so being extremely resistant to price cuts- what incentive is there to take a loss to hit a 299 price point?

Hint: there isn't one. It's nonsense

What you say is not true. They have not sold 130m at 399 at all. The price sold to retail from their financials makes this very very clear. The MSRP is a very misleading statistic.

MazeHaze · Jul 2, 2020

People expecting $399 next gen consoles are gonna be disappointed imo.

Pryme · Jul 2, 2020

Brohan said:
A $100 is a significant amount when it comes to the prices of these consoles. Lockhart selling for $299 would be a crazy good price considering what it's packing. While I personally believe Lockhart will be $299 regardless of a Potential disk drive or not, NX clearly said that he believes Lockhart could be $299 if it is also discless. So obviously he imagines the same subsidy for Lockhart that he imagines for the PS5DE.

Now why would Lockhart not be even cheaper than $299 despite being quite a bit weaker? Well for one I actually do expect it to have a disc drive. Secondly it mostly uses the same parts as the XsX except it has just cut down the amount. It will have 10GB ram instead of 16 and will probably have around 20 to 24 CUs or something I think. Of both these measures I believe the biggest reduction to cost comes from the RAM reduction. It will have a smaller SoC due to the smaller GPU but I don't think that will actually bring the price of the silicon down that much.

I actually believe that if it Includes a disc drive that they might already be selling the Lockhart at a loss if they sell it for $299 and will probably be closer to even if it doesn't have a Disc drive.

I guess that if MS really wants to be aggresive and don't care about loss that they could potentially go for $249 but that would be an insane scenario and I just don't see it happening.

Again my predictions are:
XSX&PS5 at $499
PS5DE at $399
Lockhart at $299

Will the PS5DE be more attractive to some than a $299 Lockhart? Yeah, probably. At the same time for those on a budget $299 is a really good pricepoint, especially if it actually has a Disc drive. I firmly believe it would sell very well at $299.

To reiterate my point.
Assuming Lockhart gets the same 'subsidies' NXGamer expects the PS5DE to get for dropping the Blu-ray drive. So you're saying
- dropping CUs to go down to 4TF, 4 - 5TF less than the PS5
- 6GB less RAM.
- Much cheaper cooling solution
- cheaper, smaller build

Fetches only a $100 differential? How is that feasible ?

It's telling that he didn't even bother to test with a very plausible scenario where the storage is dropped to 512GB.

NXGamer · Jul 2, 2020

avaya said:
How will they get to USD20-25 per unit in logistics and manufacturing? That is a lot of money. The biggest cost is shipping on the logistics front and they won't be saving a significant amount there since a physical version still exists and full game software in physical units is still around 50% of the market.

The BD cost, testing and licence fees aloing with Warranty forecasts would bring that in. The other is the Digital Unit will be 100% digital sales, so 100% of $59.99 for 1st party (of which they are publishing over 12 within the launch window) and 30% of $69.99 for many big Multi-plats, this is a much better margin with lower residual cost associated with the sale.

Thanos · Jul 2, 2020

NXGamer said:
Again, this sounds more like you than me, i have done so many videos and discussed the Xbox, hell even in THIS video I state that the S is designed to undercut the PS5 to steal Sony's Lunch.

I do not cheer lead, i just state facts and info and thoughts in my pieces. Give me an example of my bias then, I post videos on subjects I wish to talk about and may be of interest, nothing more.

I mean you did spend 11+ mins focusing on the PS5 disk-less SKU and you literally spent 60-90 seconds on Lockhart and gave zero details other than saying the savings for Sony would be $100 to remove disk but $50 for MS, blatantly contradicting yourself. So I think he was 110% spot on. Especially for a video titled "The price of next generation?". You would expect a full breakdown of all announced and rumored SKUs. If I didn't know anything about lockhart, I would still be clueless after watching your video.

I prefer DF and I think a lot of people do because they don't start from a conclusion and walk their way back. Which seems like what happened in the video. That's the only way someone can go 11 mins talking about removing the disk for PS5 and it leading to $100 and then just whisper that Lockhart can do the same thing for a $50 discount. I literally went wait what?

Brohan · Jul 2, 2020

Pryme said:
To reiterate my point.
Assuming Lockhart gets the same 'subsidies' NXGamer expects the PS5DE to get for dropping the Blu-ray drive. So you're saying
- dropping CUs to go down to 4TF, 4 - 5TF less than the PS5
- 6GB less RAM.
- Much cheaper cooling solution
- cheaper, smaller build

Fetches only a $100 differential? How is that feasible ?

It's telling that he didn't even bother to test with a very plausible scenario where the storage is dropped to 512GB.

Lockhart will probably have around 66% of the amount of CUs the PS5 has. It isn't a big drop really. The only reason the PS5 gets to 10tf is because of it's variable clocks. We don't know how much Sony's cooling will cost but I imagine with the PS5 being the size that it is that the cooling isn't expensive perse but just covers alot of surface area, probably on both sides.

So the Lockharts main savings come from having 10GB of RAM instead of 16 but we know that MS has chosen to use faster RAM than Sony so that might bring the price back up a little.

So if Lockhart has a 1TB SSD, a disc drive, 10GB of ram and only a slightly smaller size Silicon with 20 to 24 CUs instead of PS5's 36 CUs then Yeah I think it will probably be only a $100 cheaper than the PS5DE.

Edit: Really interested in seeing the BOM of both the XsX and the Lockhart. I think they are both more expensive to make than some think.

NZerker12 · Jul 2, 2020

After seeing the BS prices for NBA 2K21 from 2K, the digital only PS5 would end up being the more expensive system in the long run (in the UK anyway).

Spikemouth · Jul 2, 2020

Realistically though, no matter what the price of the consoles are people are still going to buy them as long as the content is there. Like the iPhone, the price keeps going up, but that hasn't stopped people from continuously buying them. The new consoles could be $1000, people will complain, yet people will still buy them and they'll continue to sell out.

Pryme · Jul 2, 2020

Brohan said:
Lockhart will probably have around 66% of the amount of CUs the PS5 has. It isn't a big drop really. The only reason the PS5 gets to 10tf is because of it's variable clocks. We don't know how much Sony's cooling will cost but I imagine with the PS5 being the size that it is that the cooling isn't expensive perse but just covers alot of surface area, probably on both sides.

So the Lockharts main savings come from having 10GB of RAM instead of 16 but we know that MS has chosen to use faster RAM than Sony so that might bring the price back up a little.

So if Lockhart has a 1TB SSD, a disc drive, 10GB of ram and only a slightly smaller size Silicon with 20 to 24 CUs instead of PS5's 36 CUs then Yeah I think it will probably be only a $100 cheaper than the PS5DE.

Edit: Really interested in seeing the BOM of both the XsX and the Lockhart. I think they are both more expensive to make than some think.

Interesting. So without a disc drive and 512GB storage, you'd peg it at $199?

Brohan · Jul 2, 2020

Pryme said:
Interesting. So without a disc drive and 512GB storage, you'd peg it at $199?

I don't see it go below $249. I think someone from the industry already said that $199 was not realistic and to forget it.

avaya · Jul 2, 2020

NXGamer said:
The BD cost, testing and licence fees aloing with Warranty forecasts would bring that in. The other is the Digital Unit will be 100% digital sales, so 100% of $59.99 for 1st party (of which they are publishing over 12 within the launch window) and 30% of $69.99 for many big Multi-plats, this is a much better margin with lower residual cost associated with the sale.

The testing and warranty costs are very low dollar amounts, they won't come into anything like 25-30 per unit. PS4 BOM was ~380, even when sold for 399 it was being sold at a small loss since manufacturing, logistics and retailer margin. Those sundry costs means PS5 including the drive is 450 BOM + 20-25 sundry = 470-475USD. Less the drive and associated costs with that it'll be USD440.

The MSRP difference between digital and physical is also misleading since games tend to sell at an ASP which is far below this amount, the difference between physical and digital is likely only $10 on average and you can see this from their financials. Moreover it is not clear that you are actually converting anyone to digital from physical (so many already buy digitally anyway) so the apparent incremental revenue is actually illusory.

Selling at 399 is a significant loss, possibly as much as USD40+ per unit, which implies a USD500m+ loss over the first 25m units (assuming 60% are DE). I'm not saying they won't do it, I can easily see them doing it but it will drag on overall margins since it could be treated as a sunk cost to guarantee 40m PS+ subscribers continue in the ecosystem. I'm almost certain SIE will have a USD1.2bn drag on gross profit from the PS5 launch year, in part from hardware and in part from increased marketing spend.

NXGamer · Jul 2, 2020

Thanos said:
I mean you did spend 11+ mins focusing on the PS5 disk-less SKU and you literally spent 60-90 seconds on Lockhart and gave zero details other than saying the savings for Sony would be $100 to remove disk but $50 for MS, blatantly contradicting yourself. So I think he was 110% spot on. Especially for a video titled "The price of next generation?". You would expect a full breakdown of all announced and rumored SKUs. If I didn't know anything about lockhart, I would still be clueless after watching your video.

I prefer DF and I think a lot of people do because they don't start from a conclusion and walk their way back. Which seems like what happened in the video. That's the only way someone can go 11 mins talking about removing the disk for PS5 and it leading to $100 and then just whisper that Lockhart can do the same thing for a $50 discount. I literally went wait what?

Maybe if you think about the fact the PS5 SKU is known and the Lockhart is not yet.

Thus I end up with other comments (and other factors) that tell me,

"Yeah, how do you even know that yet, it is not even out!" etc etc. I also state IF the SX goes Discless then price is $299/£249. As I do not know this part then it is unknown. Having a disc or not is more that just the hardware omission.

Also, remember the SX will still be a modern 7nm APU, with RNDA2, ZEN 2 8/16 CPU, GDDR6, SSD and associated Mobo, PSU, Thermal design etc. $299 for that or $349 is hardly poor value. Cheaper does not mean Cheap.

Also, what the hell is this?
"I prefer DF and I think a lot of people do because they don't start from a conclusion and walk their way back. Which seems like what happened in the video."

Do you think DF record the video in real-time and then get to the end and conclusion at the same time as you, the viewer. Come on now, your colours are showing.

avaya said:
The testing and warranty costs are very low dollar amounts, they won't come into anything like 25-30 per unit. PS4 BOM was ~380, even when sold for 399 it was being sold at a small loss since manufacturing, logistics and retailer margin. Those sundry costs means PS5 including the drive is 450 BOM + 20-25 sundry = 470-475USD. Less the drive and associated costs with that it'll be USD440.

The MSRP difference between digital and physical is also misleading since games tend to sell at an ASP which is far below this amount, the difference between physical and digital is likely only $10 on average and you can see this from their financials. Moreover it is not clear that you are actually converting anyone to digital from physical (so many already buy digitally anyway) so the apparent incremental revenue is actually illusory.

Selling at 399 is a significant loss, possibly as much as USD40+ per unit, which implies a USD500m+ loss over the first 25m units (assuming 60% are DE). I'm not saying they won't do it, I can easily see them doing it but it will drag on overall margins since it could be treated as a sunk cost to guarantee 40m PS+ subscribers continue in the ecosystem. I'm almost certain SIE will have a USD1.2bn drag on gross profit from the PS5 launch year, in part from hardware and in part from increased marketing spend.

Watch the video, I literaly break it down for you, not sure if you did or are just being intentionally obtuse as I never stated in that or my comment that a testing and warranty come to 25-30, I said around $2. The total of them including the drive and associated elements will be $25-$30.

Where is your PS4 BoM from at launch send me the link please of the data as I never seen this confirmed?

Again you are just saying the same things as me, Digital versus Physical sale cost is $10. The gap over this comes from the lack or greatly reduced cost of sale for Digital with a higher margin on 1st party AND 3rd party. This is was profit forecasts and sales planning is for to predict the market and gains from your decisions ahead of time. The Averare Sale Price for digital at launch and for a good deal beyond that IS the same and set by the platform, just check how much a physical copy of Fifa 20 sells for compared to on the Xbox or PSN store, tell me which offers the healthier margin?

Who said anything about converting to Digital, where did I say that? You are missing the point entirely, this is about controlling the market in that adopters of Digital Libraries and that ease and removal of physical connections makes them more likely to spend. PLUS they are controlled from day one to buy directly from the store, they have no other option other than Store vouchers and cards. Why do you think Nintendo have removed all sales of these from stores now. All these elements and much more come into the forecasts for the first sales qtr's and margins, the old logic of Stack it high and sell it low.

What is better as a business plan, Sell 2 Million consoles at $500 with a $20 loss and margin made up in those 2 million potential sales from Physical stores.

OR

Sell 4 Million Consoles at $70-$80 loss with all 4 million locked into buying from your store and the potential of all 12+ 1st party titles at $60-$70 and 3rd part 30%.

Speculate to accumulate.

brawndolicious · Jul 2, 2020

avaya said:
Full game software unit sales between digital and physical is near enough a 50-50 split for FY19 as per Sony (4Q19 was 66-34 due to lockdown). The value generation (gross profit) however is something like 80-20 nearing on 90-10 on total value of digital vs. total value of physical. Whilst they won't ignore physical entirely, since the contribution to gross profit is still in the 20% range for SIE, the actual contribution to that from brick and mortar is probably in the <10% range.

I didn't realize it was still half the market for PS4, I think it's higher on the other platforms.

Still, the question to think about is in what market segment would you find NEW digital buyers and how many games a year would they buy versus the consumers that were already in the mostly digital camp? I feel like the bigger the price difference between PS5 and PS5DE, the more you're enticing the consumers that don't spend that don't buy that many games but that's just an assumption I'm pulling out of my ass.

For MS, I don't see them incorporating more than an extra $50 price difference as that's what they did for the Xbox One SAD edition so they probably did the math and saw that for their audience in the sub $300 market, that's the discount that would make sense by dropping the Blu-ray drive. Even if they're taking a loss though, I think their hope is that both PS5s come in around $500 so they can market a $200 price difference.

tryDEATH · Jul 2, 2020

NXGamer said:
Again, this sounds more like you than me, i have done so many videos and discussed the Xbox, hell even in THIS video I state that the S is designed to undercut the PS5 to steal Sony's Lunch.

I do not cheer lead, i just state facts and info and thoughts in my pieces. Give me an example of my bias then, I post videos on subjects I wish to talk about and may be of interest, nothing more.

I don't really want to get into a tit-for-tat on where you're biased as it would lead me to get banned as you are very liked here, all I will say is that
your shift of content from a year ago to what it has been these last couple of months is much different with an extra dose of PS centered content taking main stage. I don't wish to further derail this thread.

Enjoy your day and keep making content.

avaya · Jul 2, 2020

NXGamer said:
Watch the video, I literaly break it down for you, not sure if you did or are just being intentionally obtuse as I never stated in that or my comment that a testing and warranty come to 25-30, I said around $2. The total of them including the drive and associated elements will be $25-$30.

Where is your PS4 BoM from at launch send me the link please of the data as I never seen this confirmed?

Again you are just saying the same things as me, Digital versus Physical sale cost is $10. The gap over this comes from the lack or greatly reduced cost of sale for Digital with a higher margin on 1st party AND 3rd party. This is was profit forecasts and sales planning is for to predict the market and gains from your decisions ahead of time. The Averare Sale Price for digital at launch and for a good deal beyond that IS the same and set by the platform, just check how much a physical copy of Fifa 20 sells for compared to on the Xbox or PSN store, tell me which offers the healthier margin?

Who said anything about converting to Digital, where did I say that? You are missing the point entirely, this is about controlling the market in that adopters of Digital Libraries and that ease and removal of physical connections makes them more likely to spend. PLUS they are controlled from day one to buy directly from the store, they have no other option other than Store vouchers and cards. Why do you think Nintendo have removed all sales of these from stores now. All these elements and much more come into the forecasts for the first sales qtr's and margins, the old logic of Stack it high and sell it low.

What is better as a business plan, Sell 2 Million consoles at $500 with a $20 loss and margin made up in those 2 million potential sales from Physical stores.

OR

Sell 4 Million Consoles at $70-$80 loss with all 4 million locked into buying from your store and the potential of all 12+ 1st party titles at $60-$70 and 3rd part 30%.

Speculate to accumulate.

I watched your video already :)

You have come up with a USD15 amount for "disc sale" and USD33 for "digital forecast", just trying to understand what those are.

PS4 BOM are widely available and was referenced in PS5 BOM by Bloomberg here.

First party is not a factor here, it has higher gross margin than 3P but fairly similar at EBIT/EBITDA for AAA.

You say the difference between physical and digital to the platform holder is not just USD10 and that this figure was conservative. It is not conservative. The incremental gross profit for Sony between both is in the USD8-10 range, that is it: 30% of 60 ASP = $18 vs. 20% on 50 ASP = $10, delta = USD8.

The point I raised was that the difference in physical vs. digital is illusory since 50% of the unit sales for full game software are already digital (66% in last Q). So it is not a calculation of all physical vs. all digital. Those buying the physical drive based machine won't be all physical buyers, they have choice just like PS4 users today and many will buy digitally.

If you take a USD40 loss upfront on the DE and the incremental effect of "locking in digital" is that the 50% of sales which are physical become all digital, then on average for a 10 game attach rate over the life that would mean you get an additional 5 titles at the higher digital margin. 5x8 = USDD40, but an NPV of that figure is USD20-25, which doesn't cover the USD40 year 1 loss.

There is also no data to support the assertion that all digital leads to higher attach rate, this seems more a self-selection issue where those who are most likely to be all digital tend to be the enthusiasts who spend more on average anyway.

The point is that selling at a USD40+ loss is a real loss . At 499 the first 5-10m units are probably locked in, at a push the first 12mths sales are locked in. The reason the DE would be priced well below BOM would be if Sony feels a significant threat from Lockhart to its PS+ and digital storefront share. It's not something that Sony wants to do willingly because it is an erosion of the total profit pool for them (and MS). For what it's worth, now that Lockhart is almost assuredly confirmed to have 10GB RAM, I see Sony hitting USD399 for the DE.

Shpeshal Nick · Jul 2, 2020

Brohan said:
And let me guess, XsX at $499 and Lockhart at $250?

Well Series X is definitely $499. I'm willing to bet my account on that one.

Lockhart? Who knows. I wouldn't be surprised if MS were dumb enough to price it at $399

Brohan · Jul 3, 2020

Shpeshal Ed said:
Well Series X is definitely $499. I'm willing to bet my account on that one.

Lockhart? Who knows. I wouldn't be surprised if MS were dumb enough to price it at $399

I'm pretty sure the base PS5 and XsX will be price matched. And like you I don't see the XsX at anything other than $499.

I don't think they will price Lockhart like that though. Would not be attractive at all and would make me lose my interest in it.

NXGamer · Jul 3, 2020

avaya said:
I watched your video already :)

You have come up with a USD15 amount for "disc sale" and USD33 for "digital forecast", just trying to understand what those are.

PS4 BOM are widely available and was referenced in PS5 BOM by Bloomberg here.

First party is not a factor here, it has higher gross margin than 3P but fairly similar at EBIT/EBITDA for AAA.

You say the difference between physical and digital to the platform holder is not just USD10 and that this figure was conservative. It is not conservative. The incremental gross profit for Sony between both is in the USD8-10 range, that is it: 30% of 60 ASP = $18 vs. 20% on 50 ASP = $10, delta = USD8.

The point I raised was that the difference in physical vs. digital is illusory since 50% of the unit sales for full game software are already digital (66% in last Q). So it is not a calculation of all physical vs. all digital. Those buying the physical drive based machine won't be all physical buyers, they have choice just like PS4 users today and many will buy digitally.

If you take a USD40 loss upfront on the DE and the incremental effect of "locking in digital" is that the 50% of sales which are physical become all digital, then on average for a 10 game attach rate over the life that would mean you get an additional 5 titles at the higher digital margin. 5x8 = USDD40, but an NPV of that figure is USD20-25, which doesn't cover the USD40 year 1 loss.

There is also no data to support the assertion that all digital leads to higher attach rate, this seems more a self-selection issue where those who are most likely to be all digital tend to be the enthusiasts who spend more on average anyway.

The point is that selling at a USD40+ loss is a real loss . At 499 the first 5-10m units are probably locked in, at a push the first 12mths sales are locked in. The reason the DE would be priced well below BOM would be if Sony feels a significant threat from Lockhart to its PS+ and digital storefront share. It's not something that Sony wants to do willingly because it is an erosion of the total profit pool for them (and MS). For what it's worth, now that Lockhart is almost assuredly confirmed to have 10GB RAM, I see Sony hitting USD399 for the DE.

Re the PS4 BoM this is the same thing as we all know, even in the article you linked " was estimated by IHS Markit to cost $381 to manufacture " It is not known and outside the relevant deal within the company this will never be a known entity as it could have been more or less.

I explain this in the video Re Disc + Logistics from Physical to Digitial is the $12 MIN I show in the video. The Margin on the sale is higher due to the reduced cost of sale + the Higher Retail across the lifespan. Digitial games reduce slower and less than Physical, this is not all based on day 1 sales you are thinking to short term.

Digital players spend more on average than none, forced DE owners are more likely to spend a % over the Physical buyers. $33 is an estimate, i.e. less than a full game but may actually be more from their data and forecasts. It is not the confirmation they spend more but that each sale OVER the first 1 earns a higher % on Sony's Revenue & P/L. Early adopters spend more on new games as an average when over the later lifespan, the fact here is every sale is $10~ higher ave revenue across the entire DE market, this is stable base to predict the sales on, maybe 4-6 attach rate within the first 6 months + what ever deals they throw in for PS+ and PSNOW to secure even more.

How is first party NOT a factor in sales, when the PS5 will have 12+ 1st party DIgital only, PLUS, purchase of PS4 titles within the same ecosysystem. No way this is not a factor for Sony forecasts, what is your logic here? The ROI for all 1st Party is the factor on Gross Revenue and profits, the higher margin factors into the GP. The other factor is the next gen may increase all games to $69.99 in Retail to match new Digital prices which will make the physical less attractive to drive higher adoption rather than lower Digital costs, raise Physical, again these MAY all be proposed plans within the new Generation.

Ignore the Physical buyers i.e. Disc this is not being subsidised in my equation only the DE model. The DE buyers are locked in so the revenue for each and every sale on these devices is gauranteed to be $8+ more per sale. This is the caculation to offset the loss leader overhead into the sale cost, they can literally bank on this for each 3rd party sale and they can bank on more for 1st Party sales which will include further PS4 titles within the market, this is the operandi they and all companies use to supplement the market growth.

I totaly agree Sony do not want to sell something at a loss, this is exactly why competition is the best thing and the DE exists BECAUSE of this very fact. The problem they have is they have spent X millions on producing Stock to sell into retail months ahead of launch, the longer these are not earning them revenue, they are losing them money over the Capexed element of the depreciated value terms they have based it on. These and other elements drive the decisions and they will be losing money on each and every DE box (and likely a small amount on the Physical one) but the target is faster R&D return and minimise the loss they will likely post next Qtr.

To be clear MS will be as factored into the above logic and process as this, maybe moreso, as they are already largely orientated to a SaaS revenue and business model. Sony is really pushing to join them here with the new gen and the DE is the first clear signs of that being a serious core element within this plan.

Shpeshal Nick · Jul 3, 2020

Brohan said:
I'm pretty sure the base PS5 and XsX will be price matched. And like you I don't see the XsX at anything other than $499.

I don't think they will price Lockhart like that though. Would not be attractive at all and would make me lose my interest in it.

Lockhart is DOA at anything above 299

arsene_P5 · Jul 3, 2020

NXGamer said:
I do not cheer lead, i just state facts and info and thoughts in my pieces. Give me an example of my bias then, I post videos on subjects I wish to talk about and may be of interest, nothing more.

Just to give my thoughts on the discussion... I don't think you are a fanboy period and i appreciate you making these videos, even thought I dont agree with everything you say. But that's whats great imo about content creators like you or DF and I like to discuss with gamers on this forum. However I think sometimes it shows you prefer playstation a bit and that's totally fine by me. The user you discussed this with took this way to far and there was no need for this. Keep up your work :)

Anastasis · Jul 3, 2020

Love your analysis and videos NXGamer!

You said in your video (around 12:48) that you were surprised that Sony went digital to get to $399. Do you think that the DE was something Sony always had planned or as later development whether due to a higher BOM than expected or the rumors of the series S?

I agree that MS will launch at $499. They have been sticking to $499 throughout this generation as MSRP, even if they have constant sales reducing the price to well below (sometimes even by half).

regenhuber · Jul 3, 2020

BIG J said:
im of the opinion that if the consoles were less then 499, the price would have been announced

This.

RogerL · Jul 3, 2020

NXGamer said:
- - -

The Drive cost reduction itsef I think around $20-28 is the range as stated, the UHD drives are slighlty more than a BD or DVD drive, that said no one can know unless you invlolved in the DEAL itself. This is why I state guesstimates, the main point is they can easily get to $50 between main hardware, Logistics, manafacture pipe alone. The other $50 would be a decent loss leader still for the Digital edition due to the upward trend of digital sales and higher margins on that. The price reveal for both will be interesting to see just what each are willing to absorb to start the gen strong.

I think this is analysis is solid - big companies that sell millions of their hardware does analyze life cycle costs.

Diskless, HD-less reduces repairs a lot, fanless would too - everything that moves, with or without an engine, is more likely to break down than electronics that just sits there...

Releasing a diskless now rather than later also helps their pricing scheme - they keep the price more or less the whole generation PS4 slim still costs $349 - waiting to buy will not give you that much lower price. I thought they were aiming for $399 for standard PS5 with disk, even if BOM said it would be tough, but prices from agents are not the same as buying millions and millions directly from the maker.

SONYs strategy is smart, they should have potential to keep these prices the whole generation (assuming $399 and $499)!

chris 1515 · Jul 3, 2020

NXGamer said:
The BD cost, testing and licence fees aloing with Warranty forecasts would bring that in. The other is the Digital Unit will be 100% digital sales, so 100% of $59.99 for 1st party (of which they are publishing over 12 within the launch window) and 30% of $69.99 for many big Multi-plats, this is a much better margin with lower residual cost associated with the sale.

Don't know in US but in Europe digital version of first party title are 69,99 euros.

EDIT: I think Lockhart will be 299 dollars/euros.

NXGamer · Jul 6, 2020

chris 1515 said:
Don't know in US but in Europe digital version of first party title are 69,99 euros.

EDIT: I think Lockhart will be 299 dollars/euros.

Digital pricing can be very odd at times, but 69.99 is becoming more common. I think it will also be $299/Euro if Digital only the area only remains on their plan for it being Digital only.

NXGamer: The price of next-generation?

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