Word: ps3
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...Sony is charging $500 for the 20-gigabyte edition and $600 for the 60-GB box. (By comparison, the Xbox 360 costs $300 for a basic version and $400 for one with a hard drive; the Nintendo Wii console costs $250.) Throw in a few PS3 games, at $60 a pop, and you're out $900--a sum that may scare off consumers. And PS3 already frightens stock analysts. "We do not believe the machine provides incentives for buyers to buy a new machine ... except some game maniacs," Merrill Lynch analyst Hitoshi Kuriyama wrote in a recent report...
...this spring. Xbox Live, the online service, has proved popular with gamers--and Microsoft recently announced HD movie and TV-show downloads for it, a possible killer app. Sony has similar aspirations for its online offering, which is getting a major upgrade with the PS3, though for now it's playing catch...
Ironically, analysts who once criticized Sony for falling behind the technological curve are faulting it for being too advanced with the PS3. Blu-ray discs can show game graphics and movies in gorgeous detail, for instance, but few households currently have TVs that can display the full resolution of the format. That will change as prices for those TV sets decline. But consumers may also be reluctant to invest in the PS3 given that Sony and Toshiba are waging a format war over next-generation DVDs--no one wants to be saddled with another Betamax. "A lot of the technology...
Sony execs point out that similar barbs were hurled at the PS2 when it launched in 2000. Yet the PS2 became a monster hit, and still outsells even the 360. The Cell processor, moreover, isn't just going into the PS3. It will find a home in hundreds of products--horizontal, remember? As for Blu-ray, at worst it loses to Toshiba as a movie format but lives on in the gaming world as a top-notch platform...
Nonetheless, investors won't see a payoff for years. Sony will probably lose $1.7 billion selling PS3s in its 2007 fiscal year. Analysts for the Yankee Group estimate Sony spends $700 to $800 to make each PS3, creating a loss on every sale. The games division won't return to profitability until several million units have been sold, as component prices fall and revenues from higher-margin software kick in. Said Stringer: Sony will "have to generate some excitement and profits from elsewhere in the company...