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Sony Hints It May Cut Prices on PS3 Game System

With all the attention on Sony’sfirst quarterly loss in 14 years Thursday, another announcement that was overlooked. Sony, while avoiding the words precisely, came close to confirming it will cut the prices of the PlayStation 3 this year.

Sony Playstation 3
Source: Sony
Sony Playstation 3

If so, it's good news for consumers—and could increase pressure on competitors—but such a cut could add to the growing pool of red ink at the electronics giant.

Sony confirmed it met its goal of 10 million PS3 sales in fiscal 2008. In its fiscal 2009 guidance, though, it raised the PS3 sales goal to 13 million—a 30 percent increase.

A jump that big automatically signaled a pending price cut to analysts, but Sony added fuel to the fire in the question-and-answer period during a conference call with overseas investors.

Asked specifically about price cuts, Sony corporate executive officer Nobuyuki Oneda said the company had no announcements to make at this time.

"This is a very serious issue," he said. "If we announce our pricing strategies, that affects our inventory level."

Minutes later, when another analyst asked how the company planned to reach the higher guidance number, though, Oneda said, "Well, I think you have to guess what will be our pricing strategy."

Any price cut for the PS3 would be good news for consumers. At $400, the system is by far the most expensive gaming machine on the market. That, combined with an underwhelming software lineup, has resulted in slow sales.

A cut has been widely expected this year. Industry observers have been debating whether the system’s retail price would fall by $50 or $100. Sony, though, has adamantly denied plans to reduce prices. Thursday was the first step back from that.

By essentially pre-announcing the cut, however, Sony may have made a strategic error.

The company will hold a press conference at the Electronic Entertainment Expo, the video game industry’s annual trade show, on June 2. This is when many observers expect a cut to be announced.

But by waving the price cut flag early, the company warns consumers against buying a PS3 for at least the next two-and-a-half weeks.

A second school of thought holds that Sony may hold off until this autumn to cut prices. The company currently loses money on every PS3 it sells—Sony makes money from software that runs on the systems. By delaying a price cut, it avoids increasing those hardware losses.

But with the cat virtually out of the bag, consumers could wait several months before committing to a PS3 purchase. And retailers, seeing the slowdown, could scale back on hardware orders, which would ultimately hurt Sony’s bottom line even further.

Microsoft and Nintendo have both established notable leads in hardware sales in this generation of gaming consoles, leaving Sony, the one time king of the video game hill, in the unfamiliar position of third. The company has a strong software lineup planned for the back half of 2009, though, which when paired with a less expensive system, could help them regain ground quickly.

Whenever it comes, the PS3 price cut would be a boon to the video game industry as a whole. Third-party publishers, such as Electronics Arts and Activision-Blizzard will see overall sales increase as the PS3 installed base grows. And specialty retailer GameStop would benefit as well.

The question now becomes how big a price cut will Sony decide upon. GameStop’s CEO has already voiced his vote for a $100 reduction. Analysts seem to agree.

"We … believe the sweet spot for console sales is below $300; thus, a price cut of less than $100 would likely be perceived negatively by the market," wrote Colin Sebastian, senior vice president of equity research for Lazard Capital Markets, in a note to investors. "For Sony PlayStation, we believe the next 12 months are critical to regain market share."