Activision Blizzard CEO Bobby Kotick sent waves through the industry when a month ago he publicly stated that he might have to consider ceasing support for Sony's PS3 if sales don't pick up for the hardware. He added that Activision also gets a better return on investment on Wii and 360. Sony chief executive Sir Howard Stringer was quick to shoot down talk of a price cut and he responded by saying that Kotick "likes to make a lot of noise." Even BioWare got in on the act, with Greg Zeschuk calling Kotick's PS3 comments "silly."
What does it all mean? According to the folks at DFC Intelligence, Kotick's statement of "concern" for the PS3 business points to how the console model in this industry is broken. Commenting on the news as part of his regular DFC Dossier, DFC Intelligence's David Cole stated, "When looking at the overall picture, Kotick’s statement seems less a threat than a tactic to start an argument inside Sony as to why the price of the PS3 needs to be lowered. In the bigger picture scheme of things it indicates how the traditional console model is broken.
"Companies like Activision Blizzard have relied on the hardware manufacturers to spend billions to subsidize development of the marketplace into which they sell their products. However, for Sony and Microsoft this business model no longer works as they sell their hardware at a loss and do not have a way to make up for it on software. Long term this is the biggest issue facing the established game industry."
Of course, as the industry goes more and more in the direction of digital downloads and games as services, the traditional console model will no longer be applicable and executives like Kotick won't need to worry about installed bases.
4 Comments
July 29, 2009
"However, for Sony and Microsoft this business model no longer works as they sell their hardware at a loss and do not have a way to make up for it on software."
Isn't this actually wrong? My understanding is that Sony and Microsoft charge publishers a fee for the game to be available on their consoles. I thought that fee was for exactly this reason - it's how they recoup their cost for hardware design and manufacturing.
As well, do they charge for their development SDKs? Could be they offer those for free to encourage development, but if not then that would be another income source.
Overall, Cole's statement "... do not have a way to make up for it on software" just seems incorrect to me.
July 29, 2009
I think what he means is that they don't have an efficient way to make up for it on software. I don't think he literally means they don't have a way to recoup costs.
July 29, 2009
The point of the original comment was, and has always been, about the fact that the PS3 has priced themselves out of the mainstream market.
Everyone is aware that Sony has begun cutting off supply of the 80G models, and that if there isn't some sort of a price drop, they can kiss their Holiday sales goodbye.
Where Cole's statement doesn't make sense is that it doesn't matter whether it's digital distribution or brick and mortar, software will still be sold and royalties will still be paid. In fact, more profit would be theoretically made off digital since the distribution costs are cheaper.
September 25, 2010
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