NEW YORK – Consumers resigned to shelling out $500 or $600 for Sony's PlayStation 3 video-game console might be surprised to find out that even at those prices, the electronics company is still losing money on its all-the-rage product.
The exact spread between production cost and retail price — the size of Sony's loss — depends on the specific model in question.
The console with a 20-gigabyte hard drive costs $805.85 to make and sells for $499 at the register, for a loss of $306.85, according to iSuppli.
The higher-end 60 GB unit, with built-in Wi-Fi and other amenities, does slightly better, with a loss of $241.55, stemming from production costs of $830.25 against a $599 pricetag.
These losses aren't unusual in the video-game business. Most consoles are financial losers initially, but the manufacturers more than make up the shortfall over time through licensing agreements with game publishers, as well as selling second controllers and other accessories. And as time goes on, the components and processes used to make the consoles become less expensive.
Sony (SNE) has already played the loss-to-profit game with the PlayStation 3's predecessors, the PlayStation and PlayStation 2.
In an interview with Bloomberg, Jack Tretton, co-chief operating officer for Sony Computer Entertainment America, said both of those products became big winners over time. "We really look at this as a 10-year product life cycle."
Video-game console manufacturers are also counting on the Internet to help close the loss gap, and more quickly. Gamers can download games through the Internet (for a cost) for both the PlayStation 3 and Nintendo's Wii; Microsoft (MSFT) has offered a similar service since 2004.
Given the relative ease of buying games off the Internet, Sony and Nintendo both might see higher game sales than in the past, and a quicker trip out of the red for their consoles' bottom lines.