It is not that long ago that the Sony (NYSE:SNE) PS2 ruled the video game business. Launched in 2000, it had a huge lead over the Microsoft (NYSE:MSFT), which was launched in 2001.

As sales of the PS2 falters, Sony introduced it next-generation platform, the PS3, in the hope of taking its once profitable consumer electronics business from a loss back to an earnings contributor. The plan never panned out.

According to The Wall Street Journal, US sales of the PS3 fell 19% in November. The paper writes "The sales decline is a heavy blow to Sony, which was banking on the video-game division to provide a bright spot as its core electronics business is hit by the global economic downturn.:

The trouble at the Sony game division goes beyond weak sales. In many ways it ends the turnaround efforts of Sony CEO Howard Stringer who got the top job in 2005. He was the first non-Japanese to run the huge company.

The PS3 is a symbol of the downfall of the company that created the Walkman and other leading technology devices. The crown of innovation has been passed to firms like Apple (NASDAQ:AAPL) which can barely keep their products on retail shelves due to their popularity.

The fate of the PS3 may end up looking like the fate of Sony which now has become a permanent second-tier tech company. Its shares trade at $20 down from almost $60 two years ago. The stock will probably never come back.

Douglas A. McIntyre is an editor at 247wallst.com.

Howard Stringer's turnaround of Sony (NYSE: SNE) is officially over. The first non-Japanese executive to lead the company was hoping to fix what the old rigid culture at the company had broken. It no longer had the leading edge in making innovative consumer electronics. Its gaming platform, the Playstation, was losing ground to rivals. Its studio business was costly, and, in the view of many, poorly run.

Stringer was going to fix all of that, and seemed to have made a modestly good start. Then, the recession mowed him down. Sony will cut 8,000 people in the hope of saving over $1 billion a year. The "downsizing" is 5% of the firm's global workforce.

Analysts will fairly wonder if the jobs might have been saved if Sony had made any real progress on picking up market share for the PS3 and making the game division more profitable. The company was certainly hurt by the falling prices of LCD TVs, which is among Sony's largest businesses.

The fact of the matter is that Springer's renaissance at Sony took too long. By the time the recession hit, he was still in the early innings of trying to make the company successful again. Now, he has been set back, perhaps by several years.

Douglas A. McIntyre is an editor at 247wallst.com.

When Sir Howard Stringer was made CEO of Sony (NYSE: SNE) over two years ago, he promised to overhaul the company and improve profits at several of its divisions, including the game operations division, which makes the PS3.

On the way to improving profits, Stringer ran into an exchange rate problem as the yen strengthened, hurting margins, and into the recession. As a result, Sony's profits dropped 72% for the third quarter. The company made only $214 million on $21.4 billion in sales.

While sales of the PS3 did increase by 85%, the game operations still lost money as the business continued to work against strong competition from the Nintendo Wii and the Xbox 360 from Microsoft (NASDAQ: MSFT).

Sony said that it had slower sales growth in its flat-panel and digital camera products. Its studio business did well because of revenue from several successful movies.

The news raises the question of whether Sony can ever be successful while it has so many cyclical businesses that range from consumer electronics to a film studio. Unlike most media companies which have an entertainment unit, Sony is saddled with margins for TVs that are under pressure from huge competitors like Canon. Its game console faces the same issues due to competition from successful rivals that currently have products that outsell the PS3.

Investing in Sony is investing in two companies with unrelated businesses. If it wants to do its shareholders a service, it should split the firm into two pieces, one which holds its content operations and one which has the device division. At least then, people could decide which "Sony" they want to own.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The big season for picking up sales, and market share, in the video game console business is the holidays. Shoppers are out buying the things for themselves and their kids. But, this is a recession holiday and that means that selling any consumer electronics device will be hard.

Shoppers are looking for discounts. Sony (NYSE:SNE) has decided to play the fool and not lower prices on its PS3. It is hard to understand why they would make such a significant mistake. It gives Nintendo and Microsoft (NASDAQ:MSFT) the chance to take the lion's share of the customers.

According to the FT, "Sony, the Japanese consumer electronics group, has ruled out cutting the price of the PlayStation 3 console before Christmas, insisting that the PS3 is better value than rivals half its price." Since the Nintedo Wii has outsold the PS3 almost every month since Sony hit the market with its new product, it is hard to see why that would change.

Sony's game business has undermined the company's earnings for several years. It was late to market with the PS3, and now it is likely to be overwhelmed in the fourth quarter by its competition.

Douglas A. McIntyre is an editor at 247wallst.com.

Nintendo already has the upper hand in the video game console market. Its Wii outsells the Microsoft (NASDAQ: MSFT) Xbox 360 and Sony (NYSE: SNE) PS3. But with its market penetration so high, the hyper-growth has to start slowing.

According to The Wall Street Journal, "After overseeing several years of rapid growth at Nintendo Co., President Satoru Iwata faces new challenges: how to keep players of the company's videogames interested, and how to cultivate a new wave of customers."

Nintendo's problems may be beyond its ability to solve. It can bring out new consoles and games for its current products, but the industry as a whole may be facing a slow period.

The newest game platforms are now a couple of years old. That means most of the ready buyers probably own one. Going after the market of people only modestly interest in the products will be harder, especially when compounded by a weak economy.

It may be easy to focus on Nintendo because it has such a large market share, but the entire industry may have problems until the next generation of consoles brings a large number of buyers into the market again.

Douglas A. McIntyre is an editor at 247wallst.com.

Microsoft Corp. (NASDAQ: MSFT) has to deal with improving sales for the Sony (NYSE: SNE) PS3. Sony has been able to get a greater number of attractive games for its console. It has also added better features to play live over the internet with friends connected by broadband.

Now the Xbox 360 will add a feature that Sony cannot match, at least for now.

According to the FT, Microsoft "has struck deals with five horror movie directors for a series of short films in a move aimed at boosting the original entertainment content available on its Xbox console." If the first part of the experiment works, Microsoft will probably go forward with more short content which cannot be seen by owners of rival consoles.

Nearly every consumer electronics device from the Amazon (NASDAQ: AMZN) Unbox to the Microsoft (NASDAQ: MSFT) Xbox has a service for downloading and playing movies. Now, late to the market, Sony (NYSE: SNE) wants to offer a similar service of its own.

According to The Wall Street Journal, "Sony began offering a video-downloading service Tuesday for its PlayStation 3 videogame console, part of its aim to broaden its audience."

When one or two companies in an industry offer a new feature, it could be a competitive advantage. But the feature of downloading movies over the internet is available on so many devices that the advantage, even for those early to the market, may be taken away.

Movie download services have become a commodity and not a differentiating feature. Critics could argue that Sony should have added the product to the PS3 a year ago. But it does not matter. At this point it is just one feature among others that everyone in the industry offers. What everyone has, no one is likely to be able to use as critical leverage to get more customers.

Douglas A. McIntyre is an editor at 247wallst.com.

Now that the Microsoft (NASDAQ: MSFT) Xbox 360, Sony (NYSE: SNE) PS3 and Nintendo Wii have been in the market well over a year and big games have been developed for each one, the longer term war for market share has begun.

Microsoft intends to win that long battle by making the Xbox more appealing to a broader group of potential console buyers. According to The New York Times," Microsoft announced a collection of new games and services for the Xbox 360 that are meant to appeal to the everyday entertainment consumer."

One of the new features are avatars that act like humans. Gamers can make their own characters and use them in some of the games. The new Xbox features will also allow people to share photos and watch movies together.

While all of that may be exciting to some potential buyers, the biggest problem Microsoft has is not Nintendo or Sony; it is the economy. A game console, a half a dozen games and an Xbox Live subscription could cost between $700 to $900 a year. That kind of discretionary spending is disappearing among many middle class households. Oil, food and mortgage costs have simply become too high.

Up until now, sales for video games have defied the drop in the economy. If a bottle of milk costs $6 and gas $5 a gallon, the trend may end.

Douglas A. McIntyre is an editor at 24/7 Wall St.

The Sony (NYSE: SNE) PS3 may not outsell the Nintendo Wii, but the big Japanese consumer electronics company may have found a way to make more money than its rival. It involves taking ads, delivered over the internet, into its game console.

According to The Wall Street Journal, "Sony Corp. reached an agreement that will allow advertisements distributed over the Internet to be inserted into PlayStation 3 videogames, a boost for what could become a significant new revenue source for games companies." Some new video games like Madden NFL may get ads within their content as well.

The announcement opens up the possibility of a game consumer revolt. After buying a game console for $500 and a video game for $60, who wants to watch ads? Probably no one.

The Sony arrangement may bring in some additional revenue, for now, but that could be undermined by unhappy customers.

Douglas A. McIntyre is an editor at 247wallst.com.

Sony (NYSE: SNE) posted a loss last quarter. That was not what Wall Street had expected. Part of the problem is that falling stock markets hurt the company's securities portfolio. Maybe Sony should stick to consumer electronics and stay out of the stock market.

The only large division of Sony that really did well was its digital camera business.

Sony made a long-term error by believing its television business could push its earnings up. Price competition in that sector has knocked margins down. Sony had also hoped that sales of the PS3 would pick up. They have to some extent, but Sony has dropped the price on the product. That is hardly a way to drive operating profits.

According to The New York Times, "Sony aims to sell 17 million liquid crystal display TVs in the year to next March, up from 10.6 million in the year just ended." Of course, if it can't make money on all those TVs, the volume increase may not matter much.

Sony says the next year looks good, but that may well not be the case. It missed numbers in the quarter announced today, and the key engines of future performance are TVs and improved PS3 sales to eliminate the losses in the company's gaming unit.

Both of the businesses are critical to a turnaround at Sony but may not do well at all.

Douglas A. McIntyre is an editor at 247wallst.com.

This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.

The Nintendo Ltd. (OTC: NTDOY) Wii and Sony Corp. (NYSE: SNE) PlayStation 3 were released within two weeks of each other, in November of 2006, as the latter two of the three "seventh generation" home video-game consoles, with the Microsoft Corp. (NASDAQ: MSFT) Xbox 360, released a year earlier, being the third. Now, a year and a half later, let's review how the two gaming machines stand up to each other.

Out of the gate, the Wii was a hit. It broke sales records, led by its revolutionary controller and Wii Sports, a silly mini-game compilation that came packaged with the console. The focus of the system was more on its unique game play, which Nintendo hoped would draw casual gamers, than its intense graphics abilities. The gamble paid off, as the Wii surpassed the Xbox 360, which was released earlier, as the top-selling console in September 2007.

The PlayStation 3 had no such luck at the start. The console's strategy, like the Xbox 360's, revolved around graphics, which made the system more expensive -- $499 for the basic PS3 at launch was double the Wii's $249 launch price. Sony also decided to intertwine the fate of the console with that of the next generation DVD technology the company backed, the Blu-ray disc. However, the release of the PS3 slightly predated the high-definition craze, and so having a Blu-ray player was not an important enough selling point to help the console at launch. Another issue for the PS3 at launch was the lack of a cornerstone franchise for the system. Xbox had Halo, and Nintendo, with its deep video-game roots, had Zelda, Mario, and Metroid. Without a "must buy" game or franchise, Sony was left out, and its PlayStations stayed on the shelves.

The theory makes sense. As the economy softens, Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT), and Nintendo will cut the prices of their game consoles to keep sales volumes up. The CEO of game publisher Activision (NASDAQ: ATVI) has stated as much.

According to Reuters, "With the rising costs of fuel and food and housing, it is more difficult to go out and buy a $399 console, and I think it's going to put pressure on the console manufacturers to reduce their prices," Bobby Kotick said.

The problem presents a delicate balance for the console makers. Nintendo's stock has soared because of the popularity of the Wii. Microsoft just began to make money in its device division in the first quarter of the year. After a number of quarters of losses, it looks like the PS3 may start to contribute to the Sony P&L.

Holding prices may keep margins high, but drop unit sales.

There are two factors that work in favor of the console producers. The first is that, as their manufacturing volume has gone up, component prices have come down. That means if retail prices are lowered, the companies can still make money.

The other factor is that all three companies get licensing fees from each video game that is sold to run on its platform. With new offerings like Grand Theft Auto IV on the market, those fees should soften the blow of lowering hardware prices.

Watch for the price of game consoles to be dropped -- and soon.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

Take-Two Interactive (NASDAQ: TTWO), the troubled video game company, is releasing the new version of its popular game Grand Theft Auto IV. The product is expected to set all-time records for the sales of a single video game title.

The Wall Street Journal writes that one analyst "predicts first-week Grand Theft Auto IV sales could be more than $400 million. On Metacritic.com, which compiles game-review scores from dozens of publications, the PlayStation 3 version of the game had a 100 out of 100 score." In other words, it will sell like hotcakes.

Leaving aside the hostile takeover offer by Electronic Arts (NASDAQ: ERTS) to buy Take-Two, the potential sales of the game raise an interesting question.

Consumers pocket books are tight. A larger and larger portion of their income is going to food and gas as the price of those staples rises. Eating out and buying clothes from retailers has clearly dropped off. Many people don't have the money to buy the basics.

In the face of all that, Grand Theft Auto IV is expected to sell extraordinarily well. Microsoft (NASDAQ: MSFT)'s Halo 3 has already set sales records. Game consoles, the PS3, Xbox 360 and Wii are all setting sales records.

Either the consumer has a little more money than most analysts think, or the only thing they have money to do is sit for hours in their darkened homes and play video games.

Douglas A. McIntyre is an editor at 247wallst and the author of Ten Stocks Under $10.

After over four years and billions of dollars in losses, Microsoft (NASDAQ: MSFT)'s game division has finally started to make money. Although Wall Street was disappointed with some of the software company's numbers for Windows and Office, the firm's "entertainment and device" division made $89 million on $1.58 billion in revenue. In the same quarter last year, the operation lost $324 million on $936 million in revenue.

According to the company, "Cumulative console sales surpassed 19 million during the quarter, up 74% from a year ago. Server and Tools revenue growth of 18% added to its string of consecutive double-digit revenue." The Xbox has finally arrived.

The news shows that Microsoft is willing to spend massive amounts of money to enter a business and stick to it. When the Xbox was launched, Sony (NYSE: SNE) ruled the game business and there was no reason to think that Microsoft could do well. Gaming could not take advantage of Microsoft's core strengths in PC and server software. The move was an attempt at diversification.

After all the years of battling, the Xbox 360 now outsells Sony's PS3 in most months. If the software company could only make money on MSN.

Douglas A. McIntyre is an editor at 247wallst.com.

Sony (NYSE: SNE) is building a virtual community for video-game players who buy its PS3 video-game console. It has been delayed again, which may say something about why the Microsoft (NASDAQ: MSFT) Xbox 360 and Nintendo Wii tend to thrash it in the sales department.

According to The Wall Street Journal, "The service will let users create avatar characters, decorate homes and interact with other users in a virtual world." It was supposed to come out in 2007, and now it may be out late this year. Microsoft has had an interactive aspect to the Xbox for more than two years. It allows game-players to compete against each other over broadband connections. The Microsoft product also facilitates online chat and downloads of video games and movies.