Breaking Consumer Economic Principles

a few interesting pieces coming from yet another blu-ray drive discussion on joystiq (quoting me, not others.):

now, the ‘whole process’ of making a ps3.

why do i keep mentioning first generation equipment? well. because even tho dvd was a small step in manufacturing up from cd’s, it still took 3 generations of hardware before consumer device adoption and failure rates hit stride. now, sony’s trying to throw first generation hardware into a mass produced, insane demand (vs. the very small demand of consumer hi-def dvd only players) consumer electronics device.

yeah. exactly. ooops.

here’s a thought. let’s take a bunch of commercially untested technology (cell processor, rsx and blu-ray) and throw them all into the most anticipated consumer electronics device to come along in years.

usually when folks talk about the pareto principle, they are referring to the 80% being reliable and the 20% being untested and not the other way around. looks to me like sony’s betting the farm to become a platform company to compete with a company who’s primary business IS a platform company.

another one on overcoming the setup costs and trickle-down pricing of the first few batches of blu-ray discs.

why is duplication cost important?
because. without media to play, no one will buy the hardware. if it costs substantially less to INITIALLY manufacture (and thus INITIALLY price for retail) hd-dvd, then, the blu-ray player will just be an anchor for the ps3. beta vs. vhs taught us that. price, not quality drive demand. blame it on this damn era of disposable consumer economics. sony is trying to circumvent that by putting a blu-ray drive in a high-demand consumer device like the ps3.

so, rather than actually learning from market force mistakes in the past, they are trying to artificially influence them.

a big piece of the puzzle on the similarities and differences of the oft-quoted beta vs. vhs format war.

sony is pushing these hard. they are going to have a few million players deployed by the end of the year remember? the fewer blu-ray discs sold, the smaller their royalty check, the larger their money pit. that’s another reason why, typically, consumer hardware comes out expensive and has little media. not everyone (manufacturers) wants to risk their whole enterprise on sony’s dream.

sony, again, is trying to artificially influence the market by creating cheap hardware and lots of media. can a brother please get a ‘hell yeah’ from any economists out there?

before, when consumer players were introduced in the tape playing days, there was a slow trickle of equipment, and thus, a slow trickle in media. (you know, movies to play)

this time around, sony is going to blast mass quantities of players into the marketplace. (at a huge loss and partner cost, i might add) and, in order for price justification of adding the blu-ray drive (when games are all going to be on dvd the first year or two anyway), they are going to have to shell-shock the world with playable media.

that’s where sony’s arm-barring and ‘guarantee’ that there will be sufficient players on the market comes into play when convincing these disc manufacturing plants to upgrade all of their equipment.

hd-dvd can be made on basically the same standard equipment standard dvds are produced on today. very little investment is needed. because the manufacturing process for blu-ray is completely different and the discs aren’t the same size, only brand new plants or completely revamped plants will be able to manufacture blu-ray discs.

so, my point is, justifying lots of players means having lots of content available. that means sony is trying to overcome the basic laws of consumer economics with brute force.

the downside?

  1. hd-dvd players are cheaper.
  2. hd-dvd discs are a ‘snap’ to manufacture and, thus, also cheaper.
  3. hd-dvd technology is inherently less error prone.

those wacky sony guys anyway.



3 comments so far

  1. MacAttack on

    A “hell yeah” brother, ……..and where is the PS3????

  2. m3mnoch on

    ha! funny. i forgot you were an economics major. awesome.


  3. […] you may also want to read my post on The Blu-Ray of Damocles or even why DVD-9 is Not Too Small.  my favorite that i think you’d like?  probably the one about sony Breaking Consumer Economic Principles. and, hell, i’ll even quote some stuff i wrote on joystiq about why — get this — high definition dvd formats are stupid! the trickle of hd content is actually just a symptom. […]

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