The next-generation video game console war has officially begun with Sony’s (SNE) record-setting PlayStation 4 launch that saw the company move more than 1 million units in the U.S. and Canada within 24 hours. That sets the bar high for Microsoft (MSFT), which launches its Xbox One on Friday — at $100 more.
A Boffo Day for PlayStation 4
How does last weekend compare to past efforts? According to numbers from Ars Technica, the PlayStation 3 sold less than 200,000 units during its first two weeks on shelves in the U.S. and Canada in 2006 — although there were supply shortages. Microsoft’s Xbox 360 did better the year before with 326,000 consoles during its first week.
The former record holder among consoles was Sony’s PS2, which moved 980,000 units over three days in Japan in 2000.
And how about the first of the next-gen consoles to launch, the Wii U? Last fall, Nintendo’s (NTDOY) latest effort at living room gaming pulled in 400,000 sales in North America during its first week.
In comparison to previous video game console launches — and Nintendo’s Wii U effort — Sony’s PlayStation 4 launch rocked. At least in numbers sold.
And despite months of dogfighting over their respective new consoles’ capabilities and features, Microsoft’s Xbox team graciously congratulated Sony on the PS4 launch on Twitter (TWTR) and Facebook (FB).
The Blue Light of Death
Customers are on social media too, but they’re using it to bash the company for requiring a 300MB firmware update to be downloaded before the console can be used. That’s not as bad as the 700MB patch that Wii U owners had to contend with, but no one likes to unwrap a shiny new console and plug it in, only to find out they have to wait for a download and install before they can play it.
What’s worse than the download wait is unboxing a PS4 that’s a brick — an unresponsive console with a blinking status light known as the “blue light of death.” That issue is being widely reported and casts a shadow over Sony’s otherwise highly successful PlayStation 4 launch weekend.
At the time of writing, I checked Amazon (AMZN) and found 658 one-star reviews for the PS4 (compared to 1,755 four or five-star ratings), with complaints about the blue light of death and DOA PlayStations dominating the negative comments. These numbers line up with reports earlier Monday that had a third of Amazon reviewers reporting their new PS4 was defective.
In response, Sony initially released a statement claiming 0.4% of units were affected, later updating that number to less than 1%.
This early in the game, there are many theories flying around about the cause of the blue light of death. Some are blaming poor packaging by Amazon — pointing fingers at the online retailer, saying damage caused during shipment is the cause. However, there also are rumors that employees at Foxconn — the company known for making Apple (AAPL) iPhones also manufactures the PlayStation 4 for Sony — might have deliberately sabotaged the units in protest of working conditions.
Sony itself isn’t pointing fingers, but appears to have narrowed the blue light of death to possible power supply issues, faulty HDMI connectors or improperly seated hard drives.
Hopefully for Sony, this is a case of a few glitches during the manufacturing ramp-up and not an indicator of a more widespread problem. Rival Microsoft went through a costly nightmare with defective Xbox 360 consoles (known as the red ring of death) that ended up costing it more than $1 billion to resolve.
Whatever the cause, there definitely seems to be something up with the Amazon-supplied PlayStation 4 launch consoles, whether poor packaging caused shipping damages or the retailer happened to get a bad allotment from the factory.
At an estimated $60 loss per unit, Sony’s sales triumph also cost it more than $60 million, an amount that will grow with sales until manufacturing and component costs come down enough for it to break even — probably a few years in the future. Still, that’s better than the $300 per box it lost on the PS3, en route to $5 billion in the red before that console finally turned a profit.
And if the PlayStation 4 launch is any indication of the PS4’s popularity, Sony should more than recoup those hardware loses in games sales and Playstation network membership fees.
Meanwhile, SNE got a nice boost (up nearly 3%) in early Monday trading as the market reacted to news of the record million-console launch weekend, but it quickly gave up much of those gains as noise grew about the blue light of death.
At this point, all eyes are now on Microsoft’s upcoming Xbox One launch, while keeping an ear to the ground to see if blue light of death reports fade or end up being a bigger problem that tarnishes Sony’s PS4 going forward.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.