Cost vs.Technology: The Gaming Battle Between Sony, Nintendo and Microsoft

Sony, the world's largest maker of video game consoles, has been heavily criticized in 2007 for its handling of the birth and early life of the Playstation3, but with hardware sales on the rise and software coming out more regularly, things are slowly but surely looking good. Keeping production costs in check is something Sony has not been able to handle until recently.

The inclusion of Blu-ray and high-end graphics and central processors that Sony was making a hefty loss on the console at launch. Over the past few months, Sony has steadily refined the PlayStation 3 hardware, dropping extraneous parts, such as the chips that helped the console play back older PS2. The 40 gigabyte PlayStation 3 obviously has fewer components than more powerful models, and uses less power, which means that components required to dissipate heat, for example, can be smaller, so there is some cost reduction there. Sony was losing up to US$300 on each unit sold, according to calculations made in late 2006. Thanks to cost savings introduced over the past year, Sony is looking to do what Nintendo has been doing all along and start making money on the console. See: http://games.kikizo.com/news/200801/012.asp

And even if Nintendo did not have to try so hard, in Japan alone, Nintendo Co Ltd's Wii outsold Sony Corp's PS3 by more than 3-to-1 in December 2007 during the Christmas season. Nintendo sold 774,123 units of the Wii in the five weeks to December 30, compared with 232,421 units of the PS3. The PS3 beat the Wii in Japan monthly sales in November, its first monthly win since the consoles' launch a year ago, thanks to price cuts and a release of the new PS3 model. But Nintendo launched its "Wii Fit" home fitness game on December 1 in Japan, breathing life back into Wii demand.

Microsoft Corp, which competes with Sony and Nintendo in the global videogame industry, sold 38,994 units of the Xbox 360 in Japan in December. Although popular in North America and Europe, the Microsoft machine has been struggling in Japan, the home market of its two major rivals. See: http://www.reuters.com/article/companyNews/idUSTFA00293420080107

Sony will finally discontinue the sale of its priciest PS3 players in Japan this month after the introduction of a cheaper model helped the company gain market share. Sony will stop selling the 44,980 yen ($410) console that's equipped with a 20 gigabyte hard-disk drive and the 60-gigabyte model that sells for 54,980 yen. Sony's games division has lost money for seven consecutive quarters because of costs to develop the PS3 and sales that trailed Nintendo's Wii and Microsoft's Xbox 360 in countries such as the U.S.

Sony's stock fell 1 percent to close at 6,130 yen on the Tokyo Stock Exchange today. The shares have dropped 1 percent this year after climbing 22 percent in 2007. See: http://www.bloomberg.com/apps/news?pid=20601101&sid=aBQ9AX2sguYs&refer=japan

Following a price cut, improved game line-up and availability of a lower priced model, Sony managed to move 1.2 million PS3 units in North America during the crucial holiday shopping season, providing a significant boost for the gaming platform and - Sony claims - the Blu-ray disc format. The PS3 rivals Microsoft's Xbox 360 and Nintendo's Wii in the multi-billion market for video game content. At the end of the day, most consumers look more keenly on the cost and value for their money.