These days, literally the smallest whisper about falling costs of
blue-violet laser diodes will set off speculation about a PlayStation 3
price drop. Yesterday, Sony announced that it would be shipping its
second-generation Blu-ray Disc movie player for $100 less than initially announced,
fuelling talk of possibly the same cut being applied to the PS3.
Analysts sure seem to think that the lowered price of
BDP-S300 is a sign of PS3 things to come. Arvind Bhatia, an analyst with Sterne
Agee & Leach Inc., says in a Dow
Jones story, "If the cost of Blu-ray is coming down, you can drop
the price of anything with Blu-ray in it. "
What some analysts may be overlooking is that falling costs
for Blu-ray components do not mean a higher profit margin on the PlayStation 3.
While standalone Blu-ray movie players are sold at prices above costs, the
PlayStation 3 is sold at a considerable loss –
a common penetration tactic in the video game console business.
The PlayStation 3, compared to its competition, is
performing below expectations, leading to a conclusion that the video game
market is highly price sensitive. Regardless of Sony Computer Entertainment
Inc.’s bottom line, analysts have repeatedly called for a lower price in order
to stir PS3 sales. "Feedback from retailers continues to indicate that a
price cut on PS3 will be important," Bhatia astutely pointed out.
Wedbush
Morgan Securities analyst Michael Pachter said in a previous story, "The
right question to ask is whether the full bill of materials is below $499,
allowing them to cut price and still avoid losing money... The point is that if
they're ramping capacity to [5 million diodes], they probably are coming down
the cost curve for MPEG chips, dedicated disc drive processors, and every other
component. Hard to say for sure, but I'd guess that Sony could squeeze a
hundred dollars out of its cost by mid-year, maybe more."
"My
guess is that you will see a price cut this year," he continued. "I
think that the introduction
of the Xbox 360 Elite gives Sony an opportunity to cut price and claim that
they offer Blu-ray for only $20 more."
