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Sony (NYSE: SNE) Computer Entertainment Europe (SCEE) announced Friday that it will launch a new 40 GB model of the PlayStation 3 (PS3) in the UK, Europe, in the Middle East, Africa and Australasia. It will also drop the price of its 60 GB model of the video game console.
"The introduction of the new PS3 has been the result of extensive research into the entertainment needs and preferences of the next-generation PS3 owners," said David Reeves, president of SCEE. "It has allowed us to deliver an extremely advanced, yet incredibly affordable high definition gaming and entertainment system, configured to the needs of the next generation of European PS3 owners. PS3 has always been the device of choice for the discerning gamer and entertainment seeker, and the new PS3 is more than ever the perfect high definition entertainment system."
The move, just in time for the 2007 holiday season, should add a little pep to sales 
of the PS3 in Europe. However, in the absence of tandem announcements in other territories -- namely the U.S. -- the news could leave gamers elsewhere feeling less than special and could backfire, leading to a slowdown in sales.
A less active European online gaming community might be one of the reasons for the introduction of the 40GB PS3. The 60GB price cut could simply be a precursor to the removal of the device from store shelves, as it was in the U.S.
This SKU and That SKU
Sony's latest 40 GB model will become available on October 10 and will retail for 399 euros ($564) and Pounds 299 (US$610). Aside from its 40 GB hard drive, the new SKU (stock keeping unit) will come equipped with a high definition Blu-ray disc player, a Sixaxis wireless controller and WiFi and HDMI connectivity. The new version, however, does not offer Europe's gamers the same functionality as other models, such as the 20 GB PS3.
The console is no longer backwards compatible -- it will not allow gamers to play titles designed for the PlayStation 2 (PS2). This change was made based on preferences among the latest PS3 purchasers, said Sony, as well as the surging availability of titles for the PS3 -- up to 65 by the holidays. USB ports have also been downsized from four to two, and the multi memory card port has also gone the way of the dinosaurs.
Known as the "Starter Pack" in Europe, the 60GB model, which includes "extensive backwards compatibility" as well as an additional Sixaxis wireless controller and two first-party titles, will drop from 599 euros ($847) to 499 euros ($705). The price cut, however, lasts only as long as supplies of retailers stock of the combo deal .
For gamers, in the UK and Ireland, the Starter Pack will be replaced with a separate in-store promotion on the 60 GB model. More specifically, in the UK, a new Value Pack priced at Pounds 349 ($713) will take its place.
Until this announcement, Sony had vehemently denied any plans to offer a price cut for European consumers -- and in a sense, it may be seen as not really offering a cut at all. The company launched a similar strategy in the U.S. in July when it slashed the price of the 60 GB PS3 in North America. What was originally billed as a price drop soon appeared to be Sony's way of clearing out stock in preparation for the launch of its 80 GB version.
"The 60 [GB] is done," said Michael Pachter, an analyst at WedBush Morgan. "The 80 GB will come out and be set at that same price."
Pricing Mix-Up
None of Sony's machinations come as a surprise to analysts who had long been bullish about Sony lowering the price of its next-generation gaming console.
"It doesn't surprise me because the PS3 has certainly not been setting Europe on fire, just like it hasn't been setting the world on fire. And the primary problem is price," Brian O'Rourke, an InStat analyst, told TechNewsWorld.
"It's expensive, particularly when you look at how cheap the Wii is. It's almost a third of the price of the most expensive PS3, and that is quite a difference," he said.
Looking at the Nintendo Wii's astounding gains in the market, as well as the one-year lead Microsoft's (Nasdaq: MSFT) Xbox 360 has over the PS3, Sony had to find some way to increase market share, O'Rourke said. The quickest way to do that is to cut the price.
Confusing Consumers
Pachter, however, foresees trouble down the line for Sony's strategy, one that he said is sure to confuse consumers.
"Sony has done a poor job in managing its PS3 SKUs," he explained. "They've confused consumers, and today's announcement furthers that confusion because we see there is a 40 GB PS3 in Europe and there is no announcement of one in the U.S."
Since the devices are produced in Japan, it certainly is not as though executives in Europe and the U.S. are creating their own specially manufactured devices, Pachter pointed out.
"It's just a very disjointed marketing plan. It's confusing. You've had four different SKUs already -- 20 [GB], 40, 60, 80, and it looks like 20 is gone and the 60 looks like it is gone. They are replaced eventually by the 40 and 80," he continued.
In the U.S., consumers have gone through the introductions of the 20 GB, 60 GB and 80 GB models, with the 60 GB having been discontinued.
"I don't get these rolling releases," said Pachter. "I can't believe that Sony is so unsophisticated as to think that the only people reading this news are European consumers. U.S. guys are like, 'Where's ours?'"
If Sony is selling the 40 GB model in Europe for 399 euros, then the model would likely sell for $399 if it came to the U.S., leading gamers stateside to wonder why they do not have the same cheaper option as Europeans, he said. The questions could lead U.S. buyers to put their purchase plans on hold until they see what Sony has in store.
"The 40 gig PS3 is a great idea. The lower price point is a great idea, but it is unfortunate that Sony has chosen this disjointed marketing strategy, because all it will do is freeze U.S. consumers," Pachter added.
"Who would go out today and buy a 60 gig or 80 gig PS3 if you think a [cheaper] 40 gig device is going to come out?"
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