Sony Promises Plentiful Supplies of Cheaper PS3s

Prospective PlayStation 3 (PS3) purchasers on Friday felt a collective urge to run — not walk — to their closest retailer on word that the newly discounted 60 GB models would soon disappear from shelves for good. Published reports early Friday morning of an E3 interview with David Reeves, president of Sony Computer Entertainment Europe (SCEE), seemed to indicate that the company planned to sell out the current stock of 60 GB PS3s and simply phase the lowest-priced model out of the market in the U.S.

However, in less time than it takes to download a Web page, the American arm of Sony Computer Entertainment responded. Reeves had been “inaccurately quoted as saying we would run out of inventory on the 60 GB [model] by the end of July,” Dave Karraker, a Sony spokesperson, told TechNewsWorld.

Whether a simple misunderstanding or a case of a Sony executive who said too much, these latest reports number among a growing list of apparent communication breakdowns between the PS3 maker and the press. The most recent case came just one week ago, when the company vehemently denied any plans to reduce the price of the PS3 in the U.S. only to announce days later that it would indeed cut prices.

He Said, Sony Said

In a discussion about Sony’s European distribution, Reeves appeared to indicate that the company, after allowing its U.S. supplies of US$499, 60 GB PlayStation 3s to run dry, would simply discontinue the line for the region, according to reports.

What Reeves actually said was “that if they had lowered the price in Europe, that territory would have run out of their current inventory by the end of July,” according to Karraker.

SCEA’s official take on the misunderstanding is that “as announced this week, SCEA’s product offering in North America consists of a[n] 80 GB PS3 available in August at $599 and a 60 GB PS3 available now for $499. We have ample supplies of both models to meet the needs of our consumers for the foreseeable future.”

A Good Thing?

While Sony denies the veracity of reports alleging the possible withdrawal of the 60 GB PS3 in the U.S., the news has sparked a debate among industry watchers about whether it would be a good or bad move for the console maker.

“It makes sense,” James McQuivey, an analyst at Forrester Research, told TechNewsWorld. Sending the signal to the market that the PS3 is getting permanently cheaper would hurt Sony because the PS3, which includes a Blu-ray disc player, is still an incredibly expensive device to make, he explained.

Sony is fully committed to establishing the Blu-ray as the high-definition DVD format, because losing that format war will have billions of dollars of implications over the next few years, he continued.

“So they’re going to continue to keep pushing the high prices on the PS3 as long as they possibly can, hoping to gradually establish enough volume so that they can get economies of scale in their manufacturing process and recapture some profit margin,” McQuivey stated.

Don’t Play the Gamers

On the other end of the spectrum, Michael Cai, a Parks Associates analyst, told TechNewsWorld, “If this is indeed the plan, then I’d say Sony is losing its mind.”

If Sony was just trying to “clear the channel for the new, more expensive model,” it would be a misstep for Sony to cast the plan as a $100 price cut in their communications with consumers, Cai explained.

“If this is indeed a short-term promotion to raise consumer demand … they should have announced it that way. Gamers are smart and they don’t want to be played,” he said.

A push to move consumers to the 80 GB model would not make sense, Brian O’Rourke, an In-Stat analyst, told TechNewsWorld.

“Sony’s biggest problem with the PS3 is price point, not lack of storage,” he noted.

A Question of Costs

The problem Sony faces with the 60 GB PS3, Rob Enderle, principal analyst for the Enderle Group, told TechNewsWorld, is that the 60 GB drive is simply no longer cost-effective. Phasing out the 60 GB PS3 makes more sense than a generic $100 discount because the consoles are nearly twice as expensive as they need to be. Just cutting $100 would not have done much but hurt Sony’s margins, he contended.

That said, the game maker will still need to draw down inventory and give people a reason to go back and buy the PS3, he added.

“Sony has a serious problem; my view is they need to rush out a competitive PS4 [because] they are getting killed in this segment,” he said.

Another possible cause for a discontinuation, Enderle noted, is that “60 GB products, whether it be PCs or game systems, will be hard to come by [since] the drive manufacturers, as they regularly do, have moved the value products up to 80 GB.”

If in fact the 80 GB model becomes the only one sold in the U.S., Enderle said, consumers should not expect to see a price cut.

“I don’t think they can cut the price enough given the cost of this thing. They either have to find a way to get people to spend the money — tough when a Wii is so reasonably priced — or bring the cost down so they can bring the price down and not die under a mound of red ink.

“I think we are watching Sony do their own style of Atari/Nintendo belly flop in this segment,” he continued. “They have two critical problems that build on each other: a lack of killer games and a price that is twice what people want to pay. Until they fix both they can’t take the segment back.

“Right now Xbox has content but doesn’t have the price, and Wii has the price but lacks the depth of content but has actually broadened the market by attracting families and women,” Enderle concluded.

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