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Is Sony Casting a Loss-Leader with the PS3?

The standardization debate over format for higher capacity, high def dvd’s is still boiling and the battle lines still being drawn.  Depending on whom you ask, and what data you measure, either of the competing formats is winning.

BluRay, with about 50gb storage, is backed by, among others, Panasonic, Mitsubishi, Phillips, Pioneer, LG, Dell, HP and championed by Sony.  It has generally non-exclusive support from its affiliated movie studios like MGM, Disney, Buena vista etc.  HD DVD, with about 30gb storage capacity per disc, is backed primarily by Toshiba, Nec and Sanyo on the technology side but it has Paramount, Universal and Warner brothers (including New Line) planning to offer content.

Ultimately, consumers will determine the victor – and it will almost certainly be price and available of content, not technology that influences their decision.  

With that noted, is the holiday season’s  introduction of Sony’s newest flagship gaming platform with included Blue-ray player, the PS3, more about the gaming for the player, or the gamesmanship in industry? 


At the introduction price point of about $599, the consoles are being sold at a loss.   Stand alone BluRay dvd players are running upwards of $750 dollars, and that’s without hard drives or any of the other elements bundled in to the PS3.    Analysts in late November were predicting significant losses for the gaming division at Sony (in part due to supply issues (with BluRay related components no less) limiting the available units to be sold, including the delayed launch of PS3 in Europe.  )

The question is: is this loss-leader an effort by Sony to capture and control more market share over Nintendo’sWii and Microsoft’s Xbox, and make it back on game royalties? Or is it justified as brand building and counted on for the indirect relationship it will have on other Sony product lines, particularly with its dream demographic (who more represents the tech gadget buyer than the cutting edge video game player today?) ?  Or….is this a major effort to grab territory for the ongoing Blu Ray vs HD DVD battle?  The bundling of the Blu Ray DVD Talladega Nights with an allotment of the first sales, hints the later is at least part of the plan.

Sony hasn’t hesitated in the past to try and force industry adoption of its preferred (and proprietary) technologies over other competing concepts.  Its tactics haven’t always been successful.   Beta (yes, Beta was a proprietary Sony video standard), Mini disk? Memory Stick anyone?  Sure, sure, Memory stick devices are alive and well, but sales of memory stick based Sony devices have been undoubtedly hurt by the more widely available, interchangeable and commodity priced flash memory cards in the marketplace;  notably in the digital camera market.

It’s still too soon to say whether marrying the flagship, revenue-producing gaming division  to  BluRay will help win the technology battle,  or the gaming wars (Xbox 360 has a 1 year head start and Wii has some cool tricks)….or whether it’s even a smart move but it is aggressive. 

I don’t think I’d have taken that kind of gamble, but if I was to make a bet now, if early buzz is any indicator – my bet will be on Nintendo, and not Sony in the gaming wars – and I’d stay neutral on the DVD format battle. Sony’s had some great success stories but they’ve had some big failures too.

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