Koo’s Corner

Awhile back I read an article about how Sony has lost 3 billion dollars on the PS3 (2.16 billion in 2006, 1.16 billion in 2007). The artile does point out that losing money on gaming hardware is actually normal (money made on software) and PS3 sales have been better in 2008.

Regardless of what the bottom line says, the PS3 will end up being a huge cash cow for Sony. Why you ask?

Royalties, blu ray royalties.

I blogged pretty extensively about the HD format war between HD DVD and  Blu Ray and accurately predicted their demise and subsequent surrender. So while accountants and Wall street throw stones at Sony for bleeding money, you have to consider that the PS3 was essentially the biggest difference maker in the format war.

With blu ray prevailing, the Blu Ray consortuim (1/3 of IP believed to belong to Sony) can sit back and collect money as the technology is slowly adopted. CNET has a great article about the royalties Sony will be seeing.

The article points out that hardware manufacturers had to pay $15-$20 in royalties to install DVD drives in computers, dvd players, cameras, etc. But for every player in the market came dozens or sometimes even hundreds of DVD disks. Royalties for the disks ranged from 7 cents to 4 cents over the years.

While Sony will only get about a 1/3 of these hardware and disk royalties, Blu Ray via the PS3 is entrenched to replace DVD in terms of consumer adoption sometime in the next 3-6 years. Its going to take time but as more shelf space at Blockbuster, Best Buy, Circuit City, push Blu Ray Players, and the the Blu Ray drive begins shipping in new computers, its only matter of time until Sony dwarfs their loss with substantial profits.

Reports are surfacing that Toshiba backed HD-DVD will throw in the white towel following a string of setbacks that have unfolded in 2008.

Back in December I predicted that sagging HD DVD sales would help the biggest studio, Warner Brothers, switch becoming a Blu Ray Exclusive studio.

A month later Warner Brothers did make the switch, tilting the playing field heavily in Blu Ray’s favor.

[youtube=http://youtube.com/watch?v=ywWfmRdOmJ0]

In the following month corporate America opted to accelerate the death of HD DVD hoping to end the next gen format war.

In Late January , Woolworths, the biggest distributor of UK electronics decided to exclusively back Blu Ray with Best Buy and Netflix making similar commitments in the following weeks.

I had planned to write up something on the eminent demise this weekend only to find out that Wal Mart, the biggest domestic seller movies and players had also joined the Blu Ray party.

With the onslaught of setbacks, Toshiba will allegedly throw in the white towel early next week. Its been a fun, intriguing, and hard fought battle between Sony and Toshiba. Its been intriguing to see the corporate game of chess played with Fortune 500 companies filling up the board as all the major studios (Fox, Disney, Warner Brothers, Paramount, Unviersal), retailers (Target, Blockbuster, Wal Mart, Best Buy, Netflix), and hardware makers (Apple, HP, Microsoft, Samsung).

You don’t have to be a tech guru to know that the Apple Iphone has been one of most commercially successful products of 2007 while the Sony PS3 has struglled to perpetuate Sony’s strangle hold on the video game console market. As owners of both products I wanted to bring some perspective for why the discrepancy between two products that I both adore.

First off I wanted to say that I don’t think pricing is the key reason why the PS3 has stumbled, as 1.5 million people have purchased Iphones despite cheaper alternatives. To me its 100% marketing execution. Check out this video below which mocks Sony’s marketing efforts in a song called “How to kill a Brand”

The Iphone and PS3 are actually very similar. Both initially launched at $500 and play videos, music, photos, with ability to browse the internet. Both offer extensive functionality besides its key use as either a gaming console or cell phone, justifying their high price tag for the devices. However Apple took it upon itself to really show off the Iphone’s robust functionality and user friendly interface. Sadly Sony didn’t, thus it was up toconsumers to hit stores and the internet to learn more about the expensive gaming console. Interest never matriculated in the PS3, but it sure did in the Wii as typical non gamers were now taking a hard look at this fun new product.

Below are 2 examples of how Apple has taken it upon themselves to educate consumers on their product and 2 examples of Sony missing the mark with their initial ad campaigns.

Apple has since refreshed/reinforced these ads with a new round of advertisements with Iphone owners describing various success stories with their Iphones in front of a black screen.

Here are Sony’s first ads for the PS3. Notice that not only do you not learn jack about the product, but also how its creepy and more likely to make you change the channel.

Essentially Sony was unsuccessful in creating any consumer buzz. Although PS3 shortages were documented all over the country, it became apparent that the PS3 hype lacked longevity mainly due to a marketing campaign that failed to differentiate their product as was as educate the main stream market of the value and benefits of the PS3. Its really a shame too as countless friends of man have marveled at how cool of a product it is.