More on Playstation 3...

Paul Sweeting of Video Business Magazine has some interesting insights into Sony's recent announcement of layoffs at Sony Computer Entertainment, the division responsible for the Playstation 3. He chalks the layoffs up to a fundamental misreading of the market by Sony, and suggests that Sony has two choices:

1. Position the PS3 as an advanced digital media center for the living room that just happens to play games (which is pretty much what Ken Kutaragi said last year when he announced the PS3's pricing), or
2. Dramatically lower the price of the PS3 to compete more effectively with the Xbox 36o and Wii.

Option 1 doesn't solve Sony's competitiveness problems--in addition to the Xbox 360, which to my eyes has much better media management capabilities, the PS3 would have to compete with Apple TV, which sells at half the price.

For option 2, Sweeting suggests that Sony may have to replace the Blu-Ray drive in the PS3 with a DVD drive in order to get the cost down enough for Sony to compete with Microsoft and Nintendo.

After reading some of the cost breakdowns for the PS3, I think that deleting the Blu-Ray drive alone isn't going to do the trick--they're going to have to radically remove features in order to compete on price. From one of my posts from last year, the manufacturing cost of the PS3 was estimated to be $900. Even assuming that deleting the Blu-Ray drive and replacing it with a DVD drive saves Sony $300, they still have very little room to move on price.

One of the key sales points for the PS3 when it was priced last year was that at $599, it was still at least $400 cheaper than the least-expensive Blu-Ray player, so it was a "bargain." Well, scratch that advantage--Sony's latest Blu-Ray player will sell for $499 later this year, and several other companies (Panasonic, Samsung, LG, etc.) are also shipping Blu-Ray players and will have to be at least as competitive on price.

So, where does Sony go with the PS3? Really, the only option is more and better games. Right now, the only thing that will dramatically increase sales, even if they lower the price, is a better assortment of games--titles that are so much better on the PS3 that hardcore gamers can't afford to play them on anything else. Unless Sony can fix its game shortage soon, the PS3 risks becoming this game console generation's Gamecube--the third player in a market that can at best support 2 1/2.