Redmond, we have a problem: Sony just cut the price of the PS3

Posted by Wolfgang Gruener

Los Angeles (CA) – The game console market is getting more interesting: Following Microsoft’s time-limited price cut of the Xbox 360 Premium, Sony has announced an upgrade of its 40 GB console to 80 GB, which could be interpreted as a permanent price cut of the flagship 80 GB Playstation 3, despite the loss of PS2 compatibility. The decision between an Xbox 360 and a PS3 is now much less a question of cost, but a question of how much the Xbox’ entertainment features or the PS3’s Blu-ray drive are worth to you. 

Sony has seen its PS3 gain traction in recent months and the company now seems to be determined to pull further ahead of Microsoft, which lately seemed to be struggling in European and Asian markets. Sony said that it will drop the 40 GB version of the PS3 and replace it with a 80 GB version, which will retail for $399. If you are not interested in PS2 games, then this new version effectively could either be seen as an upgrade or a substantial price drop.

$399 is still a steep price tag for a game console, but Sony is now approaching Xbox territory. The PS3 is now right in the middle between the $449 Xbox Elite with a 120 GB hard drive and the $349 60 GB Xbox Pro. Count in the fact that the PS3 comes with a Blu-ray drive and the Xbox stays with an upscaling DVD player and some could see for the very first time a price advantage for the PS3. Microsoft has recently upgraded its Xbox 360 with new entertainment features and is driving the console much more to become an entertainment center, it will be interesting to see whether Microsoft’s or Sony’s console will be collecting the dollars down the road.

The downside of this cutthroat competition, of course are shrinking margins or increasing losses. The PS3 and especially the Xbox 360 are in a time of their life-cycles where both should be starting to actually make a profit. While Microsoft actually may be making a profit (at least its gaming and entertainment division already does), Sony’s latest price cuts raises further doubts, if the PS3 can ever become a profitable business. As part of a recently filed financial report, the company said that it has lost $3.3 billion on the PS3 so far and analysts actually doubt whether the companies will ever be able to recoup those losses.  However, the Microsoft’s balance sheet looks even worse: Combined losses of the Xbox and Xbox 360 between 2002 and 2007 exceeded more than $7 billion, according to SEC filings.

However, it is not difficult to see that Sony just made a very aggressive move and Microsoft’s temporary price cut seems even more half-baked now. The $299 20 GB Xbox 360 will only be available until supplies last and the new 60 GB almost seems expensive. Another price cut in the near future may me inevitable for Microsoft.