As Sony stays mum on PS3, doubts grow

Finally, the high-end console looks as though it could break the proverbial piggy bank — not just for the consumer but for Sony too.

The company made sure to warn consumers in May 2005 that the new machine would be expensive. It didn't say how expensive, but with advanced components like a new "Cell processor" and a high-definition Blu-Ray disc drive, the PS3 will likely cost consumers more than the Xbox 360, which retails for $400.

Even at a pricey $500, Sony will be taking a loss on each machine, just as it did with each earlier PlayStation model. The company will hope to make money selling software for the console down the line — the same strategy Microsoft and Nintendo have taken.

But Sony's use of the Blu-Ray disc drive means even more is at stake for the company — Nintendo and Microsoft aren't including a high-definition player in their consoles (though Microsoft will offer an optional HD-DVD drive for sale before the year's end). The PS3 will cost Sony more to make, but the payoff in the future could be worth it.

Even the cheapest new Blu-Ray DVD players will retail for about $1,000. David Carey, president of electronics-component specialist firm Portelligent, says the Blu-Ray drive could add about $100 to the cost of owning a PS3.

Other components will drive up the cost of the PS3, Carey says. Based on his estimate that Microsoft loses about $100 for every Xbox 360 sold, he projects that Sony could see a $200 deficit per set-top box. That means consumers will pay $200 less than the cost of goods.

"This is more about egos and market share than it is about profits," says Carey. "This is a chest-pounding thing for Bill Gates and Howard Stringer. However, it's great for consumers to get this underwritten hardware."

Microsoft could already be recouping its lesser losses with surprisingly good sales of games during the holiday season. According to Wedbush Morgan Securities, Microsoft sold 4.3 games for every Xbox 360 — this in a season when overall game unit sales were down more than 10%. If each game is priced at $50, Microsoft might earn about $25 in profits per game, suggests Carey. If the average Xbox 360 owner buys four games, Microsoft will have recouped the estimated $100 loss.

If the company actually sells the approximately 5 million units it boasts it will ship by June, Microsoft will be on its way to making some serious money off the console and its games.

Sony, with loss-leading machines that could cost the company $200 each, might need to sell eight games per machine to make up the difference — a big challenge. "Compelling content is what drives the long-term success of these systems," says NPD's Frazier.

For the first time Wednesday, Sony announced six game titles that it said will launch with the PS3 in Japan. That's good news. In fact, it's the only news we've heard from Sony regarding the PS3 in a long time.

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