Psp Hardware
Sony Confirms PSP Hardware A Loss LeaderDavid Smith
Whatever the system's initial price might be, Sony does not expect to turn a profit on sales of PSP hardware in the early stages of the system's lifecycle, Sony Computer Entertainment America head Kaz Hirai told Reuters news service in a brief interview at E3 last week.
"So if you're saying 'Day one, are you going to be profitable on the hardware?' then probably not,' Hirai said. 'Hopefully, this will have a 10-year lifecycle, at which point I'll look back and say 'Yes, definitely profitable.'"
That plan is in keeping with the traditional "razors and razor blades" business model in the game industry, where sales of first-party software and licensing fees from third-party software make up for a loss the hardware manufacturer takes on the system itself. Selling hardware at the lowest possible price pays dividends in the long run by increasing its installed base, and by extension increasing software sales.
Hardware manufacturers closely guard the exact profit margins of their consoles, but it's believed that Microsoft, for instance, still doesn't turn a profit on the Xbox, even nearly three years into its lifespan.
Hirai also noted that Sony hopes to use the PSP's Universal Media Disc format with other hardware, perhaps more inexpensive media-playing devices dedicated to movies and music. "We have very high ambitions for this new format," he said. "I don't think you can establish a format with just one hardware platform."
Sony has of course set no price for the PSP as yet, whether for its Japanese launch late this year or its North American and European launch early next spring, but we'll report any new details of its plans as they arise.
Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in 1UP.