MS and Sony arent going to eat any costs. Those days of subsidizing $200 per unit and hoping to make it all back on software is long gone. That was 360/PS3 launch years almost 15 years ago.
Stores typically breakeven on consoles too. They make money off games and all the knick knacks like controllers, extra cables, digital currency cards an such. Or you're EB, trying to float the entire company on stupid shit like Funko toys and Monopoly: Call of Duty Black Ops Edition.
I see both systems at $500 US if they are close in power. And if that MS Lockhart is true, it'll be cheaper at around $350.
TBH I see both PS5 and XSX at $500 even if they aren't close in power. Keep in mind: the early adopters are in for these systems at launch regardless of price.
Supposing the "weaker" system ends up being PS5, $499 doesn't actually hurt them even if XSX is also $499. PS has the stronger brand name and wider global reach. In markets where Xbox isn't even present, Sony can technically set the price at whatever they want and still move their units, at least for a little while. Same applies with U.S, U.K and other markets Xbox has presence in.
For launch, anyone who wants a PS5 is gonna buy a PS5. Anyone who wants an XSX is gonna buy an XSX. Anyone who wants both is gonna buy both. PS has the goodwill and brand power to sell strongly price-matched to Xbox even if it ends up being the "weaker" of the two systems. And since it's launch, you might as well go with that premium price because the hardcore have no problem buying in at launch at that price.
On Sony's end it'd take something drastic like a weak launch lineup AND pricing similar to XSX to start convincing some of those PS5-only purchasers to consider XSX instead. That's an internal factor though, and something I think they more than have under control. Externally, XSX would have to have a notably stronger launch lineup to probably even convince PS5-only purchasers to consider going PS5 & XSX around launch time. And for regions where Xbox isn't even really present, MS would have to increase marketing and units into those locations anyway. Depending on just how dominant PS is in those places, even a notably better launch lineup alone probably won't be enough for XSX to at least consider PS5-only people there to go PS5 & XSX.
Where it probably could be a bigger issue for Sony is if, in certain key foreign markets, Xcloud ends up making a big splash. In particular, markets where consoles may not even be a particular priority, even if PS has majority marketshere. Japan would be one example. If Xcloud makes inroads in those markets, and consoles aren't necessarily the focal gaming market, that can impact PS5. Even supposing XSX pulled away in the first few months over PS5 in, say, the U.S, if PS5 sales are very strong in other markets and (more importantly) software revenue is strong in those locations and overall, Sony wouldn't feel much a need to drop PS5's price in the U.S. But Xcloud encroaching on would-be PS5 sales and revenue could take away that cushion.
Worst-Case Scenario: both systems priced at $499 but PS5 notably "weaker", strong sales for both at the start but XSX starts pulling away in U.S and U.K. PS5 still dominating in foreign markets but Xcloud adoption starts encroaching on bottom-line. In that situation I can see Sony start doing a "soft" price drop effectively to $450 but bundle a game with the system physically or digitally. So it'd still effectively be $499 but have a free game included. Soft price drop primarily for U.S and U.K markets, maybe with gradual spread to other markets over time depending on where they assess competition with something like Xcloud.
But that's a worst-case scenario I can picture. There's no reason for Sony not to release at $499 considering the worst-case scenario would require a good deal of lucky factors to play out for MS and I don't think every single one will play out exactly as needed. The only other thing that could create issues is Lockhart. I don't see Lockhart releasing at launch, maybe in 2021 is more likely. What MS could really do to screw up things for Sony, tho, would be to time Lockhart to release as Sony does a soft price drop on PS5 (IF things come to that). So basically, Sony "drops" PS5 to $450 effectively, but then MS releases Lockhart for, say, $299. It'd basically be a year old by that time anyway, marginal changes at most to the spec, a year later release could afford a launch for Lockhart at $299. That would be a nightmare situation for PS5 but, again, that's just me entertaining a worst-case scenario.
Most Probable-Case Scenario: both systems launch at $499 but PS5 is notably "weaker". Strong sales for both at the start but MS software offering as a whole simply on-par with Sony's (1st and 3rd party). XSX makes soft dents in some foreign markets but not enough to overturn PS marketshare there. Sales of PS5 and XSX in U.S and U.K fluctuate back-and-forth for a while, maybe XSX takes a slight lead overall in first year. Xcloud sees modest adoption in many locations, very strong adoption in a handful of smaller mobile-oriented markets, but not to a level where PS5 sales are adversely affected so at most PS5 sees small dips in some of these markets. This would allow PS5 to maintain $499 in foreign markets and maybe consider soft price drops in places like U.S and U.K if XSX starts mounting a notable longer-term lead in these places.
As for Lockhart in this scenario? I don't see it coming out this year tbh. Ideally I think it should be a discless version of XSX with a smaller SSD and maybe a few software features cut but coming in a bit cheaper, but I doubt the drives are anything more than $25 and they'd be saving what, maybe $40 going with a cheaper drive? Why take losses on that?
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If anything this should just show how strong the PS brand is globally and how much work MS has cut out for themselves to effectively challenge it. They have the means and focus to do so now, but they gotta deliver the results. I don't see the worst-case scenario playing out unless Sony just really drops the ball, particularly in terms of software, and that's
HONESTLY mainly if the software takes too long. But gaming tastes can be fickle and it's always a bit unpredictable where majority of tastes will go.