I'm also not sure that the "but consoles are closed" argument would be a slam dunk anyway, even if they were exactly the same, because I would absolutely support either requiring Microsoft to open up the XBox or allowing game developers to bypass Microsoft's controls.

It's not clear to me why loss-leading consoles are a good thing for consumers. It just means that:

A) games will be more expensive, because Microsoft needs to make more money on them, and

B) a smaller number of games will be made, because the barrier of entry to profitability on any single game will be increased by forcing developers to subsidize Microsoft's costs.

Microsoft is still going to make the same amount of money regardless. They'll either charge upfront, or that cost will be passed on to consumers in the form of more expensive, less experimental games.

So, I dunno. People who make the comparison between Apple and XBox should maybe be careful what they wish for, because I'm more than happy to go after XBox, Playstation, and Switch with the exact same criticisms. I am skeptical that there are many indie game developers who are happy that they need to jump through hoops to get development consoles, or sign NDAs just to target a platform.

XBox is kind of open, via UWP based games.

The game development communities are exactly the opposite of HN culture, there no one cares about FOSS ideals and stuff, it is all about IP and getting their ideas into the gamer's hands no matter how.

In fact, nowadays I see as a mistake having spent so much time around FOSS during the university back in the 90's, which caused a bit of schizophrenic considerations when going across communities.

The subsidized console increases the total user base by lowering the up front price hurdle. So you’re comparing a world with a small TAM, expensive consoles, cheaper games, vs a world with a large a TAM, artificially cheap consoles, and more expensive games.

I think both game devs and console makers prefer the big-TAM world.

> Console is a loss leader, or sold at cost

Not loss leaders. Maybe close to "cost" but not loss leaders.

The reason is the length of the lifecycle. Say you spend $100M developing a video game console. That seems outrageous. You ship 100 000 units to stores for the early adopters, and some goof says $100M/ 100 000 = $1000 per console just for the R&D costs. These must be a loss leader!

But by the end of the cycle you've sold over 100 million units, so the R&D cost was under $1 per unit. You also get to do relentless cost engineering. When you spot a way to reduce the BOM by 4¢ on a product you're going to sell another hundred million of, that is Four million dollars you just added to the company's profits. Moore's law is on your side over that period of time too.

I was going to say something similar to you, but then I read https://www.investopedia.com/articles/investing/080515/econo... and found that consoles are loss leaders. With the plan of making it up in subscriptions, licensing, and games produced by the manufacturer.

In other words it is a "sell the razors at a loss and make it up on razor blades" strategy.

Read carefully:

> In 2006, at the time of PS3’s launch, each console was sold at a loss of around US $240 per console

That would be a loss leader if the plan was you sell those launch consoles and then exit or move on to a new product having lost $240 per console.

But that was never the plan, the plan was you sell millions more consoles over many years and so overall they're profitable.

It's not razors and razor blades, Gillette sent me a free razor when I was a teenager because that's a razors and razor blades model. Sony doesn't give away consoles because they make money selling the console. They didn't make money on the first few million, which doesn't matter because they sold over a hundred million after that.

The reason they don't do razors and razor blades is because the attachment rate is much lower than most owners imagine unlike for razor blades. It's typically going to be 5-6 games per console. PS4 actually hit 8 games per console but that's a fantastically successful machine nearing the end of its life.

So, if you're losing $240 per console but you hope you can shift six games per console that is $40 per game you need to recoup to break even.

If you go out to a third party developer and you say "We want $40 per sale" they are going to laugh in your face. This isn't Apple strong-arming independent developers, the big games publishers (most obviously Take Two and Activision) absolutely are powerful enough to walk away from such a deal knowing that their competitors will do the same and then the console is dead.

I disagree. It doesn’t matter if the company makes money on the device or not. A device with a walled off App Store, be it a PS4, Xbox, Switch, or an iPhone, operates in the exact same murky legal waters. MS better be careful, or they could wind up breaking their own console’s ability to limit access to their store. Why shouldn’t Steam or Epic be allowed to sell games to an Xbox customer?

So you are suggesting console maker to sell at a loss while others come in and paid nothing for using their platform? Even EPIC have no problem with the console business model.

No, I think they're suggesting that console makers need to open up their app stores and that may result in them no longer being able to sell at a loss.

Selling at a loss is also called "dumping" and Is generally considered as a illegal anticompetitive practice.

Why should video game consoles have an exception?

> Selling at a loss is also called "dumping" and Is generally considered as a illegal anticompetitive practice

No, this is wrong. Dumping is selling at a loss unsustainably in the short term to drive out competitors. If you do it sustainably, it basically can't be dumping.

Thousands of business have loss leaders, from supermarkets to rasers. Video game consoles are not an exception.

Doesn't Walmart do this with groceries section?

Or, maybe don’t sell at a loss?

You then end up with no body buying the console. It would cost $999, and everyone would have problem justify that price tag. And the total market would shrink, which means for Game developers their Games would also have to be priced higher in order to make a return of investment. Normally that wouldn't work because pricing it higher also means less people are willing to buy, so the solution would be to lower the cost of making games. And less ridiculously expensive AAA titles.

Apple sure sells a lot of iPhones at around the $1000 price point, and they’re not selling those at a loss. I don’t see any reason to think that the laws of the physics are such that it’s simply impossible to sell a gaming console the same way that, you know, almost every product in the world is sold: for more money than it costs to make.

Very few people pay $1000 up front. Carriers have subsidies and 0% payment plans over 24 months. Apple also offers 24 month payment plans. The console market is much smaller than phone market. 100 million consoles being sold over the entire lifetime over 8 years is considered successful. Apple sells that many phones in two quarters.

There is also a history of consoles not selling well when the price becomes too steep from the Neo Geo for $699 to the XBox that was bundled with the Kinect.

People buying $1000 phones are on the upscale range, who would likely be in the PC gaming category if they gamed. Consoles are priced for the mid budget consumer who likely own $600 phones. On top of that, the price-tag of the phone is an amalgamation of several devices into one. The smartphone is so valuable people are willing to pay cost+margins on it and it STILL fully saturates society. The console unfortunately is not that.

I'd assume your typical gaming studio needs to sell a LOT more copies to break even than most shops producing iPhone apps.

Also, a smartphone is an essential hardware for modern living. A gaming console... Not really.

Sure, but then the argument is nothing more than “because our product isn’t good enough to just sell it like every other normal product in the world, we have to sell it at a loss and then extract as much value as we can from developers by exerting total control over software distribution.”

Are you just arguing because you can't stand the idea of a world where everything isn't black and white? If the system as it has settled were so much of a problem for the developers, they would not have time and time again put their weight behind the companies pricing their consoles low.

Prices are all ephemeral anyway. How many of those "normal products" are only able to be sold for more than they are made for because we value the labor of the person making it less than we would the same labor from the person buying it?

> If the system as it has settled were so much of a problem for the developers, they would not have time and time again put their weight behind the companies pricing their consoles low.

To loop back around to the iPhone, pretty much every indie developer I know thinks that mobile phone games are priced too low, but nobody can change it because the expectation has been set that a mobile game can't be $30-60. It's just the way the market has evolved.

So markets are complicated. Sometimes they move in smart directions, sometimes multiple factors conflate together and they move in unsustainable directions. The fact that developers still write games for consoles doesn't necessarily mean that developers like the system they're a part of, or that they don't want it to be any better. It just means the expected value of signing those NDAs, using expensive locked down hardware, and paying revenue portions to the console maker still currently work out to be positive.

Games sell like hot-cakes on the Switch right now. Nintendo would honestly need to do some pretty horrible stuff to make a Switch release of almost any semi-popular game not worthwhile economically. But that doesn't mean developers love everything Nintendo does.

So be careful of reading too much into what developers do. We're Capitalists just like everyone else. If the market demands F2P micro-transactions, NDAs, DRM, or region-specific pricing, ultimately most of us will do what the market demands. Revenue splits are no exception.

That being said, I would argue the market for games publishing hasn't settled, and that it's really not shifting towards increasing revenue splits or developer costs. The original process for getting games on the XBox was way harder and way more expensive than it is today. The reason consoles have generally started to shift towards more open terms is because developers eventually got fed up with paying money to release bugfixes, and started shifting focus to consoles that made releasing software easier.

We're seeing the same trends with Steam and the Epic store. 30% was reasonable, until Epic started offering much better terms. Now Valve is starting to move towards 20%. Devs will work with any system that makes them money, but obviously they would prefer to take bigger cuts of each sale. People don't really appreciate that -- if Steam didn't have such a massive market share right now, no developer would rationally choose to release on Steam instead of Epic Store. We all want lower revenue splits.

Which was mostly my point, nothing is just as simple as "Sell things for more than they cost to make." Markets are weird, more so when you have non-tangible components like software and IP involved.

I'm not advocating for any model over any other, just acknowledgment that there exists a complex co-dependent relationship between the console owners and the developers.

Or maybe the product is great but consumer expectations have been set by years of loss-leading prices on consoles?

>You then end up with no body buying the console. It would cost $999,

If people are bad at gathering enough money at once then there are options like pay 999 now or pay 1099 over 2 years period. This is not in the interest of the consumer so it will not happen without regulation.

Consoles are usually not sold at a loss. Maybe for the first year after launch, but they quickly get costs lowered to the point that they're profitable.

One interesting thing about the Wii/PS3/XB360 generation was that Wii was sold at a profit. Knowing that, it was pretty funny to see Sony/MS fanboys lambast the Wii's low attach rates as an impending failure when the model was totally different. Sony would need a customer to buy multiple games to turn a profit on a PS3, Nintendo could sell someone a Wii and Mario Kart and not have them buy anything else, and that'd likely be a happy and profitable customer.

"Xbox" is more than just the console; the Microsoft Store is a unified platform used to distribute both their console and PC games.

Apple also has IP, R&D and Software / OS Development costs. And no one is forcing console makers to adopt the margins they do.

Quite a lot of competition regimes regard loss leaders as inherently anti-competitive as well ...

3% is the going rate for mom-and-pop, not large business, those run in the 1% ballpark.