I think I have more of a dispute with your language more than what you are saying.
I don't think they are a bad business or have a bad business model. Rather, I think their business model is ill-apt for this global economy. I think your point is that they should change their business model. But that is easier said than done. If they change, then what do they do when the market improves again? Switch again? Sometimes it is more important to be consistent than to adapt.
My point is, that most of the time the market is good, and their model is really good for that. It would be detrimental to change every time the market changed. You will lose brand image, you will confuse customers and you might even open the door to competitors while you open the door to a room full of highly competitive businesses and try to cut yourself a slice of the action.
As per your second paragraph. Sony didn't lose it all. They traded off a portion of one and got another. PS3 -> BR. Look, people are buying competing products because they are a lot cheaper. ANyone can tell you that. Sony's main competitors are companies that provide similar experiences at a cheaper price. Sony cannot compete with cheaper products because they have a lot of overhead. Sony is constantly in R&D and other companies generally are not. They simply take a product, find the cheapest they can make it, and then sell it for a price that they can make profit, even if only 300 million or so. One of the things Sony is known for is reliability. And if you try to compete, you will not only find yourself in a price war with smaller companies, but you will also guarantee that you will not be able to research new products for those new markets.
Yes, finding niche has been the key to a lot of very successful companies. But how many others have failed because of the same approach? In truth, successful companies usually start out as cheaper alternatives to more expensive products and build up their line from there. But once you get to the top you have to maintain it.
I find it strange that everyone is talking about Nintendo's strategy as the king of all strategies. Doing what Nintendo did is hard to replicate. Think about it, how many wii-like products have we seen in the past 10 years? The Ipod? Google? GPS? Hybrids? There's not many. For such a great strategy, you would think there would be more than just a few companies. You have to be in the right place and the right time, and you need to be lucky and willing enough to take big risks.
