Great Moments in Games Journalism - Sony Baiting

Sony calls in the lawyers over fanciful price gouging allegations.

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By John Gillooly on 28 January, 2009

A little knowledge can be a dangerous thing. One of the unfortunate side effects of consoles becoming media playback devices is that it opens the floodgates to assumptions that come from the consumer electronics world.

Key is the razor and blades business model. Both Sony and Microsoft sell consoles as ‘loss leaders’ (priced below the cost of manufacture) and money is then made back by game sales. It is a delicate balancing act, but it also drives the console makers to support game development rather than just pinning profits on the console. Nowadays, Nintendo operates off this latter model. It has always made money when someone buys its console.

This works really well for Nintendo. While the Wii has had massive unit sales, there are a lot left to gather dust once the glee of Wii Sports wears off. It may get dug out again for a new gimmick, like Wii Fit, but Nintendo doesn’t have to actually sell games in order to make money.

The consumer electronics industry operates like Nintendo. This makes the Wii a lot easier for those from that realm to understand. It also makes for some moments of patently wrong logic when looking into how Sony and Microsoft operates.

Take this gem of an article, for example (apologies for linking to a site with such intrusive advertising). In it, the Australian boss of Sony Computer Entertainment, Michael Ephraim (a long-standing industry veteran), is quoted losing patience with the author of the article, David Richards. It revolves around Richards alleging Sony is price gouging the consumer with its PlayStation 3 pricing – completely ignoring the fact that Sony doesn’t actually make money on the console itself.

If anything, one of Sony’s major competitive disadvantages is that the PS3 is more expensive than the Xbox 360. This isn’t a good thing when using the razor and blades model, as price does indeed matter when getting hardware into the hands of the masses. It is a bizarrely illogical circumstance in which to find Sony ‘price-gouging’. In the end, a higher console price means less uptake and less game sales.

From a logical perspective, one would assume that, regardless of the factors mentioned by Ephraim in his reply, Sony can hardly price gouge on a product it is selling at a discount. Follow that up with incorrect allegations that Sony was region coding its software, and one wonders why anyone would believe it.

The rest of the article focuses on the PS3 and price-parity with Blu-ray players. When the PS3 was released it was the cheapest Blu-ray player on the market, now it sits at a markedly higher price than stand alone players. The article actually dismisses the fact that Blu-ray playback was never supposed to be the primary function of the PS3. If anything, it’s a happy value-add that comes from the use of Blu-ray as a game delivery system – one is paying for a lot more than the ability to re-purchase their DVD collection in higher resolution.

Games consoles may well be occupants of the living room, but they aren’t DVD players. Sometimes, it really pays to remember that before the lawyers are called.

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