US shoppers buying subsidised PlayStation3

US shoppers buying subsidised PlayStation3
By Chris Nuttall in San Francisco

Published: November 17 2006 00:14 | Last updated: November 17 2006 00:14

The thousands who queued outside stores across the US on Thursday night for the midnight launch of the Sony PlayStation 3, the most expensive of the next-generation consoles, will have a bargain on their hands, according to a new report.

The PS3 costs $499 in its basic version, but its parts and manufacturing expenses are costing Sony $806 – a loss of $307 per machine, according to the research firm iSuppli.

A $599 version with wi-fi connectivity and a larger hard drive is losing Sony $240 per unit.

Both versions are already seen as costly compared to Microsoft’s Xbox 360, which has $299 and $399 consoles, and Nintendo’s Wii, launched this weekend at $250.

But iSuppli says the PS3 provides more processing power and capability “than any consumer electronics device in history. Because of this, the PlayStation 3 is a great bargain”.

Nevertheless, the substantial loss Sony is taking on the machine is far greater than that sustained by Microsoft when it subsidised the launch of its Xbox 360 a year ago. The $399 version contained parts worth $525 – a loss of $126 per unit.

The console makers expect to reduce their losses on machines over the five to 10 year life cycle of their products as parts become cheaper, making break-even or a small profit possible. The bulk of their revenues come from selling or licensing game software for their platforms.

The PS3 is the only console to include a high-definition DVD drive inside, with Sony pushing its Blu-Ray optical drive in a standards war with Toshiba’s HD-DVD version.

Surprisingly, the Blu-Ray drive is not the most expensive part of the PS3, which iSuppli took apart to price each component.

That honour goes to the Reality Synthesizer, a graphics chip made by Nvidia and costing $129. The Blu-Ray drive costs $125 and a revolutionary Cell processor from IBM is $89.

“With the PS3, you are getting the performance of a supercomputer at the price of an entry-level PC,” said Andrew Rassweiller, iSuppli senior analyst.

Sony’s loss on the console could be many of its buyers’ gain. Although genuine fans had queued to buy the PS3 at midnight there were others looking to turn a quick buck.

More than 2,000 PS3s were already being listed for sale on eBay on Thursday, with one unit selling for nearly $3,000.

The PS3 is guaranteed to sell out in stores due to production problems causing supply shortages. Around 400,000 units were expected to be available for the US launch.