Less than nine months after unleashing the next-generation PlayStation 3 (PS3) video game console, Sony has cut the price of the expensive device by $100 in the United States, to $500. Sony has faced stronger-than-expected competition from Nintendo's Wii, and with quality control problems forcing Microsoft to take a $1 billion warranty hit, Sony felt this was the right time to renew its competitive push.
Typically, video game makers reduce prices on their consoles as component prices decrease and R&D costs are recouped. But this price change is coming quite early in the PS3's life cycle, and Sony was already looking at years of losses before it recouped any development costs. By lowering the price now, Sony will take further losses on the console, but the company hopes to make up the difference with increased sales of game titles, peripherals, and online downloads. Microsoft, by comparison, started selling the comparable Xbox 360 system in November 2005--a year before the PS3, or about 20 months ago--and it has yet to lower prices. Indeed, Microsoft has actually introduced a more expensive Xbox 360 model in the interim.
Sony's radical shift in strategy comes after it has, so far, conceded the next-generation video game console market to Nintendo and Microsoft. To date, Sony has sold less than 4 million PS3s, far below expectations, and the console is a distant third behind the Wii and Xbox 360. If anything, sales have recently slowed. The company hopes that a lower price point, which puts the console closer to the Xbox 360 price range ($300 to $500, depending on the model), will make a difference. However, the PS3 is still twice as expensive as the Wii, which sells for $250.
When Sony announced PS3 pricing last year, it defended the high price by explaining that consumers would understand they were getting the very best technology for the price. The gambit didn't pay off, however: After Sony wasn't able to make enough of the expensive consoles to satisfy consumer demand during the holiday 2006 selling season, consumers simply began looking elsewhere. In the end, the market for a $600 console is dramatically smaller than Sony had hoped.
But Sony will keep trying. In addition to the price cut on the current PS3 model, which sports a 60GB hard drive, Sony in August will begin selling a new PS3 model with an 80GB drive. This version of the console will cost, yep, $600 and will also include a free video game.