Console price war looms

ROBBIE BACH president of Entertainment and Devices at Microsoft, has been discussing the inevitable price war between Sony's Playstation 3 and Microsoft's Xbox 360.

In an interview with the infamous Dean Takahashi at the San Jose Mercury News, Robbie Bach believes the looming console price war will decide the outcome of the battle between the two gaming giants.

Speaking to Takahashi, Bach said, "You have look at the economics. You have to ask the question, over the life cycle, who has the cost advantage? Who can price most effectively? Who can reach the price points quicker? That has a huge impact on what gets driven."

He added, "Because we were out there first, we have a bigger installed base of consoles. We can drive down the manufacturing curve sooner and faster. And because we designed a box that was fundamentally easier to manage on costs, we're going to have that advantage."

Bach also suggests Sony is spreading resources thinly. "You know, and I think Sony, frankly, suffers a little bit from this problem, which is they're spread really thin across all these areas. And trying to do PSP, competing with Nintendo, PSP to DS; competing with us, 360 to PS3, I think it does strain - it would naturally strain any organization."

This coming from a Microsoft employee, a company responsible for the Xbox, Zune, Office, various hardware/software, and a five year wait for the new iteration of Windows.

The price reductions and economy of scale Microsoft is seeing, has recently been backed up by 'Applied Market Intelligence' company iSuppli.

iSuppli estimates that the total manufacturing cost of the premium model PlayStation 3 with 60GB HD comes in at $840, which retails at $599 - meaning a loss of around $241 per unit sold. The entry-level PS3 with 20GB HD and no Wifi delivers an even bigger loss, as it costs $306 more to build than its current RRP of $499. Factoring in the profit expected at retail increases the likely loss Sony is incurring.

You can see the full component break down here.

Originally iSuppli had estimated that Microsoft was losing around $125 per console on the launch of the 360. Now they are claiming Microsoft is actually making profit on each console sold, to the tune of over $75. This is in line with Microsoft's claims and sources in Taiwan, previous to Bach's interview with the Mercury news, that the 360's costs had been driven down to a significantly lower level.

Considering console manufacturers generally take a hit per console, it's very likely we'll see a price drop in the near future.

We've said numerous times that Microsoft were planning a price cut, but despite rumours of a Christmas price cut from elsewhere, we've stuck to the suggestion that the drop will occur at the end of Q1/Q2.

This will coincide with when the PS3 is readily available, and Sony has production in full flow.

Seeing as how the 360 has a year lead on the new Playstation, Sony's current manufacturing problems, and the $300+ discrepancy between the costs of each console, it's hard to see Sony ever producing a PS3 at anywhere near the pricing of an Xbox 360, at least not until the very end of its lifespan. µ

See also
PS3, Xbox receive batterings
Xbox 360 mugs punters
Hot 360 titles and PS3 problems exposed
Playstation 3 dissected and analysed