Phil Spencer: Don't Expect Console Prices to Come Down Like in Older Generations - News
by William D'Angelo , posted on 01 September 2023 / 7,774 Views
Microsoft Gaming CEO Phil Spencer in an interview with Eurogamer discussed the pricing of video game consoles and said not to expect the price of consoles to drop like they did in older generations.
"The prices aren't coming down. We see it now, and that's why we did Xbox Series S. I know there's a bunch of questions like, 'what is it doing?' We wanted to make sure we had a sub-$300 console because we want to grow, and we think an entry level price point for many new families or players coming into the market is going to be important.
"And then people say, 'Well, now you've created complexity, because you have two specs in the market.' But then we get into this world of 'I want to mid-gen refresh, so we should create more complexity by creating more devices.
"For us, thinking about where our hardware is going and reaching more customers, price point is important. But you're not going to be able to start with a console that's $500 thinking it's gonna get to 200 bucks. That won't happen. Because the core components that you use - you're used to Moore's Law shooting up and to the right - but your components... you can't buy them anymore as a hardware maker because nobody's making that kind of RAM or other components.
"It's not the way it used to be where you could take a spec and then ride it out over 10 years and ride the price points down. It's why you see console pricing relatively flat."
The price of current-generation consoles have gone up in many regions since they released in November 2020. Sony raised the price of the PS5 in August 2022 and Microsoft has increased the price of the Xbox Series X this month in most of the world to bring the price in line with the PS5.
Nintendo has yet to drop the price of the Nintendo Switch. The hybrid console launched at $300 in March 2017 and is still available for the same price over six years later.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.
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Well I would say not to expect sales to go up either.
If Sony gets the new modular digital model in for $399 giving people to get the disc at a later date, thats a win still
That is a win for Sony but probably not a win for you. Just think about it this way. Many gamers have complained about MS pushing consoles to all digital for years but it probably will be Sony that does it first. Customers are pretty predictable when it comes to attachments. A modular only PS5 where you have to pay to get the disc drive, the majority of gamers will opt not to purchase it. This will then prepare them when its not even an option the next gen. I just find it funny all the fear of a future a lot of people talked about MS ushering in will be done by the company they support the most and they will welcome it with open arms.
Depends on the sales, if the consoles stop selling they will drop the prices.
Sony might and Nintendo might, but doesn't seem Xbox will unless sales slow to a crawl. They upped the prices on the Series X in several countries this year while sales were already declining. Like I said before I don't think they are actually that focused on selling hardware anymore, they got Game Pass on PC and mobile and many of their games are even selling on competing platforms.
One thing that I haven't heard talked about Is that retailers are likely demanding a better margin on hardware now than they used to. As more and more sales move to digital, the incentive for retailers to sell hardware declines. They can't make money on software sales if those sales are digital. So, if Microsoft, Sony, Nintendo, or anyone else want retailers to stock their hardware, those retailers need to be able to make money on it. I don't know exactly how this is playing out, but as a business person, common sense tells me that it is occurring. Why would I want to deal with selling consoles for tiny margins if the buyers of those consoles are not going to come into my store and buy games later on?
Walmart might have been happy to make $25 on the sale of Xbox 360, because they knew that the buyer was likely to pick up a couple games at the time of purchase, and come back to buy more games later. But, they're not going to give shelf space and employee labor to a $25 sale of a current generation console, when 70% of software sales are digital. It doesn't make any sense for them. So, the platform holders have to turn it over to retailers at a lower price these days, so they can make a decent margin that justifies stocking the hardware.
translation: "we are not making money on game sales, we can't afford the usual subsidies, here are a few lies about console prices"
SSD and ram prices are half what they use to be, he is lying, saying prices can't come down
the SoC can be switched to 3nm and prices will also drop
smaller PSU, cheaper
remove the optical drive, cheaper
he has no ambition, no balls, I can't stand Phil, really
if he was very honest, he might say "the way we designed the Xbox Series X was a mistake, the design makes it hard to achieve cost reductions"
then he might want to do something different next time
Seems like they making the entry level Series S didn't make their sales bigger, it is even starting to get outtracked by X1.
The prices only aren't coming down because you aren't lowering them. If Sony can already afford temporary $450 deals on PS5, you likely can as well on Series X. And there is no way that the cost to build Series S is still high enough after 3 years on the market that you can't afford a price cut to $250, even temporarily, S sales have fallen by the wayside and you don't seem to be willing to do what needs to be done to move those S units.
Hardware in nearly every past generation was sold at a loss because console makers knew higher install base was more important, the more hardware owners the more people spending money on software, subscriptions, and official accessories, all of which sell at a profit, more than covering any monetary losses on hardware. A console maker gets 30% of every game sold, so if selling an extra 20m consoles over the course of a generation thanks to better console pricing would likely result in at least 100m more games sold over the course of the generation, you are making back all of that $50 lost on those extra 20m consoles and then some. Xbox controllers have an estimated build cost below $20 but sell for $60 on standard and $65 on limited edition designs, so if many of the buyers of those 20m extra consoles buy an extra controller for backup or co-op, Xbox is likely making at least $20 per extra controller sold even after retailer cut. Then you have extra Gamepass subs from that extra hardware sold, which while there have been debates for years about whether or not Gamepass is profitable, it is likely a safe bet that these days it is, as throughout all of 2023 Gamepass updates have been smaller than in past years, both in terms of the quantity of games added per update, and in terms of the number of big day one 3rd party deals, plus there was a Gamepass price increase recently, so Gamepass likely is profitable moving forward even if it wasn't before.
Even Microsoft can only subsidize hardware so much before its investors scream bloody murder. A drag on the bottom line of an otherwise profitable mega-corporation is still a drag on the bottom line. Microsoft isn't Santa Claus.
Yeah, but as far as we know neither S or X is subsidized all that much right now, if at all. The build cost for S and X have were both estimated to be around their release prices of $300 and $500 at launch in 2020, which after shipping and retailer cut would have meant a small loss on each at the time of maybe $40-50, but that was almost 3 years ago, they should no longer be losing money on hardware since build costs go down over time. If they could afford to lose $50 per unit then, surely they could afford to lose $50 per unit again now, at least on S, which has seen a massive sales slowdown, with just a trickle of S sales coming in at this point.
X doesn't really need a price cut yet as it still sells out pretty quickly, but S could really use the boost from a price cut, they have loads of S units just sitting on shelves. The S sales situation is so bad that the top Series S SKU on Amazon US right now is not one of the brand new S SKU's, but used refurbished S units that Amazon is selling for $278. S sales in Japan are way down (especially after they raised S pricing there for no good reason). Europe S sales are even worse than US from what I hear. S could really use a price cut to $250 or equivalent soon, definitely by this Holiday. I get that we are unlikely to ever see S for $200 like we saw Xbox One units for $200 last gen, but I really think they need to get it down to $250, and the sooner, the better.
There's a reason why prices are going up, not down. I seriously doubt that Phil wants to raise prices on Xbox hardware and put Xbox at an even greater competitive disadvantage with PlayStation and Switch. At best, they're barely breaking even on hardware. At worst, they're still losing money at current prices, and cutting prices more would upset their accounting department. Phil has to be able to make the case to the higher-ups and the investors that all these costs are worth it.
If that's still true, ouch. Xbox really can't afford to continue to eat losses like that.
I was highly skeptical of Phil's claim there at the time, I honestly feel like he is just covering for some greed from the number crunchers at Microsoft. If they really were losing $100-200 per unit 2 years after launch, which would likely be a $100 loss on S and $200 on X, they are getting big time screwed by their parts suppliers. For Xbox to lose $100 on S, the build cost would have to be about $350, with the other roughly $50 being the combination of the shipping costs and the cut retailers get on each sale. I feel pretty certain I could build a Series S equivalent PC for only about $420, and that is buying parts at retail, Xbox is getting parts in bulk straight from the manufacturers, there should be a 25-35% discount over buying the parts at retail.
Now X, I could see a bigger loss there, if PS5 was just breaking even at $500, X by comparison to PS5 has a larger silicon die powering it, a larger SSD, and a more expensive proprietary split motherboard. But I would be shocked if the build cost was more than $100 over PS5's build cost, and certainly not over a $100 loss per unit now, 3 years later.
On a similar point in time Sony was claiming they broke even with PS5 disc and lost about 50bucks on the digital while MS was claiming they lost from 100 to 200 on each console sold. So Sony being able to give temporary 50 discount doesn't mean MS can as well. PS5 have a lot more scale economy saving than Xbox (a thing we have been saying for a long time in VGC but is usually ignored).
No they can’t drop prices because Sony has a more efficient hardware design. 36 compute units vs 52 in the Series X, plus it has a more expensive cooling solution.
The fact that they wouldn’t even add a larger SSD to the Series S for free should be all the evidence you need of this.
Yes we know the Series X has more powerful hardware, hence the larger number of CU units.
It's not more "efficient" it's just a different approach.
NAND is a volatile commodity market, Microsoft needs to average out those costs and forcast for the future to remain profitable.
Remember, they are a business. Not a charity. Sony is the same.
The price of the series s is a bargain. They"re probably making a loss for each console.
I know it's not really relevant, but it's kind of funny to see this while Sony is offering some heavy discounts for the PS5.
I wouldn't call them heavy discounts given we're nearly three years into the generation, there've been no official price drops yet, and we've in fact seen price increases in most markets. Aren't most of the discounts in the $50-ish range? I think the best deal I've heard of was $50 off plus a controller? That's a great deal, but if that's the sum total of discounts for the first 2.75 years of the PS5's life, that's not a "heavy" discount IMO. :)
So he's just saying that the price of the series x will never drop from 500 to 200 like the xbox one did.
So they did the Series S because they knew prices wouldn't come down? Pretty doubtful they predicted the current economy back years before the generation when development on it started. This seems more like a fits well in retrospect sort of thing.
Not doubtful at all. Microsoft telegraphed that we shouldn't expect significant price reductions back in 2020, prior to the launch of the new systems, in a big Eurogamer interview.
But don't take my word for it, here's the link: https://www.eurogamer.net/digitalfoundry-2020-xbox-series-s-big-interview
Here's a quote: " "Moore's Law is certainly not dead! Moore's Law is continuing and we have a good path to 5nm and 3nm, and those are going to bring improved performance and good power," enthuses Goossen. "What they're not bringing any more is a good cost reduction cost per transistor - and so this has foundational impacts to console development, because now we'll get cost reductions, but they're slowing down and it won't be nearly the magnitudes that we've seen before."
The fact is that future nodes like 5nm and 3nm do deliver advantages then - and PC processors and GPUs along with smartphones can still benefit from those. But typically, consoles stick to the same performance profile across the generation. Goossen is essentially suggesting that leveraging these nodes for cheaper consoles may not be an option, which poses a difficult problem for the Xbox team going into the future with the intention of delivering even more powerful hardware. Processor performance is tied closely to transistor count - but if the cost per transistor is not reducing, a new chip with more logic will cost a lot more to make, even if it's actually smaller than today's processors. For the new consoles, a smaller, slimmer machine is a possibility - but the actual cost of making it won't change that much.
"And so that was another one of the reasons why we felt that we really had to do Series S at the beginning because we had to design for the future. For the first time, we had to have the entry-level console at the beginning. Previous generations were kind of easy because at the beginning of the generation, you make something really expensive - put as much silicon and as much performance as you could into it - then you would just ride the cost reduction curves down to mass market prices. That's not there anymore," Goossen explains."
high gasoline prices and inflation, a no brainer. Surprised cost not going up.
Phill should just stop talking, sony is doing it , its just excuses.
A lot of it is greed but also monitoring the market. I guarantee Nintendo would sell more Switch hardware over time if they cut the price by now, but they probably don't figure they'll make the same profit compared to a higher price. But that baffles me. Pretty sure quite a few people would buy more games in the first months with their new Switch if they only had to pay $199.99-$249.99 for a standard Switch.
But as Spencer said, part of it is the components now. Video game hardware is becoming much more standardized and less unique in its architecture.
Would they sell enough extra Switch hardware and games to make up the shortfall, though? Sales of hardware and software are still strong. While I'm sure they think it would be cool to say they outsold the PS2, they aren't going to sacrifice profitability for bragging rights.
They do all type of projections so you can bet they projected giving 50-100 pricecuts how many more consoles would be sold, them how many more titles would be sold and saw that the total profit would be lower so there was no point in doing it.
One point that hasn't been mentioned is we now have a situation where for various reasons the need for market share isn't as strong as in the past , in Sony's case they are going well and the PS4 demonstrated that they could sell large numbers while maintaining a steady price.
In Nintendo's case the move away from the other consoles that began with the Wii meant that once the Switch was a hit that lessening of outside pressure enabled them to look at maintaining a steady hardware pricing similar to their 1st party software .
Now in Xbox's case it didn't have the market share and steady sales that Sony had with the PS4 that lessened Sony's need to drop hardware prices overtime, nor could it stand alone on its 1st party and the unique nature of its hardware like Nintendo, so you may ask why isn't it driving down hardware prices to gain market share like in the old days, my answer is twofold one being that my post demonstrates that the old days no longer exist and two is MS and Xbox are looking to eventually forego hardware for alternative delivery of software solutions, so to them it makes no real sense to throw cash around in the slim hope that it may gain enough market share to make it worthwhile especially when it's something they don't see being the way forward for them.
If they have indeed done a lot of projections, it does make sense for no price cuts still.
Microsoft is in the unique position that they put also put 100% of their titles day and date on PC (and not just their own PC game distribution systems, but also on Steam which is a competitor in the PC space).
So if Microsoft doesn't sell you an Xbox, they may nonetheless get game revenue from you on your gaming PC, or even through cloud streaming.
So that reduces the incentive for Microsoft to lose money on hardware. And everything that we've heard suggests they are still losing money on hardware, so any price cuts (or other sales incentives such as bundles) would exacerbate that.
