Analyst: PS3 could be third

In the next-gen console race, there are three main competitors: Microsoft, Nintendo, and Sony. While many would love to see someone come out with some sort of "Everybody is a winner, hooray!" scenario, the simple truth is one company is going to be declared the loser. Though the finish line is still far down the road, industry analysts are already predicting who will break the tape and who will bring up the rear.

Sony has clearly been the favorite in recent years thanks to the unparalleled success of its PlayStation and PlayStation 2, but one analyst firm believes that the company may tumble down from the top of the heap. In a memo sent out today, San Diego-based DFC Intelligence explained how Sony could go from first to worst.

Though the memo contains the disclaimer that the prediction is "only one of several possible scenarios," DFC appears to be leaning towards Microsoft and Nintendo coming out on top through the next generation.

The main reason DFC sees a slide for Sony is the $600 price tag on the high-end version of the PlayStation 3. Though Sony has touted the machine as inexpensive relative to the hardware contained within it, DFC doesn't think consumers will see it that way.

"Sony has done very little to justify why the system is worth a premium price for consumers that don't care about raw hardware performance and are not hard-core audio/visual consumers," DFC said. "Unfortunately we believe that represents over 90% of the consumers in the marketplace."

DFC recognizes that software plays a large part in buyers' decisions, and points out that the PS2 was so successful because of its diverse portfolio of games and large third-party support. The broad range of software made the PS2 "a complete entertainment system for the family priced under $300," said DFC.

"With the PlayStation 3 the company is going after the high-end power user. It is almost as if Coca-Cola not only decided to go with a new formula, but also decided to exit the low-brow soft-drink business to go into high-end wines," DFC explains. "Of course, there is a market for high-end products but it is 1) a very different consumer type and 2) not nearly as big as the blue collar mass market. Wal-Mart sells more toys than FAO Schwartz and McDonald's sells more beef than Ruth's Chris Steak House."

There doesn't seem to be much of an easy way to right the ship, either. According to DFC, Sony may have drastically underestimated the competition and will have a lot of trouble cutting the price, particularly in time for the critical 2007 holiday season.

"A $600 price point is okay for launch but it will not fly in holiday 2007. If Sony wants to drive unit volume 2007 needs to be not only the year of price cuts, but the year of drastic price cuts. There is going to be a shakeup in the video game industry and even if Sony executes perfectly there could be a new market leader in two years."