Hey all,
DarXyde here. As a relatively active member of the news boards, I noticed a lot of people talking about sales of hardware/software and Microsoft being berated for "selling IN" while Sony is "selling THROUGH". It's a common misunderstanding on the part of people who may be misinformed (or are simply ignoring the truth). Allow me to set the record straight in this hopefully helpful and well-articulated blog.
Selling in, as Microsoft has recently reported doing, involves selling consoles to retailers, but not to consumers. Many of you know this.
Selling through, as Sony reports, involves selling to consumers. Many of you already know this as well.
What you don't seem to know is that there is a difference between retail and wholesale. The platform-holding companies only make the whole sale revenue. Retail is marked up from wholesale to make a profit on the consoles they're selling. A lot of people here say things like, "Wow, that game sold 5 million copies at $60 a pop! That means they made $300 million dollars!" That is incorrect. Games RETAIL for $60. And since people get games from Walmart, K-Mart, Gamestop, Best Buy, etc., that $300 million is divided among a number of giant retail stores. Yes, they also go for the same price as a digital download from the XBL Marketplace or PS Store. This is an attempt by developers and platform holders to maximize profits: the file is available digitally (therefore no packaging), and there's no middle-man receiving the retail profits. It goes straight to the companies. This is why Microsoft can consider making digital versions of games cheaper; digital distribution is simply cheaper and may be the only way to save the industry going forward sadly. So just to help you guys understand, here's an equation for selling in and selling through in both company cases:
Sony's Revenue (Sold through) = Amount of consoles SOLD IN + Whatever the consumer buys to supplement the PS4 (PS Plus, games, accessories, etc.)
Microsoft's Revenue (Sold in = Amount of consoles SOLD IN
In other words, selling in and selling through are the same damn thing, only differentiated by what the consumer buys to supplement the console, assuming the platform holder makes any revenue on your accessories (like third party USB cords for PS4)
Anyway, on to theoretical revenue...
SO WHO'S MAKING MORE MONEY?
Well, Sony's console is cheaper. Keeping in mind they sell it to retailers at wholesale prices, they make less than $400 on it, especially because percentages of the proceeds go to AMD, FoxConn, and other people who have a hand in each PS4's assembly. Be that as it may, PS4 has greater sales, better attach rates per console, a premium online service, and has more opportunities to make money than the nearest competitor.
XBOX One is more expensive in retail, so Microsoft sells it at a higher wholesale price, but again, percentages go to the rightful component and assembly parties. Lower sales, worse attach rate, but the premium online service acts as a paywall so having their premium service is almost a given.
Last I've heard, Sony makes about $18 per PS4 sold. Likewise,I also believe XBOX One makes $28 per console sold. So let's assume the XBOX One has sold through to 4 million customers with 7 million PS4s. Sony would have made $126,000,000 and Microsoft would have made $112,000,000. So how about premium services? Very hard to gauge because there are different subscription models (by year, month, 3-months, etc.). Obviously, this is systematic error which cannot be accounted for as I don't have the resources. Unfortunately, Sony only published the statistics for PlayStation Plus use when PS4 sold 4.2 million. Sony reported ~50% of new PS4 owners at the time with PS Plus, but we have no way of getting exact numbers now. So let's just *imagine* that (A) All people with PS Plus have a 1-year subscription ($49.99) and (B) that the number of PS Plus gamers grew to match the new 50% (~3.5 million). Those variables held constant, Sony has made $174,965,000 from PlayStation Plus subscriptions.
XBOX One sells XBOX Live at $59.99. Unfortunately, as DailyTech puts it, Microsoft does not release subscription statistics, but they estimate around ~50% of all XBOX Live subscribers are on Gold. Wikipedia's XBOX Live page mentions 48 million members, suggesting half of those are Gold. Let's assume (A) all consumers bought the annual subscription for one year, (B) the 50% model can also be applied to the XBOX One (so half of XBOX One owners have Gold, so we'll say around 2.1 million), and (C) consumers didn't get their year subscriptions at a discount. Holding these conditions constant, Microsoft will have made $125,979,000.
So obviously, there's a lot of variance in my analysis which simply cannot be accounted for, but the breakdown would be as follows:
Sony--> $300,965,000
Microsoft--> $237,979,000
Keep in mind, this does NOT account for licensing fee commissions that the platform holders make from developers who publish games for their platforms, which means both companies would make more; given PS4's higher attach rate however, it's reasonable to assume Sony would have greater earnings. This also includes first party games where sales and proceeds are directly in the hands of the platform holding companies.
Obviously there are errors which I cannot see, but the idea was to give a bit of a comprehensive look at sales. So with Sold in and Sold through, what have we learned? If we take it at face value where we only count console sales to retailers, Sony does NOT have a considerable lead. Because of the XBOX One's sales at its current price tag, it costs more wholesale and Sony only makes $14,000,000 more than Microsoft. Sony kills by being in more homes and costing having a similar online service attach rate, BUT if Microsoft sold just as many XBOX Ones, the extra $10 for Gold per console would increase revenue much more than is apparent. Think of it this way: for every 1 million people both companies get on their premium online service, Microsoft just made $60 million versus Sony's $50 million. Of course, with time and sales, the disparity would become more apparent.
CONCLUSION
I know, I know, I probably didn't need to go through this elaborate procedure, but claims are about evidence. If there's one take away, it's that, when it comes to consoles sold, Microsoft makes more money on each console and as long as retailers don't sell the systems back to Microsoft, they are still making quite a killing. Let's NOT knock Microsoft for reporting consoles sold to retailers because Sony has to sell more to make as much. In fact, if Microsoft just sells 500,000 units to retailers for a total of $4,500,000 consoles sold in, they've already matched Sony's 7 million. You can confirm that yourselves, my friends.
Admittedly, there are many confounding factors that cannot be accounted for without the companies disclosing information that would otherwise be arbitrary to the average consumer, but hopefully this lends some perspective to you all and so you can really see how these consoles are selling in terms of revenue and not console sales. Yes, sales matter because once the foot's that far in the door, you have to make investments in games and services to warrant the purchase. That serves to further the companies' profits, which is great for us, the consumers, if the companies stay in good standing. Bottom line: Play games and prosper and don't be smug about sales. They only tell so much of the story. The End.
SOURCES
http://www.theregister.co.u...
http://community.eu.playsta...
www.dailytech.com/Want+Xbox+L ive+Silver+Say+Goodbye+to+Xbox + One+Game+DVR+OneGuide+SmartMat c h/article33137.htm
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Interesting read and you have very good points, your conclusion is both well thought out and logical.
I'm aware that no market can be accurately read and I by no means pretend that my logic is flawless but I don't agree that sold in and sold through are the same in the end.
Consider sony's higher install base, while financially in the short term higher sales may not mean higher profit what it does mean is that more people own playstation 4 (obviously) and since people tend to buy the console that is more popular and that their friends have it may very mean that it's higher install base will drive it's sales even further potentially leaving xbox in the dust.
This of course would make sony's profits higher in the long term than microsofts (in regard to console related sales) and across a wider margin.
Sold in or sold through could make the difference in how a console sells in the future and of course the future is what the people in sales are concerned with.
The issue I have with people thinking that sold in and sold through are the same thing is the type age we live in. Any PS console that is turned on and a user logs into the network can be counted. This is how Sony can know how many consoles are sold through to consumers and report it as such.
The same applies to Microsoft, but they don't choose to use that method, likely because reporting shipped numbers is better for their PR image since most won't bother to know the difference between sold to retailers and sold to consumers. Saying "we've shipped 5 million" looks better than "we've sold 4 million."
Then there's the fact that shipped numbers contain a percentage of console that HAVEN'T been sold. We don't know what that percentage is, but it's not a number any company likes because it represents lost revenue. You can be sure that Microsoft and their retail partners don't want 1 million of those shipped consoles sitting on shelves.
Great points, both of you. To clarify, I agree that sold in and sold through are not identical per se, but if Sony sold IN 7 million consoles, they make the same amount as selling through. The difference is in the additional accessories gamers buy (games, accessories, etc.). Make no mistake, there are benefits to selling through, but I think it's a little annoying hearing the usual "LOL MS ONLY SOLD IN", not knowing 7 million PS4's sold with $18 profit for Sony = 4.5 million XBOX Ones profiting at $28 per console. Granted, that only matters so far as gamers are concerned, but I just think it's important for gamers to keep humble perspective regarding consoles. Yes, being in more living rooms ensures support, but for anyone saying company A is making crazy money and company B is hurting is asinine.
Sold In and Sold Through might be the same in terms of revenue, but that's not what it's really about. Sony uses Sold Through to show their real install/user base, whereas Microsoft uses Sold In as an attempt to hide their lower sales. I can't really fault MS for that though as it's a tactic widely used by many modern companies.
However, Sold Through is far more important to the rest of the industry, especially developers and publishers. They don't care how many consoles are in stores, they care how many consoles are in the homes of potential customers.
Hey great blog post, though you did forget exchange rate for instance in Canada the PS4's price point for retail was Higher. The effects can alter the profit / console's sold.