The price of the PlayStation 5 may top $450, and that could cost Sony the next major battle with Xbox in the console wars (SNE, MSFT)

Sony's PlayStation 5 and Microsoft's Xbox Series X are largely known quantities at this point, except for one major detail: Price.
The PlayStation 5 could cost nearly $500, sources within the company told Bloomberg , due to manufacturing costs and parts.
More than just a high price, the history of video game console pricing dictates that charging over $400 for a new game console is likely to result in a sales flop.
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Next-generation video game consoles from Sony and Microsoft the PlayStation 5 and Xbox Series X, respectively are scheduled to arrive this holiday season.

Though much is known about each console , there's still one major question: How much will the two new consoles cost?

Neither company has said as much officially, but Sony's PlayStation 5 has a potential price tag: At least $470, and maybe more, according to sources within Sony speaking to Bloomberg .

That price, which is reportedly due to a scarcity of certain components, could be a big mistake. Historically speaking, most video game consoles cost $400 or less. The ones that cost more than $400 tend to struggle meaning that if Sony were to go that route, that high price could cost it the next big battle with Xbox in the console wars.

Take Sony's PlayStation 3, for example: In 2006, Sony launched the PlayStation 3 as a follow up to its wildly successful PlayStation 2.

PlayStation 3 price announcement Sony

The Japanese consumer electronics giant was riding high on the landmark success of its prior console, and set the price of its new PlayStation higher than ever before: The base model would cost $500, and a premium model with more storage would cost $600.

When the PlayStation 3 launched in November 2006, it arrived alongside a wave of criticism from consumers and game makers alike. Consumers didn't like the notoriously high price of the console, and game makers didn't like the complexity of making games for the PS3, which used a non-traditional "Cell" processor instead of the more familiar architecture used by Microsoft's Xbox 360.

"I'm getting concerned about Sony; the PlayStation 3 is losing a bit of momentum and they don't make it easy for me to support the platform," Activision CEO Bobby Kotick said in a June 2009 interview , two years after the PS3 launched. "It's expensive to develop for the console, and the [Nintendo] Wii and the Xbox [360] are just selling better."

The PlayStation 3's reception looked especially bad by comparison with the competition: Nintendo's Wii was at peak popularity, and Microsoft's Xbox 360 was a runaway success despite requiring a $1 billion recall program in the wake of the so-called "Red Ring of Death" scandal.

It took years for Sony to make up some of the ground it lost to competition from Microsoft and Nintendo, after lowering the price of the PlayStation 3 and bolstering the console's game library. By the time the PlayStation 4 launched in 2013, Sony had ingested the lessons of the PlayStation 3's failures.

The cost of the PlayStation 4? $400.

Microsoft makes its own mistake

Microsoft, however, was about to make its own major pricing mistake with the Xbox One.

Xbox One price announcement Microsoft

In June 2013, Xbox leader Phil Spencer told attendees of Microsoft's annual Xbox briefing that the forthcoming Xbox One would cost a whopping $500 at launch.

The reason for the notably high price was clear: Every Xbox One console came with the Kinect, its groundbreaking camera/microphone accessory.

The peripheral, which started life on the previous generation Xbox 360 consoles and found massive success as a standalone device, was upgraded for the Xbox One and included with every console. Microsoft envisioned a future where Xbox One owners would use Kinect to turn on their consoles with their voice, then play games using the motion camera.

In reality, it just meant that Microsoft's console was more expensive than Sony's $400 PlayStation 4 a console which launched at almost exactly the same time in November 2013.

Microsoft hastily beat a retreat on pricing, and officially turned Kinect into an optional add-on less than a year later. "There's a lot about Kinect that I really love," Spencer said in a video released alongside the news. "We've also heard from people that they just like to play games with a controller in their hand."

But the damage was already done: Microsoft's Xbox One sales numbers trailed Sony's PlayStation 4 sales numbers for the entirety of the current console generation. Sony says that it has sold over 100 million PlayStation 4 consoles at last count. Meanwhile, Microsoft stopped reporting sales numbers outright though in January 2019, an analyst pegged Xbox One sales at 41 million .

Xbox Series X Microsoft

X-factor

With both the PlayStation 5 and Xbox Series X, pricing remains a major unknown.

One thing is clear from what we know so far: Both the new consoles are unlikely to cost below $400 based solely on what we know about the components inside.

"I previously estimated the build cost of [Xbox] Series X would be higher at over $460 minimum, and still expect that to be the case," Niko Partners video game industry analyst Daniel Ahmad said last week in a series of tweets .

In short, that means the price of components and manufacturing the next Xbox could be as much as $460. And if that's the cost of creating each box, it stands to reason that Microsoft would price the consolehigher than the cost of production.

"A $450 build cost would probably result in a retail price close to $500," Ahmad said. "I think at this point it's unrealistic to assume we'll get a high end console at $399 like last gen."

There's one caveat, of course: Both Microsoft and Sony could be willing to take a loss on each console sold, at least initially, in order to establish a foothold with early adopters. In theory, if they went this route, the blow would be at least softened by the manufacturers' cut of game sales, microtransactions, and premium services like Xbox Live and PlayStation Plus.

"Both manufacturers could be willing to take a loss day one to price more competitively," Ahmad said.

For now, however, we'll have to wait and see as neither Sony nor Microsoft is saying how much their new game consoles will cost.

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