Sony President Dismisses PS3 Price Cut Rumors

Sony (NYSE: SNE) has no plans to cut the price of its PlayStation 3 consoles, Sony President Ryoji Chubachi told Reuters during a press interview, despite hints from the electronics giant that it might do so in order to rev up disappointing sales figures.

The price point for the PS3 has long been seen as a sticking point for greater sales of the device, which comes loaded with processing and graphics power, a massive hard drive and Blu-ray high definition DVD capabilities. The result is a console that costs twice what the most popular console now on the market, the Nintendo Wii, sells for in most markets.

Optimism on Market Position

Microsoft (Nasdaq: MSFT) announced this week it would launch the Xbox 360 Elite in Japan in October with a lower price tag than the unit sells for in the U.S. That price cut means the Elite, which features many of the same types of high-end capabilities, will be available for a lower price than the PS3.

Chubachi expressed optimism that the PS3 would gain a stronger market foothold over time, citing the track record of the company's first two consoles in the PlayStation line, which steadily picked up steam over time as more third-party publishers rolled out games for the platforms.

The early sales figures of PS3 mirror those of the PS2, he noted. The PS2 also had a relatively slow start but is now the best-selling gaming console of all time, with some 120 million sold, and remains a big seller.

Catching Some Blu-rays

Just last month, Sony CEO Howard Stringer was quoted as saying the company was studying what impact a price cut might have on sales of the PS3.

While Chubachi said no plans are in the works for a cut, that doesn't mean one won't happen eventually. A price cut before the upcoming holiday season might lead to higher sales, and any surge in sales could in turn convince more publishers to create additional game titles for the PS3.

One concern for Sony and its investors is that game companies will devote more resources to creating titles for the Wii or the Xbox than the PS3. That might create more of a drag on sales over the long term.

It's widely believed that Sony is already selling the PS3 for a loss or at break-even given the awesome amounts of computing power it contains.

Speculation that a price cut was imminent -- and that Sony might use the upcoming E3 gaming expo to announce it -- has ramped up considerably in recent days. The game-focused Web site GameDaily posted an image of what it said is a soon-to-be-released Circuit City (NYSE: CC) advertisement offering the PS3 for US$499, $100 below its current retail price.

One reason the PS3 prices may come down is the success of the Blu-ray format for next-generation DVD playback. The success of the Sony-backed standard has meant increased production of Blu-ray components, which in turn has meant lower prices. The Blu-ray player is a significant portion of the fixed costs in the PS3, said In-Stat analyst Brian O'Rourke.

"Sony doesn't want to take any larger losses, but if component prices goes down, it might buy it some flexibility to be more aggressive," he told the E-Commerce Times. "The high price point has certainly affected sales to date."

Playing Leapfrog

Sony has been on the defensive in recent weeks after a surge in investor interest in Nintendo, whose Wii has taken the gaming sector by storm and by surprise, vaulted that company over Sony in terms of market value.

Chubachi also claimed Sony was well on the road to having more consistent profitability, predicting a total profit margin of 5 percent and a 4 percent margin for the electronics division, which is getting a boost from sales of flat-screen TVs as well as the Blu-ray players.

Given that focus on profitability, Sony may wait as long as possible to cut prices on the PS3, eschewing the chance to make a splash at the E3 expo by doing so in favor of waiting until the holiday season, Pacific Crest Securities analyst Evan Wilson told the E-Commerce Times. With Sony's fiscal year ending in March of 2008, the company could blunt the impact of a price cut and still get a big boost during the busiest sales season.

Sony already loses "several hundred dollars" on each unit it sells, meaning that any additional price reductions would directly impact the bottom line, Wilson said.

"Sony is making careful and specific calculations about profitability right now," he added. The past experiences with respect to market share may give it confidence that it can take a long-term view of that battle as well, Wilson noted. "The PS3 is going to be selling for a long time to come," he concluded.