Publishers push for PS3 price cut

Janco Partners analyst says Sony is facing "reallocation" of development resources to market-leading Wii; predicts $50-$100 cut by April.

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Sony is in a precarious position with the pricing structure for its flagship gaming console, the PlayStation 3. On the one hand, the Japanese electronics giant is taking a beating across many of its divisions as part of the global economic climate. That problem could be aggravated if Sony were to cut the PS3's price tag, which currently stands at $399 for the 80GB model and $499 for the 160GB SKU.

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On the other hand, the hardware manufacturer is facing increasing pressure from its third-party publishing partners to lower the price of its console or risk having development resources diverted to other systems. Speaking to financial news service Bloomberg, Janco Partners analyst Mike Hickey said he believes that unless Sony can substantively increase the PS3's installed base, publishers will likely enact "a capital reallocation" of resources to Nintendo's market-leading Wii. As such, Hickey said he believes that Sony will cut the price of the PS3 by $50-$100 by April.

The call for a price cut is apparently being echoed throughout the publishing community. Bloomberg notes that publishing giant Activision Blizzard derived 39 percent of its revenues during 2008 from the Wii, as opposed to 19 percent from the PS3. Fellow publishing heavyweight Electronic Arts has also begun pouring more effort into the Wii, with CEO John Riccitiello saying as part of his company's third-quarter earnings report in February that EA must "increase focus on the Nintendo Wii platform."

"You can't ignore the guy who has half the market," EA Sports president and former Microsoft executive Peter Moore told Bloomberg, continuing, "Sony obviously still has a ways to go with their pricing." Partially EA-owned Ubisoft also expressed optimism over a price reduction, with CEO Yves Guillemot telling Bloomberg, "Anytime a console manufacturer reduces the price, software publishers benefit."

However, Sony remains committed to the PS3's current price structure. Speaking with Bloomberg, SCEA senior VP of marketing Peter Dille said that there are "no immediate plans" to shave the price on the PS3. "Everybody in the development community would love for the PS3 to be free, so they could just sell razor blades," Dille told Bloomberg, going on to say that Sony is concerned with both profitability and installed base.

As part of its third-quarter earnings report in January, Sony's games division reported sales of ¥393.8 billion ($4.01 billion), down more than 32 percent from the same period of 2007. For the quarter, Sony managed to sell 4.46 million PS3s globally, a dip from the previous year's 4.9 million units. Anticipating its first company-wide loss since 1995, the Japanese electronics company has also announced a cost-cutting measure that will save $1.1 billion through April 2010--at the price of approximately 16,000 jobs.

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