It really has nothing much at all to do with either dropping prod costs or market weakness.  Instead, Sony sees an opportunity to sell some discontinued or what a lot of people think will be discontinued soon in favor of new models, for a holiday fire sale.                    

Don't get TOO exited over $200 players, as these won't be permanent prices at all.   But at the same time, we should see players for a non-discount price by the end of 2009 according to Howard Stringer.

I would say overall good news, I think hardcore gamers would still rather buy a PS3 instead. Higher Blu-Ray penetration will benefit all Blu-Ray movie watchers including PS3 users. Mass Blu-Ray adoption will also help with driving down component and disc replication costs further, this benefits Sony's PS3 as well (game discs, movie discs and Blu-Ray drive technology).

Well, for the BD reader aspect of the PS3 to be considered useful at all, we will have to see Blu ray selling more, and the best way to do that is to find a way to make a cheaper player, as well as cheaper HDTVs, which we should be seeing more of soon. 

There is a new HDTV technology called OLED that will give some competition to LCD TVs as they will ultimately be cheaper, while giving greater color range and vibrancy.

Also, a lot of people, even Howard Stringer has said that we will be seeing players that are permanently priced at $200 by the end of 2009, so these two things can only help grow the Blu.

There are some small ways in which this is bad for Sony, but on the whole I think it's good. This is something which could slightly help Sony's bottom line, and they definitely need that.

Selling PS3s to people who are mostly/only interested in watching Blu-Ray movies may have helped Blu-Ray gain some market share, but it's a money losing proposition if they can sell them profitable (or nearly break-even) but cheaper Blu-Ray players instead.

         This^^.......Very well written......

One of the implications that i failed to flat out state was that this all amounts to is really cheap production costs. If this is possible, then who's to say that ps3 wouldn't drop it's price..?

I think it's highly unlikely for Sony to cut prices outside Japan any time soon. Certainly not with the current situation in exchange rates. Obviously reductions in production cost help, but Sony's profit margin is already bad enough without risky moves like that one.

If Sony as a whole was doing better I think they'd cut the price much sooner. As it stands, I think they have much more important things to worry about.

In any case, the PS3 isn't selling bad despite being in third place.

I agree, but I do see sony cutting price somehow (50$?) in early to mid 2009

$50 in mid 2009 I could see if:

- the next two quarters aren't dismal in terms of profit.

- PS3 starts losing a lot of ground to the 360.

(and if I may add, I think those two things are unlikely)

I don't know exactly what goes through their mind, but I think they'd need a really good reason to justify cutting prices in the current climate. They're a publicly traded company with obligations to investors after all. If I were them, I'd go into money-saving mode for a while.

Good business strategy for them right now is to hold price inspite of dropping costs. Hopefully for them, that new 500$ bundle is even sold at a slight profit.