Microsoft and Sony don’t earn profits from consoles.

Posted: 2013/12/06 in Games, Modern gaming
Tags: , , , , , , ,

Thanks to research firm IHS, the bill of material and associated cost of next-gen now current-gen consoles are known, and neither Microsoft or Sony makes profits from the hardware sales.

PS4 & XBone consoles image courtesy of lachutechno.com

According to IHS, after spending $75 on the Kinect, $110 on AMD processors/GPUs, $60 on memory, then adding various other equipment, each Xbox one costs Microsoft $471 to manufacture. Taking into consideration the MSRP of $499, there’s only a meager margin of $28, that likely goes to retailer and transportation.

Still, Microsoft’s $28 is larger than Sony’s – the PS4 might sell cheaper at $399, but its production cost is even tighter to the MSRP, at $381.

Xbox One vs PS4 build teardown – image courtesy of slashgear

So, what are the companies expecting to get from the consoles? Certainly not only honor over winning a console war…

The answer is a two-parter. On one end, both companies are expecting to acquire extraneous income from games sales. Even third-party games are licensed to the consoles and brings revenue.

On the other end, the cost of hardware is deemed to drop as time goes, leading to more favorable profits. Experience demonstrates however that the consoles manufacturer will inevitably use that as a lever to reduce console price in hope of multiplying game sales revenue seen on the previous point.

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