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Sony doesn't really have to do anything against it. Removing the Blu-Ray drive is out of the question for the PS3 since Sony wants you to buy Blu-Ray discs of their movies.

Sony won't directly compete with this Stingray model of the 360. People want a full-featured PS3, not one stripped down of its features or limited to downloads. America is certainly not ready for it and confusing the public with new models is a bad idea. It's best to let these consoles fade over time. Price cuts are really all that are needed.