Digital Foundry on console build costs and the decisions facing the platform holders this holiday season.
The Q4 debut for Nintendo Wii U signals the coming of the next-gen consoles and the final hurrah for the Xbox 360 and PlayStation 3 - before the debut of their replacements next year, at least. Is it a time to maximise userbase, slashing prices and recouping the investment through software sales? Or alternatively, should the platform holders play it safe and keep prices high? Initial indicators seem to suggest that it's the latter strategy that is being pursued, provoking some level of controversy within the industry.
It's Nintendo's pricing on Wii U that has surprised many, with the 8GB pack coming in at 249/$299 while the 32GB premium version with Nintendo Land pack-in weighs in at 299/$349 (note that UK prices include 20 per cent VAT, whereas US prices lack sales tax). As launch prices go, this isn't bad in comparison to the precedents set by previous console releases, and Nintendo will point to its innovative tablet controller and exclusive games to set it apart from the competition.
However, it's safe to say that the Wii U isn't a typical launch - at its core, the guts of the unit itself has far more in common with current-gen consoles than Nintendo would probably care to admit, improved by various measures in some regards, but noticeably weaker elsewhere. There's also the fact that a lot of the launch software will already be available on consoles that cost significantly less.
"Wii U benefits from a more modern GPU and a useful memory boost, but it's a machine built to a budget and the price-point is around 50 higher than we expected."

To a great degree, price-points are defined by BOM - the Bill of Materials. On the plus side, Wii U benefits from a significantly more modern graphics core, equated by many with an entry-level enthusiast GPU a couple of generations old, provided by AMD. Our sources tell us that the hardware is rich in features compared to the Xenos core within the Xbox 360 (also supplied by AMD) but somewhat lacking in sheer horsepower: still a useful upgrade overall though. However, on the flipside, the tri-core IBM "Espresso" CPU is an acknowledged weakness compared to the current-gen consoles - the processors consisting of revised, upgraded versions of the Wii's Broadway architecture, in itself an overclocked version of the main core at the heart of the ancient GameCube. Nintendo clearly hoped that tripling up on cores, upping clock speed and adding useful features such as out of order execution would do the trick, but key developers are saying otherwise: GPU-heavy games get a boost, but CPU-dependent titles are challenging to bring over to the new platform. Debate still rages over the extent to which Wii U is a next-gen console at all, and whether its pricing fits accordingly.
The overall conclusion one can draw from the core components here is that Nintendo hasn't really paid so much attention to competitive forces, targeting a spec that can be mass-produced relatively cheaply. Areas where we know Nintendo easily outperforms Xbox 360 come to down commodity items such as RAM and flash storage: these are upgrades that won't significantly affect the bottom line. We also know that the silicon is manufactured in the 40-45nm range, giving the platform holder significant leeway to cut costs going forward in the medium to longer term (next-gen consoles will all be fabricated in the region of 28nm next year).

Wii U is a console built to a budget, its silicon almost certainly produced at the same 45nm process as the Xbox 360 and PlayStation 3. While some may argue its premium comes from its tablet controller, even the build cost there is very modest indeed.

Of course, Nintendo's key point of differentiation is the tablet controller - which obviously adds to the bill of materials, but once again we see a piece of technology built to a price. In a world where Chinese no-name manufacturers can develop capacitive 7-inch touchscreen Android tablets with ARM processors, 8GB of flash storage and 512MB/1GB of RAM priced at 50-60, Nintendo's resistive screen tablet produced in the millions would clearly be significantly cheaper to mass-manufacture - even factoring in the latency free AV transmission tech.
Bearing in mind the challenge Nintendo faces in competing against Microsoft and Sony - with a significant amount of its launch titles already out on the rival platforms - the pricing on the Nintendo console does look a touch on the expensive side, and I expected price-points closer to the original Wii - 180/$250 was instrumental in Nintendo's success back in 2006. Up against the 149/$249 4GB Xbox 360 (where prices fluctuate downwards significantly) there is the sense that Nintendo could well be repeating the mistake it made with 3DS. However, this time I suspect there is more leeway for the platform holder to cut costs if it has to.
"Sony's strategy in bringing a newer, cheaper PS3 to market at much the same price as its higher quality predecessor is somewhat baffling to say the least."

However, based on Sony's announced price-points for the new PlayStation 3 "Super Slim", perhaps Nintendo has got its pricing just right. The new revision is certainly a curious piece of kit - the smallest, most discrete PlayStation 3 yet produced, with a footprint just a little larger than that of an A4 piece of paper. Despite the diminutive form-factor, the machine's got it where it matters - the functionality in terms of both hardware and software is a match for the current PlayStation 3 Slim: the same array of ports, full Blu-ray functionality, and even the ability to insert your own hard drive remains intact, though the situation with the DIY upgrade potential of the 12GB flash SKU heading for Europe exclusively is still unknown.
However, similar to the Wii U, it is a machine built to a price - and that would be a significantly cheaper one than the outgoing PS3 Slim. The mixture of matte and gloss plastics lacks the premium finish of the current PS3 Slim casing, while power and eject buttons again don't match the quality feel of the established unit. However, the most controversial element is the drive bay of the new unit. Sony has gone for a significantly cheaper Blu-ray drive: the slot-loading unit found in previous models has been replaced with a more basic device, featuring a sliding lid cover. It's perhaps a compromise too far - while perfectly functional, the so-so quality plastics and less than smooth travel of the lid across the face of the case are a little disappointing.
If the new PlayStation 3 had seen its reduction in cost-price passed onto the users, any controversy would be effectively nullified, but in the here and now, the value proposition is far from certain and some have even suggested that the new models represent a hike in prices. Certainly, 320GB PS3 Slim bundle deals do seem to offer very competitive value up against the new 500GB model to the point where the additional refinement in build quality may make the older machine a better buy for many people.