Man, it stinks to be Sony (NYSE: SNE). According to Forbes, the media company has lost $3.3 billion on its PlayStation 3 console so far. Wow. When the mighty fall, they fall hard. The PlayStation 3 is a heck of a powerful system, but the Nintendo (OTC: NTDOY) Wii has captivated players not only with its innovative nature, but with its affordable price. Right from the start, Nintendo decided to go with less costly components so that each console sold would generate a profit. Its retail price of $250 is a lot better than $500 to a consumer's wallet, especially when a cheaper system is also a lot of fun.
And talk about a hit to PlayStation's brand equity. Here's what most people think about the third PlayStation (from my experience at least): it doesn't have a lot of games available, there aren't many kid-friendly titles offered, I don't want to pay that much for a PlayStation system so I'll just wait for further price cuts. Boy, imagine if Sony has to cut the price even further. Sony already loses a bundle on each system.
Not only is Nintendo hurting Sony, but Microsoft (NASDAQ: MSFT) and its Xbox 360 is also out there causing damage. You can pick up a low-end version of the Xbox 360 without a hard drive for around $280. Too bad Sony decided to incorporate Blu-ray and hard drives into its business model for the PlayStation 3. Admittedly, I thought it was the right thing to do at the time as well, but I guess Sony and I have been proven wrong.
Hopefully, Sony is learning as much as it can from this situation so that it won't repeat the mistakes it's made when it designs the next console. The big lesson here is that people love power, but they don't want to pay for it. For now, Sony needs to promote the brand as effectively as possible, there's really nothing else it can do. An aggressive price cut will further threaten profitability. And as for investment ideas, well, Nintendo is looking better and better all the time, although I would definitely wait for a pullback on the price of the stock. If you get it this summer ahead of the holiday season, it might be worthwhile to take a look.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
6-25-2008 @ 1:45PM
Johnnymoney said...
I am an adult, one that knows the difference of QUALITY of PS3 Blueray player and a child's Nintendo game machine with inferior graphics. The comparison of cheap Nintendo machine and its $50 games, compared with XBOX 360 and the PS3 machines lacks credibility. PS 3 came on the market with chips now being used in Super Computers. XBOX360 owners exceed 10 million gamers of all ages and enjoy hours of entertainment for the entire family plus plays movies.
6-25-2008 @ 1:46PM
Dave said...
This atricle is some sort of joke right?
The writer really needs to educate themselves a little on the video games industry first. I think its quite elementary to base an article on what you think other people think of a product when you don't really know about it. How about including some facts in your article like the Blu Ray victory, the Sony PS3 sales climbing by leaps and bounds, even surpassing the XBOX 360 last November, and the PS2 still selling more than PS3 and XBOX combined. The only thing correct about this article is that the Wii is doing very well.
6-25-2008 @ 1:54PM
oldestGamer said...
As a consumer, I would rather a high tech device that is built and tested by a consumer electronics company, like Sony. If it costs too much, work longer or wait until you can afford it. Besides a price cut will come this year before the holidays. The Wii is great product but it has limitations and doesn't really appeal to the core gamer beyond an hour or so of play. No online multiplayer in most titles is one lacking feature on the Wii. Lack of storage or HD is another. So for $250 you get what the GameCube should have been. For true next gen games the PS3 is the only console built around HighDef, HD, HDMI, network and a multi user system. No further attached prices or expensive add ons required. Sure it costs more at purchase time, but you'll save when it comes to headsets, higher capacity hard drives and online play as the PS3 is the only open standards console with full free online multiplayer support!. It supports printers, USB (anything), blue tooth, BluRay. Besides, $3b is a small price to pay back to us gamers for all the high tech the PS3 brings. The PS3 is the swiss army knife of gaming.
6-25-2008 @ 4:58PM
Alex said...
When was this article written? The PS3 is already 399 and the xbox is 349. For the extra 50 you get wireless, double the HD space, a bluray player and more.
The Wii might have more games but the quality of non-kid games is somewhat limited.
6-27-2008 @ 11:30AM
GrAvEdIgGeR12 said...
The X-box 360 sucks I owned 2 and once I got the second red ring of death that was enough for me it was time to get the PS3 which is far superior to either of the other 2 systems.For one the lack of games by sony is because they rushed there product out there to compete and get some of the market , thats one reason for all the software updates you need, but if they keep coming out with games like METAL GEAR 4, no one else has a chance. If you havent played or at least watched someone else play this game , let me tell you it is AMAZING! ITS TIME FOR THE ADULTS TO PLAY!, put the kids to sleep and there wii, and pull out the PS3!!