PS4 costs $381 to build, leaving only $18 profit margin for Sony

Sony isn’t exactly making a killing on their high tech, next generation gaming console, the Playstation 4. In fact, Sony isn’t even making $20 bucks for each PS4 they sell. The estimated cost of goods and assembly, according to AllThingsD, is a whopping $381. They’re selling the PS4 for $399. That leaves a measly $18 of profit margin, but don’t forget the costs of R&D, marketing, advertising, etc…

ps4-18-dollar-meme

On the one hand, that number should absolutely blow you away: Apple’s profit margin on the most recent iPad, for example, is estimated to be well over $200. Heck, forget dinner and a movie, you can’t even get dinner these days for less than $20. And considering the amount of entertainment the PS4 is likely to bring into your home and life, couldn’t Sony have charged at least $449 without too much decline in consumer demand? That $50 price increase would have added $50 million dollars to Sony’s bottom line in a single day.

On the other hand, the $18 profit margin is a considerable and surprising improvement from the profit margin of the Playstation 3. Those numbers were so pitiful that the term “profit margin” doesn’t even apply: Sony lost an estimated $206 for every PS3 they sold when the device launched.

Why build and sell such a high stakes product at a loss? To build an immense user base which you can then leverage and monetize. Software companies have made an absolute killing by attracting a massive audience to a free service and then monetizing those eyeballs (think Facebook, YouTube, etc). If Sony were to sell the PS4 at break even prices, you could argue they’re doing the same exact thing, only using their gaming hardware as strategic bait.

Consider Apple, a much more comparable competitor, who makes a boat load of money on fees and licensing from their iTunes product. They attracted a massive following with hardware and then monetized those consumers. Perhaps Sony thinks it can do the same and I don’t doubt them.

The stakes go further than just this generation of consoles, though. Where will gaming head in the next 5 or 10 years? How about the home entertainment industry as a collective whole? Where will Sony and Microsoft fit into that picture?

That battle is being fought right now, and clearly, affordable pricing to maximize customer acquisition is part of Sony’s strategy.

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  • Chad Guerrero

    Ok, now consider this, each XB1 has a blue ray player in it which is a Sony product. Every XB1 sold will add to their profit as well.

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    • robjackson81

      I don’t think they are “buying” it from themselves with this calculation. They’re likely taking the material cost, prior to tacking on the consumer premium.

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    • Fweds

      Even if Sony did get all the profit from blue-ray which they don’t it’s a group thing, think how much they are paying MS for all their PC OS etc and then their Android devices which MS rake in a fortune from because of the patents they own..

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  • DiFiasco

    btw the time you add in shipping and wholesale price, there is no way Sony is making any money on this whatsoever.

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    • Fweds

      .

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    • DeewekomsNY

      Lol yeah you’re totally right bro, they are doing this for FREE! No wonder why they come with so many problems, damn I think I’ll pay a extra 100 dollars for a console with no problems.

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      • Google

        probably not for free, less than that. If the previous generation is any indication, they are likely selling the PS4 at a loss hoping to recover from software sales. This time around, the loss per sale isnt so bad. When the PS3 first came out, they were losing $200 per sale

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  • DeewekomsNY

    It costs the person that made this article 380 dollars to make it. You really think Sony is paying the same dollar we pay for material, when they buy in bulk by the millions? Come on use your head.

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  • Sami Salonen

    449euros in europ so 607.40dollars. is that profit enough already? games will cost for ps4 70-80euros what is 95-108dollars/game. Now how you feeling ‘murican ppl?? i would say lucky bastards! And you know, there is other countries than america what you ppl always seems to forget. btw, hard to write in here finland cos im fighting with polarbear while typing this post. Now need to go feed penquins outside of iglu… (well +7degrees atm, no snow :( )

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  • Gameonfool

    Sony messed up again

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  • DeewekomsNY

    Lol looks like they won’t make enough profit to fix the current problems they have now, I mean it’s not like this company is even close to as well off finical wise like Microsoft. Microsoft spent over 1 billion dollars to fix RROD on 360, and here’s a article for you PS fan boys to swallow. Here’s my favorite part of the article, good luck PS fan boys. “While Microsoft could swallow the billion dollar damage, Sony’s not in the same financial position to do that.”

    http://www.lazygamer.net/general-news/is-there-a-playstation-4-hardware-disaster-looming/

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    • SwayzeGhost

      I heard Microsoft can swallow a lot

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      • DeewekomsNY

        Sure, I guess it’s better than getting ass raped with problems, and then can’t afford to fix what you had other people pay for. :D

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        • SwayzeGhost

          We’ll get to your father’s issues later…

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          • DeewekomsNY

            Ooooooohhhh good one bro, you must be thinking of a way of how to return your PS4 with your fathers credit card information. It’s okay Pinocchio, you’ll be a real boy some day.

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          • SwayzeGhost

            lol ok.

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          • DeewekomsNY

            The movie is probably older than you, it’s alright if you didn’t catch on.

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          • SwayzeGhost

            Whatever you say!

            Also: I’m really worried for you if the movie is not also older than you…

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          • DeewekomsNY

            Love how you had to make a edit, so you could take the time to wiki how old the movie is.. LMAO, bro it’s okay if your still 17 and your dad payed for your useless PS4, no worries.

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          • SwayzeGhost

            Oh well, I guess it’s better than making a failed joke without knowing how old the movie is first!

            Well, this was fun and a good distraction from work for a bit! But it’s getting a little pathetic how hard you have to try for someone to talk to you. Thanks for the laughs!

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          • DeewekomsNY

            Np

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          • Troy

            The movie Pinocchio was made in 1940, nice try though.

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  • Chris Aita

    They may not make the money off the systems, but absolutely they will with the games.

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    • Hipster Victor

      But the question is…will the console continue to keep on selling after christmas? Remember the Ps3 is still up and it may take up some sales for it

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      • Chris Aita

        You’re right; but given the overall excitement for the PS4 and it’s games (or lack of to some) I think it’ll be okay. The way they are handling the launch has been pretty decent so far. Given they sold a Million systems in North America on launch day alone, I think it’ll pave ground for the other regions as well. Besides that 18×1,000,000= 18 Million in profit in just a day. It’s not to shabby considering it’s one day. Besides that, when it launches in the UK which is arguably where Playstation dominates, I think the numbers could be even larger.

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        • starscream

          that is not profit… Profit is after you minus admin/operating expenses… -_- smh… anyway 18million is what you get after subtracting COGs.. Which is not gross profit. GP comes after subtracting all EXPs

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          • Chris Aita

            Right, calling that profit was an honest mistake. My bad.

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      • Chris Aita

        As for PS3, I don’t know if it will. It may be great value now, but it’ll be phasing out in a few years time.

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        • Hipster Victor

          Lol agreed, it’ll probably end production in 2-4 years

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  • MichelChartrand

    One thing to keep in mind though they may not make much, or any profit, on the consoles, they’re now charging a premium for online play, something many people did not do before. This is a new revenue stream that should not only pay for their servers but add to their operating revenue.

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  • Nothing5555

    better than taking a loss on each console sold. Making 17 million in 24 hours after release is pretty good to me.

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    • starscream

      You are clearly in the dark here. 18million in 24hours and that’s just with cost of goods sold. Now think about the other expenses they have and yea it won’t look to great.

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      • Nothing5555

        True, but at least they are not bleeding like they did with the PS3 release.

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  • Rob

    18$ profit ? It costs almost 400$ to make, what about retail, advertising etc ? I bet sony is making 100$ loss from each console. They sell it for 280$~ to retail, and retail sells for 399$, that’s how it works there. Normally retail gets 40-50% amount of the unit sold.

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    • DeewekomsNY

      Wow, people amaze me with their stupidity everyday, sorry bro. YOU honestly think they would make you and millions of other people a PS4 and not receive profit? That’s the most retarded statement I’ve heard considering Sony is already broke as fuck as it is, compared to other company’s. Sony doesn’t pay shit for material not even close to the dollar we would pay, you wanna know why? BECAUSE THEY BUY IT IN BULK, you know it’s a simple concept. It’s like being a drug dealer, if you have 1 Lb of weed and want to sell it for 2,000 dollars to make a profit, but another dude has 100 Lbs of weed and he would sell for 120k. If you have money you save money, that’s 80k profit, same way every other company works out in the real world. They usually buy by the MILLIONS..

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      • SwayzeGhost

        Lol, you must have gotten your business degree online over the weekend. Companies do things like selling items at a loss in order to sell other things at a profit. AKA: Sony hardware loses money, so Sony software can make money.

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  • Hipster Victor

    1,000,000 x 18 = 18, 000, 000, 000? Yep…this will be sony’s last full-fledge console

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    • kevin nun—-

      “1,000,000 x 18 = 18, 000, 000, 000? Yep…this will be sony’s last full-fledge console”

      Yo hipster, you did the math wrong. Try again

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      • Hipster Victor

        Oops my bad lol, i meant 18,000,000. But point is, the nex playstation might be a online service not a console

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  • companyoflosers

    i wonder how much cheaper the materials put into the ps4 are then because im pretty sure the xb1 is selling at a loss despite still not being as powerful. maybe its a difference in build quality or labor? sony DOES use the same chinese manufacturing company nintendo does thats been getting alot of heat for a while now due to some shady practices like employing underage workers and such. corners are being cut somewhere im sure.

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  • Chronic Gang

    What? They said they were selling it at a lost

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  • Brandon Ragland

    Don’t forget they charge you 50$ a year for PS plus. So you take the 1 million units sold, that adds up to 5 million right there. So if the PS4 sells up to 80 million units like the PS3, then thats 400 million dollars of just PS plus charging alone. And 80 million units sold just off 18$ is 1.4 billion isn’t it? So I don’t think they lost out to much.

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    • starscream

      LOL uhhh I seriously think you shouldn’t include PS plus numbers. Not everyone is going to have it so it’s irrelevant. Right now they are at a million in N.A. that’s a huge loss. We’ll see how it goes.

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