The thing is that SCE is bound by Sony to the new strategy of making profit. SCE will have a very hard time to explain to the mother company and the shareholders why the PS3 saw another pricecut that goes directly against the strategy of making profits on the Computer and Entertainment Division.

Remember that for the shareholders only the profits are important. For all they care the whole C&E divison gets sold, if that's better for their value.

If you add to that that the results for PS3 have been far less than expected I think a PS3 pricecut in this Financial Year is out of the question, whatever Microsoft does. Sony is not in the business of beating Microsoft. It's in the business of making money.

No surprises there for me, I have followed the PS3's development for years. An amazing amount of R&D went into the product. And not by Sony alone, there have been many other companies involved with regard to the development of cutting edge components and other technology integrated into the PS3.

But the damage to the PS3's long-term prospects and the Playstation brand at large could become even more pronounced than it is now if they didn't keep up with Microsoft over the holidays.

We've seen that MGS4 can push hardware without price cuts, but short of FFXIII making it into 2008, the PS3 has NO major hardware pushing titles left this year.  Another four months pass and all of a sudden most people that are willing to buy a PS3 at $400 already have, and parents looking to buy their kids a PS3 find that its the SAME price as it was when they were going to buy it last year and found it too expensive?  I just think Sony will avoid that at all costs, even if it means they don't make a large Q3 (based on their fiscal year) profit.  And they should make a profit in their Q3 even if they are losing some money on the PS3, because the PS2 and PSP will keep the division in the black for that quarter as we saw last year.

I don't think R&D is the biggest reason for the loss, although it must be a significant one. No, the biggest part of the story is most likely the massive price cuts on a console which was already selling below cost right from the start.

For example, in Europe the cost of a PS3 dropped by 200 €... Even eliminating taxes, that's a $260 added loss (minus whatever money is saved on the PAL 40 GB vs 60 GB model).

It doesn't work like that, starcraft.

YOu made the statement that it cost billions, someone challenges your statement, YOU are the one who has to back it up, otherwise you shouldn't have made the statement.  That's how debates work.  The one with the statement has the burden of proof. Saying one thing, having it challenged and then going "prove me wrong" is ... well... wrong.

That's why companies develop strategies. Usually you have to choose. In this case it's Profit vs Marketshare/Brandname.
I'm pretty sure Sony overestimated the PlayStation brandname. When you have two consoles selling over 100 million and all of a sudden something called Wii (for $&^%& sake) takes your crown must have been an eye-opener.

So it looks like Sony's strategy is profitability. Of course they have taken into acount long-term prospects etc. but they probably feel that enough is enough.
Again: Shareholders don't like losses. They don't care about the PlayStation brand or videogames. They want the company to be as efficient as possible. If they have to give up market share on PS3 they don't care. Really.

It's not that simple BengaBenga... After all, we could have used the same argument last year to justify the impossibility of huge price cuts, which ended up happening anyway much to my surprise.

Shareholders do put up with massive losses of money, as long as the environment (which frankly isn't favorable now; struggling economies and all) and the company's explanations justify it...

Having said that, I have no idea whether shareholders would put up with another big price cut. If Sony buttered them up real well, saying they need the market share to prepare for the next generation, maybe that would do the trick?

On public forums, I find it is sensible to adopt a common sense approach to sourcing.  On the first page of this thread, Username speculated that the Xbox 360 alone cost Microsoft $7 billion.  He did so without a source and was, of course, blatantly incorrect.  But because I applied common sense, it was clear he was wrong and therefore I did not ask him for a source.

In my case we are talking about the creation of a media standard.  If it cost less than billions to develop, market and help to victory a media standard, we would see them come about FAR more often.  OF course I cannot find specifics on the cost of developing Blu-Ray, as these are closely guarded Blu-Ray consortium secrets.  But common sense tells us there is a reason manufacturors are not constantly putting out new media standards, and the reason is thta developing an advanced, managable, marketable, supported media format takes an AWFUL lot of money.

Oh I should clarify, I'm only talking about a small (perhaps $50) price cut.  I agree that a large price cut (some people still believe a $299 PS3 this year is possible) is completely unrealistic anytime soon.  I just think that the company will be able to sell a moderate price cut to the shareholders come the end of the year when the damage it would do will be less substantial.  A $50 price cut on the PS3 would easily be enough to prevent the Xbox 360 from gaining any sort of strong advantage over the Sony machine.

Last year there was a different strategy: Lose on hardware, gain on software. So last year the comany agreed on pricecuts because it fitted the business plan.
In the latest earnings release and these comments from Stringer meke it clear that the strategy for SCE has changed. The shareholders expect from the company to stick to that.