PSP Winning while losing
Sales numbers tend to be the big scoreboard in the sky for videogame consoles. If your system sold more than the big rival, than your system is winning. No one really questions it, even when the sales numbers show an eery reality.
For example we will show the Playstation Portable. In an Ars Technica review, it was placed as much better than the Nintendo DS. In fact, the initial sales of the PSP vs DS had Sony winning very well.
The first year into the handheld sales, the PSP was either competing with, or outselling the DS. In fact, some predicted that the new Sony console would become the reigning champ. The Sony portfolio(Warning PDF) at the time had the best selling system, and a giant range of services. If you read that entire hand out, you find a beginning picture of the PS3 being shown.
The PSP was sold at a loss. In fact, most systems (Another PDF) at the time were selling like that. It is expected that at around the three year mark, the console parts drop enough, and the system sells enough software to turn a profit. Software sales are so important because they are cheap to make, and can compensate for the loss on hardware.
The Sony handheld console had some really amazing stuff for its time. You could transfer videos to the system. Sony owns a large part of Hollywood sales, and used this as a crux to get into the handheld market. The PSP also showed how Sony would jump into the flat screen market as it was moving up. In other words, the PSP was intended to move all of the markets up. Not only was this a success the first year, there was even a profit.
Until the holidays, the DS was being fairly outsold by the PSP. In other words, Sony was winning, and sort of enjoying it. The problem was, the system was a loss this entire time. Yes, it eventually lost to the DS by a hefty amount, but during the first year of wins, it was losing.
The exact numbers are unknown, but the loss means that the cost of design, and manufacturing of the system was greater than the sales. If a system sales are below a certain amount, the loss actually increases, not decreases. In other words, there was a three year plan for profitability, but that meant things had to work out as needed. As Nintendo continued to increase their game selection, the PSP continued to sell at a loss to gain players.
If this sounds familiar, it is exactly what happened for the Xbox 360 and Playstation 3. They sold well, but never made a profit. This is why you hear about the companies being told to shutter their console programs. The company is making amazing sales, but not selling enough to turn the profit needed.
As the PSP lost money, the sales began to dry up as well. This small bubble, is pretty well known. It showed up with the dot com era in the late 90’s. In fact it shows up again in the 3DS vs PSP Vita sales.
Speaking of which, during the time of the low 3DS sales, there were articles saying that Nintendo needed to get out of the market. The same was not said about the DS, but that was because of the very fast uptick during its time.
Want another example? XBox vs Gamecube. Xbox sold slightly more than the Gamecube, yet the Nintendo purple lunchbox came out with a profit, while the Xbox was billions of dollars in the red. In fact, it seems to be continuing even today.
The ability to sell more at a loss is a major gamble. Things have to work out according to a well made plan. If that plan does not work out, the company loses a great deal. What this means about videogames sales today is a interesting question. The problem is that the answer would likely come a few years later, when another bubble bursts.
