For today's musing I'm going to looking at a possible sales model for Sony's upcoming PlayStation 4 (to be announced February 20, most likely). While Sony hasn't mentioned anything with regards to pricing, if we look closely at modern technology business models, and Sony's own directions in recent years, the idea of selling the PlayStation 4 for free is not one that would surprise me if it eventuates.
The idea here is that, rather than buy the console for an upfront cost, Sony could consider offering a mobile phone-style contract that comes with a monthly bill. So for instance you take the PlayStation 4 home with you for free, and then pay $AU50 a month for the console and a PlayStation Plus subscription over the course of two years.
It's a sales model that Sony has already experimented with - I bought my PlayStation Vita that way last year. It's a sales model that benefits both consumer, and Sony itself. For the consumer a monthly bill is far more palatable than dipping into the savings. We're in an era where we pay for so many things via recurring bills that it's become a far more convenient way to acquire new products too. More and more we finance purchases rather than make them up-front, and indeed the idea of free-to-play gaming shows that as game consumers we're also happy to pay for things over time rather than up-front, so why not do that with our consoles as well?
It's also a sales model that Sony has been transitioning to for some time. If you consider Music Unlimited (a recurring monthly bill), PlayStation Plus (a recurring monthly bill for games) and the acquisition of Gaikai, a Cloud gaming platform (almost all Cloud platforms are monthly bills), then it shouldn't surprise anyone if Sony also went in that direction with hardware. Recurring income benefits vendors as it provides a guaranteed, stable monthly revenue. In the modern business environment a predictable income is preferable to taking gambles with one-off sales of products.
It also would allow Sony to make the console more expensive than if it were to sell it upfront. At a time where the Wii U is considered expensive, it's unlikely that Sony is going to want a repeat of the PlayStation 3 launch fiasco. At the same time, Sony's fans are expecting a substantially more powerful console this time around.
Rather than make the fans spend $600 in one go, Sony could split the cost over a two year contract, which will seem far less painful upfront, while giving Sony the same return over the longer term. By making the PlayStation Plus subscription a part of the contract price, Sony would also be able to sell the PlayStation 4 at a "high" total cost for a longer time, as the pressure for a price drop a couple of months after launch won't be there.
So don't be surprised if the PlayStation 4 is available for free at launch, even though it's likely Sony will also have to sell the console at a normal RRP for people who don't care for contracts, just as the PlayStation 4 will have to have a disc drive in it despite Sony's desire to move everyone to download-only gaming.
Note: as a reminder this is a hypothetical. I am not making any firm predictions here, but merely considering the possibilities and looking at what's been happening to the games industry and Sony from a market perspective.
38 comments:
And what do the retailers get out of this model? Nothing. Only way theyd agree is if they get a cut. Also you lock out under 18s. Also isnt the point of PS3 that multuiplayer is free versus xbox?
It will be a typical pricepoint. Id personally be suprised if $600 was because at the time all the hardware in it was new. Given the rate of adoption its not really resonable to request this now. Disposable item.
I don't know why people are insistent everything will be revealed at once. This never has been the case. You can't build up hype for something if you drop the ball
Ignoring the fact that Sony doesn't particularly care about retailers now, there's no reason to assume that Sony wouldn't offer the retailers some kind of kick-back. Functionally it's no different to how Sony needs to support the third party developers offering content up to PlayStation Plus.
And, as I said, Sony would need to offer a full-priced console box as well. The point was that I wouldn't be surprised if Sony offered a subscription model option to consumers this time around. Not that Sony would replace traditional sales channels.
They've already done it with the Vita after all.
It might be good for sales, but customers always end up paying more in the end with subscriptions. I'll stick to paying up front, thanks.
Well written article that makes me glad to be a gamer. If Sony does go this route, they will get my money. I love xbox and though I don't own a ps3 it has everything to do with party chat. I know sony is going to nail it this go around with respect to that. Both consoles will have a meaty price tag and the only way I see them being able to give us consumers what we want (Powerful hardware, mind-melting graphics, and what not) is to have the pricing scheme you are suggesting. It will be like mobile phone contracts, which would work out well. Otherwise too few would be sold and almost make it a bust for the gaming year. If they really wanted to make good money is just have a basic console, that you can upgrade like a pc with respect to a graphics card slot (much like the xbox has a slide in hard drive upgrade) that way you could continuously upgrade your graphics over the years. That being said both systems would have an incredibly long life and the only reason for a "new" console would be to update the motherboard and what not. In the end, sony will be getting my $1000 dollars this go around.
It doesn't work that way. The software (games) is designed for one hardware spec and one resolution/detail level. Making it upgradeable would turn the hardware and software into a PC.
They tried this years ago, Sega, Commodore. Hardware addons designs to boost your console that only worked with specific games. They were flops.
The consoles are designed for ten year lives now, there is no reason to make one upgradeable apart from storage The HDD slot was supposed to be superseded via cheap USB flash drives. Eeen the the storage aspect was a concession by Sony for two reasons.
The original idea was the PS3 would replace your home PC. This idea was nixed by launch time. They tried a similar tactic with PS2 and PS1.
The second idea is Sony is a CE company, not a software company.
They are experienced with fitting the right expansion or I/O to CE device and creating the ecosystem around it. Where as MS has a well, lets just say since this a public forum, quite a very aggressive approach.
Given the hardware issues both PS3 and 360 had yes for the USER it might be better to offer a subscription, it may save money if a console fails but they lose the option of selling a [disposable] console at full price.
Some users buy a console, use it breifly and then it lies dormant for months or years, as its supposed to do. A subscription model does not suit such users.
A hardcore dedicated gamer who has been through several consoles and has all the games won't care,much
Thanks Brad, glad you enjoyed the piece :)
Upgradable consoles is an interesting idea. The technology is there to make the whole experience painless now, which is what consoles need.
The inundation of peripherals proves that there are sustainable business models around "upgrades" too, so it will be interesting to see if Sony - or someone else - takes a crack at that.
Have you been following Sony of late? The company has been transitioning to a content-first strategy for some years now.
If Sony wanted to package up the PS4 with a movies, Music Unlimited and PSPlus entertainment subscription package, and sell it as a subscription with hardware included, then it is technologically capable of that.
Whether Sony will do that or not remains to be seen, but certainly there are signs there that that is Sony's desire.
That's why it would be great for Sony to sell the console both ways - for people who prefer either purchasing model :)
" If they really wanted to make good money is just have a basic console, that you can upgrade like a pc with respect to a graphics card slot (much like the xbox has a slide in hard drive upgrade) that way you could continuously upgrade your graphics over the years."
Brad, that would indeed just make the PS4 a PC, but with more limited service choices and a closed platform.
However, you make a good point with a problem that is starting to be discussed more: console iteration is glacial in the modern era of rapidly improving mobile tech!
I saw the conversation thread on the previous article: great point of discussion, especially in light of Microsoft already trying the subsidization strategy with the 360 last year. See
$100 XBox Subsidized through 2-year Live membership.
I assume (I just love how I can't even wait for the Feb 6 event before cranking out assumptions) the PS4 will sport a price around US$350-450 for the cheapest SKU. This is based on Durango's expected price strategy (following the 360's successful launch pricing at $299-399), Wii U pricing and Sony's strategic mistake pricing PS3 too high. Since Nintendo is already losing money with the hardware in the U, PS4 will surely loss-lead brilliantly once again but at least this time bluray is cheaper and they are using off-the-shelf parts.
So, with a $400 base console, how much could Plus be expected to knock the price down? A 1 year subscription to Plus currently goes for $49.99 so it follows that a 2-year package at $100 makes for a nice round figure. That would knock the price of a PS4 down to $300...still too high perhaps given the softness of Wii U sales.
There are three more bullets to consider as well:
1) Plus revenue doesn't all flow directly into Sony's pocket, it is split with the content providers similar to the Netflix or Spotify models. This is very apple-orangey, but Netflix margins for their digital business was reported in the low teens, say 12%. Where Sony's margin lies may well be higher partly because a lot of the content Plus offers is their own i.e. no licensing fee. Even then you can see that the amount of revenue a Plus subsidization, as currently configured, would make less of an impact then Microsoft receives for Live, a service where they charge more and reap all revenues.
2) Plus' value lies in offering slightly older titles on that platform, but at launch the number of "older" PS4 titles will be effectively zero. This casts doubt that Plus, as currently structured, could be a program offered at launch.
3) A service like Plus ties in neatly with matt's great article about game developer's vs time consumed. Exactly because Plus is a terrific service at a terrific value, its contribution to Sony and third party game sales could actually be detrimental. If I have great games to play, super cheap, on Plus it goes to follow I may purchase less new games. Great for me, bad for publishers. Its a conundrum!
Point 3 would be a fascinating topic to explore, but Point 1 and 2 are most relevant to this discussion. If Sony wishes to offer a subsidization plan to "bring down" the cost of PS4 for consumers the service they are offering as currently priced likely would not get the job done. It looks like they will have to address this, but let me ask you: what if Plus, through the power of Gaikai streaming tech, became a way to play PS One, PS2 and PS3 games with cloud saves and modern network integration? How much would a service like that be worth to you?
what about the other countries where retailers don't sell them to consumers on contract? It sounds this is just feasible in UK/US(also integral to succeed in sales) as most products are available on contract there without the upfront cost. I infact managed to own both Samsung S1 and S3 phones during my stay in UK. But as mentioned, other countries will continue to sell at a RRP, whether customers care or not.
Agreed. Consumers usually prefer an out of the box feature.
This is not an either/ or proposition, I suspect. If it was to happen, Sony would offer consumers the choice of either. Just as in some markets now you can choose a laptop or a data plan with a 'free' laptop.
It's a win/ win for comsumers, because in the current economy not everyone can afford an upfront cost, but a small monthly fee is manageable on top of the regular bills.
But yes, only the established markets of Western Europe, Japan/ Korea, US and Australia/ NZ are set up for this kind of billing model on a wide enough scale to work.
Which consumers? Certainly the younger demographics would, but remember the age of gamers is getting ever higher, and older consumers are more comfortable with annuity buying.
It'll be free alright, just like the supposed "free" games on PSN Plus. Sony bends the truth and is nothing but overhype that won't deliver.
retailers dont get anything out of it anyways. They dont make a dime off of console sales regardless.
retailers by consoles at price. They arent being cut out of the loop. They get a share with software sales.
@nitroware:disqus Hey NitroWare ass-hat, why don't you try reading, the author clearly stipulates this is his OWN speculation but provides some factual data to back it up.
When you purchase a mobile phone on contract, you get minutes and texts too. PSN is already free, so what can Sony offer?
People buy things and pay monthly because they are idoits, i.e. smart phones with cell phone contracts. In the end it just inflates the price of everything and makes those who use it less subsidize those who upgrade every 2 years.
This model of money-making is ridiculously popular, that it also extended into the software industry! Adobe sells a subscription that allows people to use all of their Creative Suite software for $50 USD a month ($30 USD for students), while Microsoft sells Office subscriptions for $10 USD a month. Very interesting trend indeed.
you know that's a great idea!
charge consoles for using in your house £50 per year
plus additional £10 to cover cost.
Until you mentioned it I wouldn't have thought about it. They do it with everything else why not video game consoles?
Yep, Adobe and Microsoft are definite forerunners in the Cloud subscription space - but there's others. Think about Dropbox and the like - online storage/ backup for a monthly fee, rather than having to keep buying hard drives.
PlayStation Plus, for one. Or a broader Cloud entertainment service that also includes Music Unlimited and a movies on demand service. Sony isn't doing the latter yet, but it's surely only a matter of time.
As I mentioned in the other story, your thoughts here are not wrong in the slightest, but they do assume that Sony considers each individual game to have individual value.
I would argue that Sony doesn't. To me it seems like Sony sees games the same way that Spotify sees music and Netflix sees movies: individually worthless, but the value lies in offering an on-demand library.
Onlive made the mistake of charging people for games on top of a subscription fee, but Sony has the scale to simply charge a subscription fee, I would think.
See, I disagree with this idea. It's been tried by both Sega and Nintendo and it didn't work well for either of the companies. Unless the upgrade is very significant and very cheap, you're only splitting apart the amount of consumers who can purchase the game. Also, this creates a lot of confusion amongst consumers as well, because many many people purchase videogames as gifts, and having a PS4 game that won't play on a PS4 (unless it's upgraded) isn't a good thing for the console.
I remember getting N64 games that I couldn't play without the Expansion Pack and it really sucked. What sucked even worse was once you spent the $100 USD to get the thing, it didn't really make much of difference.
Remember, you can add RAM to a console all day long, but unless you're replacing the GPU/CPU, you're not really upgrading the console in a way that will make it really worth doing so. I think this is a great "idea" on paper, but I don't think this is going to be a smart move for a home console.
In fact, I think this exact thing is going to be a hindrance for Valve's Steam Box.
Also remember that PS+ offers discounts on a lot of games throughout the year (on top of its Instant Game Collections and monthly freebies), which will bring even more profits for Sony on impulse purchases alone.
bullshit !!!!! why sony would ever do this and why you would even think this and write it up is complete rubbish.
That may be something in the future, but I don't see it happening now. Sony has shareholders to please and initially offering a free console would hurt their bottom line. Or that's the thinking from a business perspective. Consoles are hardly profitable anyway. Offering it for free instead of at a cost is too speculative I think for right now. A better console to offer that sort of plan would be a microconsole, like OUYA or the Game Stick.
Btw Matt, saw this article doing really well on N4G. Congrats! Next time give me a shoutout. :P
I don't think Sony's shareholders could possible be less happy with Sony right now, so it should be easy to get one more thing through :P
On a more serious note, I don't see why Sony couldn't position this in the same way that the telcos position phones to their shareholders: "give the low-margin stuff away because we'll make waaaaaaay more by locking people into 2-3 year contracts instead."
Sony has some amazing subscription opportunities with PS Plus its movie service and Music Unlimited. Leveraging the content to force an expensive new console into a market that isn't that interested in expensive gadgets by spreading the cost over a few years would be an argument I would be very happy to make to Sony's board on its behalf.
And thanks! I'll be sure to do so next time, promise ;-)
What if they made console games with alternate graphic specs based on the system you purchase i.e. (basic, standard, and premium?) you wont be forced to buy them like the expansion, but for us adults who have more money, I'd like to play with similar PC graphics without getting a PC. My textures would render at a higher quality bc I went premium.
as Sony's online model gets more labor intensive on their end I am pretty sure PSN won't always be free.
Brad, they already do...just look at the big-ticket PC games :)
The question your comment really brings forth is: why are you against getting a PC for gaming purposes? If this were even 2-3 years ago, I would heartily agree that the perceived hassle of that platform would be a deal breaker...In 2013 however, PCs offer a sea of content, new and old, from AAA to ultra-niche oh so cheaply and conveniently. Connecting a system to the main screen TV is now plug-n-play easy. The controller can be your trusty 360-pad.
I am no PC-evangelist by any means but the value there is now impossible for me to ignore.
You should be sM4Rt, like me, and buy an unlocked phone and prepaid cards! FTW!
I agree that the notion of "Games=Service" is a natural progression for the industry. Inevitable, even!
But does Sony "consider each individual game to have individual value?"
They absolutely do, at this point in time, as they are themselves content creators and publishers who invest significantly into content creation meant to be directly paid for and consumed. When the new God of War or Gran Turismo comes out, they expect the overwhelmingly large majority of revenues to be made off direct unit sales in the first several months.
I understand your point tho, and of course its great that they are exploring a variety of other business models such as games service with Plus and even Free-To-Play offerings. It would be fascinating not to mention brave of them to offer a service-oriented customer subsidization with a newly-released PS4.
In the US, they will definitely need to charge higher service fees tho. Perhaps, as a commenter mentioned, they will decide to attach a fee to PSN service and couple that with Plus for ~$25/month, 2 years contract with $200 base console. Thats $800 locked in revenues per-customer under such setup, minus content payments...
Exciting back-of-napkin math going on over here! :p
I agree. The transition from product to services won't happen overnight in the games industry. It's a transition that is happening now though. Whether Sony decides to pull the trigger now or later on is certainly up for question, but I genuinely think it's unevitable.
Until the transition happens in full the old business model will still be relied on. Consider it this way - the games industry has generally accepted that digital downloads will eventually replace retail box sales. That's a process that's happening now, but it hasn't happened immediately.
Games as services are a little behind that transition, but we're just starting to see the signs of it happening now.
It's a great future to think of! :D
Yep, I have to agree with Andrew's reply to you. We have PC's for this these days, and for about the same cost to the consumer.
Gaming consoles, by design, keep the game developers from having to work with multiple specifications. This makes the development times longer and more complicated - I just don't think this would be a smart idea for a gaming console. Developers like the set parameters of gaming consoles - why change that?
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