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Paul Sweeting

Paul Sweeting is the editor of ContentAgenda.com and a columnist for Video Business. He has covered the home entertainment industries since 1985 for Billboard, Variety, Publishers Weekly and other leading business publications. He is based in Washington, DC.


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Paul Sweeting

Paul Sweeting, Editor
ContentAgenda

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Is Sony planning a PS3 comeback? - April 13, 2007

The corner into which Sony Computer Entertainment painted itself by insisting on putting a Blu-ray Disc drive in every PlayStation 3 console continues to shrink.

This week, Sony confirmed growing suspicions that it is phasing out the low-end 20 gigabyte PS3 to concentrate on the more expensive, 60GB model.

The low-end model—which, at $499, wasn’t all that low to begin with—was never introduced in Europe and has grown increasingly rare at retail in the U.S.

The official reason given by Sony for halting production is that consumers and retailers “overwhelmingly” favored the more full-featured 60GB model and that dropping the stripped down 20GB console simply reflects market demand.

An equally plausible reason is that demand for PS3 has been somewhat less-than “overwhelming” in any configuration, and that Sony is having trouble getting the cost down.

According to an analysis by research firm iSuppli, the 20GB PS3 had a total bill-of-materials of $805.85. At a retail price of $499, Sony was losing well over $300 on each unit it sold.

The 60GB model has a BOM of $840, according to iSuppli. At $599 retail, Sony’s loss is still substantial but not quite as ruinous as with the 20GB model.

A major reason PS3 costs so much to manufacture, of course, is the Blu-ray drive included in every console.

According to iSuppli, the drive is costing Sony $125 each, which is at least $100 more than a standard DVD drive would cost.

With such a high cost structure, Sony has essentially been unable to respond to low-end price competition from Nintendo’s Wii consoles and Microsoft’s Xbox 360.

The unexpectedly strong sales of the Wii, coupled with Microsoft’s year-long head start in the market, has kept PS3 sales from ramping up as quickly as Sony was forecasting. And with lower than expected volume, unit costs have remained higher than planned.

At the same time, the high-def DVD format war has slowed sales of Blu-ray Disc players, which has kept the unit cost of Blu-ray drives higher than expected, adding to Sony’s PS3 woes.

With significant cost reductions pushed further into the future, Sony had little choice but to stop the bleeding and concede the low-end of the market to Nintendo and Microsoft.

Sony now has two options. The obvious strategy is to play for the long-term and concentrate on positioning the PS3 as a home entertainment hub.

The units certainly have the processing power to be much more than a game console or a high-def movie player, a point Sony has long emphasized.

But the market for that application is likely to develop slowly, and Sony needs to start driving software sales sooner rather than later.

It also faces formidable competition in the media center space from Microsoft, which recently introduced the 120GB Xbox 360 Elite, and from Apple Inc.’s Apple TV.

That leaves the second, more daring option: Retire the low-end PS3, let retailers burn through what’s left in the pipeline, and then re-introduce a low-end model without a Blu-ray drive.

The idea isn’t new. Speculation that Sony would ultimately introduce a non-Blu-ray PS3 has been around since both formats were in development. But the drive to crush HD DVD made that a non-option. Piggy-backing onto every PS3 console was necessary to flood the market with Blu-ray players and drive down the cost of the drives.

Neither the next-generation game market nor the high-def DVD market has developed as expected, however. HD DVD has not been crushed and the added cost of a Blu-ray drive has limited Sony’s competitive options in the games business.

The solution is obvious. Whether Sony is prepared to seize it I can’t say. But retiring the 20GB Blu-ray PS3 model would be a good first step.


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Hmm..
April 14, 2007
Response to:
Is Sony planning a PS3 comeback?

So how do you propose the PS3 is going to play upcoming blockbuster games that are using Blu-ray???? Go back to DVD9? Hmm..alright that makes sense.




pbnbcr
April 14, 2007
Response to:
Is Sony planning a PS3 comeback?

Wow. This article is utterly worthless and a complete waste of time. The idea that Sony would release a non BD PS3 is complete rubbish. To say that Sony's sales aren't good is making me wonder if you know of its success in Europe (there are other gamers out there than Americans...). The 360 Elite is nothing special at all - an HDMI port and a 120GB HDD. That sounds great and very crippling to Sony. Oh wait, at $479, using standard DVD discs (no HDDVD unless you want to spend an extra $200), having to pay $70/year for XBox Live, and shelling out another $100 if you want WiFi makes the PS3 seem like a steal when compared to Micro$oft's 360 with all the extra costs. Add to that that Sony's profits are actually going up and one can see why this article is a waste of time. I would assume that you, having worked in the electronics field since 1985, would understand that product development costs are high at first, but everything gets cheaper down the road. Sony is not always going to lose money on the PS3, but even so, everybody knows the real money is in assecories. Plus, Sony's market is so large and diverse that it can afford to lose money on one product for a while. Way to keep up on electronics...




jack
April 14, 2007
Response to:
Is Sony planning a PS3 comeback?

I must agree with "Hmm". Arn't all of the PS3 games on Blu-ray? Would there not have to be 2 versions of each game in the stores?




Zinn
April 14, 2007
Response to:
Is Sony planning a PS3 comeback?

Ehh, the PS3 uses BD discs for the games and so it can't be removed. sorry dude...




psweeting
April 14, 2007
Response to:
Is Sony planning a PS3 comeback?

I'll admit the odds are long that Sony would do what I suggest, for a lot of reasons. My purpose was to illustrate the tight spot Sony has put itself in by deciding to put a costly Blu-ray drive in every PS3 consoles and the sort of radical choices they're facing if they mean to get out of it. As for PS3 games being released on Blu-ray discs, none of the games released so far really need to be on a high-capacity disc. In fact, if you were to press most third party publishers on the issue, I suspect most would tell you they wish they weren't on the more expensive discs. The only reason they are is because Sony controls the replication of games and requires it. But that has to do with Sony's strategic ambitions for Blu-ray. It has nothing to do with the games business. In effect, third party publishers are being asked (forced) to subsidized Sony's Blu-ray strategy at no benefit to themselves. If they could publish PS3 games on DVD9s I guarantee you they would do it. Making the switch now of course would mean reissuing some titles on DVD9s, but better to do it now, when relatively few titles are already in the marketplace. The longer Sony waits, the harder it would be to do. As for future games, game retailers are used to carrying multiple formats and configurations, so it wouldn't be an impossible burden. They probably wouldn't like it but if there were a market for two configurations they would carry them. At some point of course, developers will create games that absolutely require 25GB of storage on a disc but that day is still a ways off. When it arrives, there are workarounds available to Sony. It could issue an Blu-ray peripheral drive, as Microsoft has done with Xbox 360. Or it could make additional content available for download. Sony would get more bang for the buck putting a hefty hard drive into a non Blu-ray consoles than it gets from putting a Blu-ray drive in. In the meantime, it could better compete with Wii and Xbox and help drive desparately needed software revenue by putting more hardware into the market. Paul Sweeting




da insider
April 15, 2007
Response to:
Is Sony planning a PS3 comeback?

That's a ridiculous statement. Why would they suddenly render all the existing games, which are on BD-Rom, useless by not including the Blu-ray drive. You are seriously ignorant about technology.




you are dead wrong
April 15, 2007
Response to:
Is Sony planning a PS3 comeback?

Sony's stocks are at a 5 year high. What's the tight spot you describe they've put themselves in? If anything they are in a great spot. Look at the box office numbers over the last few years. Sony buying Columbia/Tri-Star and having many more studios now under their belt has not put them in a tight spot. The only one in a tight spot is Toshiba. Universal loses nothing by releasing in Blu-ray.




Web_Of_Hair
April 18, 2007
Response to:
Is Sony planning a PS3 comeback?

Well part of Sony's sales slump for the PS3 is in their arrogance. Face it the PS2 demolished the competition, but many things were in their favor and those same things are not there now with the PS3. First the PS2 was only $299 when it launched and most DVD players at the time were $299 or more. Playstation One was still popular as heck with very little competition. Sega at the time was being bashed left and right for a couple past mistakes, plus the Dreamcast did not play DVDs so it got more of a beat down. SEGA got beat-up so bad plus they were loosing so much money from bootleggers, so they pulled out of the console market. So we then have the PS2 at $299 that plays DVDs (still fairly new to most customers) plays PS1 games and plays the new PS2 games, so much hype was surrounding the system for years so it ended up doing very well. No one knew what to think of the XBOX and Nintendo was being bashed as the baby/kiddie system so PS2 was the obvious choice for the average customer. Skip ahead to the PS3 launch.... Xbox 360 is out and they have no plans to stop production like SEGA did. 360 is at a fairly good customer friendly price tag of $399 for the full unit, including HD cables. 360 offers the option to have HD movies via the HD-DVD add on, they are not forcing you to pay $200 extra for it. Then we have the new system from Nintendo called Wii. No one knew what to expect, but when Nintendo showed the Wii off at E3 and lines were long as heck with people waiting up to 5 hours just to get in to play it. PS3 lines were 2 minutes if that.... That alone should of showed SONY to worry about Nintendo, but SONY wrote Nintendo off because the PS2 destroyed the Game Cube in sales. We still have the PS2 system outselling the 360 so SONY became arrogant, heck I would, and figured they could sell the PS3 at any price and sell millions! Sony also pulled the shortage plan, I knew they would, by shipping only 200,000 instead of the 1,000,000+ they originally guaranteed. You still have to buy HD cables, can't they just throw in some cheap ones.... At $599 it is not customer friendly enough to make the casual customer buy it, plus when they don't see $200 worth of extra graphics over 360 it makes it a clearer choice. Plus not many casual customers own an HDTV, let alone one that supports 1080p. The Wii is very price friendly, has a whole new way of playing, so fun your parents and grandparents might want to play! Wii also doesn't require an HDTV. SONY from the start should of just offered a BR-PS3 and a non BR-PS3, and I can guarantee they would be doing at least 3x better than they are doing right now. And now finding out the PS3 is not able to play BR-Java, they claim a firmware or plug in adapter to fix it, doesn't do well for the people that were planning on buying it for BR movies.... Point is SONY forgot the customer that put them on the top with the PS1/PS2. When you are on top of the world as long as SONY was with PS1/PS2 you think you can do anything and your fan base will always follow.