Jittery Sony Knocks $100 Off PS3 Price Tag

After initially denying it had plans to cut the price of its PlayStation 3 gaming console, Sony (NYSE: SNE) on Sunday announced a hefty price reduction and announced a new PS3 model.

As recently as Friday, Sony's president told Reuters there were no plans to cut the PS3 price, something observers expected was coming because the console's sales continue to lag behind those of its primary rivals -- Microsoft's Xbox 360 and Nintendo's Wii.

Sunday, however, Sony said it will chop US$100 off the price of the existing PS3, which comes with a 60 GB hard drive. That brings the price tag of the PS3 down to $499.

"It is not uncommon for a company spokesperson to decline media interviews or, in this case, deny any change in product pricing until the official announcement has been issued to the press," NPD gaming analyst David Riley told TechNewsWorld.

Corporate public relations, he noted, "can be particularly challenging around major announcements such as this one. Intended plans can change just minutes before the official announcement is set to be released, so it's in the best interest of the company, as well as its consumers, shareholders and media not to jump the gun. After all, who wants to end up with egg on their face?"

New Model

The company also revealed it will be offering in North America a PS3 with an 80 GB hard drive. This unit will be sold for $599, the price of the current 60 GB console before the price cut.

"By featuring an expanded hard disk drive (HDD), the new 80 GB PS3 is designed to appeal to the online gaming and entertainment enthusiast, providing ample storage space to download more games and other entertainment content from PlayStation Network," Sony said in announcing the new model.

The PlayStation online store currently has available more than 60 playable games and game-related downloads, and is soon going to offer "expanded entertainment content," the company noted.

Sony also said the new PS3 package will include the game "MotorStorm," a racing title that allows up to 12 players to play online simultaneously. In addition, it also said that "throughout the holidays and this fiscal year," more than 120 new software titles will be made available for North American PS3 users.

Christmas in July for Developers

Sony's moves have the potential to shake up the console gaming market, Envisioneering gaming analyst Richard Doherty told TechNewsWorld.

"I think it's going to make a tremendous difference," he said. "If you look at the PlayStation and PlayStation 2 , the price discounting was almost like an escalator scale (in terms of the effect on sales)," said Doherty. "This is an earlier price cut and a higher cut than the prior ones. It's an early Christmas present for gaming developers."

Game maker Electronic Arts (Nasdaq: ERTS), he said, asked Sony for a $50 price cut, to be followed by another $50 cut after the holidays. Getting a $100 cut now is likely to "grease the rails," said Doherty, who also noted that the "MotorStorm" game being packaged with the more expensive PS3 will make the more expensive console a good deal . "What you are getting is a $60 game with it," said Doherty.

Even with the $100 price reduction, the PS3 will still cost about twice that of a Wii and $200 more than the least expensive Xbox 360. However, Doherty noted the PS3 comes with a Blu-ray high-definition DVD player, Wi-Fi connectivity and other features not found on the competitors' units.

Break-Even Point Ahead

Microsoft, which recently acknowledged problems with the Xbox 360 and tripled the length of the console's warranty, has yet to make a profit off its units. However, Doherty said, Sony should reach the break-even point on PS3 in the next few months.

"Sony may match Xbox sales numbers by the holidays," said Doherty. "And the Xbox warranty announcement is probably going to cause developers to increase their support of PlayStation 3 and Wii."

Riley was reluctant to offer an opinion about the effect of the price cut but doesn't think it's a case of Sony making a move in reaction to the Xbox warranty situation.

"We are not in the habit of making predictions, but I wouldn't tie the recent announcement from Microsoft to the price drop of the PS3," he said. "While the hardware concern is new news in terms of an official announcement from Microsoft, the video game consumer has been aware of failure issues, so I don't think reading about the announcement really shocked too many Xbox 360 gamers."