I think things are looking okay for sony too. I think the PS3 is on its way to being a successful machine.

The only problem with their plan being so long term, is that it's very likely microsfot and nintendo will bring out follow up consoles sooner, cutting down on sony's profitable period.

Winning the format war is a big win for the PS3 and sony, and worth losing market share over.

The problem is, once blu-ray wins (which I think is inevitable, but not imminent,) stand alone players will be cheap enough to make the PS3 no longer a "Cheap Blu-Ray player."

Their early price drops forced them in to a corner where they realistically can't drop the price much more, with the huge losses sustained LTD. When a $150 blu-ray player is on the market, Sony won't be able to match it with the PS3 and will then lose a key card it is holding, the PS3's price vs other BR players.

Sony's game division doesn't want to go broke trying to sell consoles...

This is 100% fact. It has been highly documented that the winner of the format wars celebration would be short lived. Once digital downloads become the norm people will catch on fast to the technology. Discs in general will be non-existent.

So your 3 reasons why the PS3 will sell well in the long run is because it will be:

A: The cheapest blu-ray player
B: The cheapest console
C: a console with some great games that people have missed

I'm sorry, but I can tell you that none of them will come true. Here's my reasoning:

A: I don't think that anyone is buying the PS2 because it's a DVD player nowadays. DVD players are very cheap today AND offer better quality than the PS2.

B: The PS3 will NEVER become cheaper than the Wii and the 360, and when Nintendo releases a new console (what they won't be doing that fast) Sony will be forced to release a new one too. Also, unlike the GC, the Wii will survive when its successor is released as all winning consoles do.

C: From my thoughts, that really should happen, but reality proves the opposite. The Wii sees stellar sales and I guess that a lot of those 20 million and counting Wii owners never had a Cube. But did this have an impact on Cube games sales? No, not at all. You see, the masses are not buying old games even if they get the console for free, so why should they buy and old console?

Name on Digital Download store that has almost 10 million users (like ps3 has almost 10 million blu-ray owners) then i will agree.

DVD sales down 5% says warner and if you think its because people are waiting for Digital Downloads you are SADLY mistaken. Blu-rays are the future the proof is in the sales. its only going up not down where Digital Downloads are not off its feet yet and wont be for years.

I'm with Dno. To state that it is 100% fact is incredibly naive. Digital download is many years from becoming standard and anyone that believes otherwise clearly does not have a very realistic grasp on the situation. And why do you say "highly documented"? Apart from being an unconventional use of the English language, the statement is inaccurate, as the overwhelming majority of industry professionals do not expect digital downloads to gain a dominant market share within the next 5 years. Personally, I don't expect it in the next 10.

And as a point of note to those that believe DVD's dominance means that Blu-Ray will not be successful: DVD ownership did not exceed VCR ownership in the US until 2006. Do you think there were people in 2005 saying that DVD was not a success?

BD as a medium is in it's infancy, but the market will grow as HD becomes standard and players drop to mass-market prices. In the absence of direct competition (which it does not currently have from DVD or digital distribution), Blu-ray can simply not fail.

A couple of comments:

We can only make guesses as to what is Sony's real strategy, but rest assured they have a strategy. Or perhaps multiple strategies and a company of that size tends to have different factions who not always work on perfect harmony. But, at least the gaming division has a strategy, and it is way too early in to really assess whether it is a good or bad strategy and if it is working as intended.

I personally do not believe that the execs at Sony believed the brand name would carry PS3 to a PS2-level success at launch prices, they are not stupid people. However, it seems probably that PS3 is not exactly what they originally bargained for, at least the considering the cost of the system and that it was losing so much money early on. On the other hand, it seems that Sony is using PS3 as a pawn in the format war, and by winning the war they hope to recuperate losses in other divisions, such as stand alone players and royalties/licence fees.

It remains to be seen if they can actually offset the losses sustained so far, and they probably have to sustain even more losses due to the pressure from competition. Right now, the competition is other console manufacturers, but as soon as stand alone player prices come down, the competition on that front will make life harder for the PS3. It is interesting to see how Sony will position their own stand alone players against the PS3. At that point it is important that there is no internal friction between divisions, to minimize internal competition which will not increase profits.

I think happySquirrel had some excellent insight into the future of PS3 against other consoles. Unless Sony can manage a big enough game library, which will be hard given the current install base and cost of development, there will be little incentive to buy the PS3 once it has reached 300$ or 200$ price points. And to make things even more difficult, the games that will be released 2 to 3 years from now are starting planning/production now, and Sony has to be able to assure the 3rd party developers that their investment will be profitable, and preferably more so than other options.

Personally I have mixed feelings about the future of PS3. It does have great potential, and I believe that the sales so far have been actually quite good considering the price. However, the games released now have been in production since before the launch, and it remains to be seen how the library will develop now that it is clear the Wii is annihilating all competition. I don't think the other features that are in development for the PS3 really add that much value to it, because they tend to take away from the gaming capabilities of the system. Of course, if that is the direction Sony wants to take, the it is the right thing to do, but with such small hard drives I don't see the PS3 as a good multimedia-hub. In addition, I believe that people generally do not want an all-in-one device, at least not until they are as usable as multiple dedicated devices.

Current Performance is NOT proof of future success.

There is no way to tell if Disk Based media of DD media will be dominant in the future.

Until then, DVD is still king.

 Digital delivery for HD material is long way from being realized most anywhere except some asian countries. Seriously, an average internet connection needs to be much faster before that becomes realistic. It will take 4 years or longer to actually become feasible, let alone a large amount a users.

Last time I checked, Sweden was not an asian country...

But people will adapt to different content at different speeds. Just a simple breakdown, you have

SD short clips (music videos, news segments etc)
SD shows
SD movies
HD short clips
HD shows
HD movies

All these are happening, but at different speeds. The problem is not so much with bandwidth but rather with the interface.

Oh, and I might find the PS3 interesting as a Linux box replacing my PC. The Sony strategy looks like "throw everything at the wall and see what sticks". It seems like at least some things stuck.