It may not have been a surprise to industry observers – SCE UK managing director Ray Maguire actually announced it at last year’s E3 – but the PlayStation 3’s £425 UK price-tag has caused howls of outrage among consumers.
Ever the gamers’ champion, SPOnG sent Steve Boxer to catch up with Maguire to find out exactly why that should be so – given that it costs the equivalent of £300 in the US and £250 in Japan.
Maguire gave us a surprisingly full and frank description of what exactly goes into deciding the PS3’s local price, citing VAT, exchange-rate fluctuations and the general cost of living as contributory factors. But his answers left a suspicion that Sony has erred on the side of conservatism (in its, rather than consumers’, favour) when setting the price.
Of course, ready availability of the 20Gb version would have helped matters and, while Maguire protests that retail and consumer feedback heavily favours the 60Gb version, his arguments are slightly tainted by the fact that it is possible to get all your media onto a 20Gb PS3 via USB, and the hard disk will be user-upgradeable. And he admits that the logistics of the PS3 launch are considerably eased by the presence of a single version of the console.
At least there should be plenty of PS3s around at launch in the UK – at least 220,000, according to Maguire. Here’s what he told us.
Why is the PlayStation 3 £425 in the UK when it is the equivalent of £300 in the US and £250 in Japan?
I guess you have to split this into two elements. One of them is what you’re getting and the other concerns the infrastructure of how the UK trades versus the rest of the world.
If you take the infrastructure point, there’s a compulsion within the media to look at everything as a snapshot, and do a calculation normally based against just the RRP in somewhere like the US, and just the RRP in the UK. The calculations are always derived from those two, whereas actually what you should do with the RRP from the US is put sales tax on, for instance – but that is never taken into account. When it goes into Euros, it changes to anything from the extortionate VAT rate you pay in Ireland into some of the lesser VAT rates you find around Europe.
But you’re looking at those issues in a snapshot: that’s not how things are traded. When businesses trade, they have to secure their money for a point in the future, so they hedge. They decide what they think [the exchange rate] is going to be and then trade with that and look at the fluctuations – sometimes there’s a gain, sometimes there’s a loss. It depends what currency you’re buying against. We don’t buy anything in dollars, so the dollar can go up and down. If it was $1.40 to the pound as it was a while ago, then the PS3 would be a bargain compared to the US; if it’s anything more than that, the UK price appears to be comparatively expensive. But the truth of the matter is that we’re dealing, really with Euros and Yen – it’s about the relationship between those currencies.
If you just take the pound against the Euro over the last few months, you’ll see that the swing between 0.68 and 0.66 would make a difference of £12 on a straight conversion. We don’t deal with consumers using a varying RRP – we don’t say to them: “Today, you’re RRP is £500, but tomorrow, by the way, you’ll have to redo all your POS because it’s £600.”
We have to take a reasonable guess. When it comes to looking at the total infrastructure, we have to build it down from the RRP. The UK, in particular, is quite expensive to deal with. Transport costs a lot of money. There’s taxation which is obviously government-controlled, so is more onerous. The cost of living is high, therefore people need to be paid more money at retail - and in our own operations - than some of our European counterparts.
So, you start putting that all together and what it comes down is that when I sell to someone, I have to sell to that person at such an amount that I can pay those bills: pay for retail and pay for the expertise that goes into doing that. If I’m paying an extra pound or two at the base level – in other words at the price I sell to trade – by the time VAT is added on and the cost of sales is added on (what we call margin), the number at the top can vary quite a lot. But don’t forget the purchase price hasn’t, and we fix the RRP as well.
When we look at our overall situation at the end of the year, that’s when we’ll deem whether we have made a loss or not – and the skill is making sure that you’re neutral. My fundamental aim is to have the hardware out at the cheapest price, simply because I sell more if I do that.
If I wanted to put the price up, clearly there’s nothing to stop me doing that and also, within the law, I set a price to the trade, which can put the price up as well. But in the nice, competitive environment that the UK enjoys, we try to get the price down as much as we can. But at the same time, you don’t want to be in a situation where you’re looking at a variable RRP – you have to have that fixed.
So, no matter what happened this year to the Euro – even if it started going the wrong way – we would not put the price up. If that trend carries on in the other direction, then guess what: we will put the price down. You just have to look at the relationships we look at, which are between the pound, the Euro and the Yen.
Even in Europe, there will not be one single price – Ireland, for instance, will be a bit more expensive because it has such a high VAT rate. And the transport is considerably higher. So there are some variances, but we try to get as close as we can to one RRP.