The ideal situations for either company.

Microsoft:

• The status quo is maintained and the 360 continues to outsell the PS3 with no further changes.
• Sony is forced out of the console market or weakened severely.
• The Xbox 360 remains profitable.

Sony:

• PS3 sales are increased and profitability is maintained.
• PS3 pricecuts are unmatched by Xbox 360 pricecuts.

In this situation its pretty obvious that as the status quo is an ideal situation for Microsoft, unless they move to severely undermine Sony with a pre-emptive strike in the U.S market it can be assumed their best bet is to do nothing as the current situation will fulfill their objectives anyway.

Based on what I think might happen for different scenarios. Microsoft has the luxury of not acting first as the current situation in an ideal one. Sony cannot afford to not move, but some of the different moves Microsoft might make are dangerous to them, depending how they respond. Column 2 has the most ideal circumstances and they offer the best chance of achieving Sonys objectives which are likely to become profitable with their SCE division.

Microsoft is more likely to act agressively in their areas of strength and the same applies for Sony. Microsoft cannot lower the price of the Xbox 360 substatntially with great success in Europe and Sony cannot lower the price in the U.S substantially without fear of a Microsoft move of equal or greater magnatude. With this in mind, the most likely pricecut in the U.S for Sony is $50 and the most likely price cut in the E.U is also $50, but they do have the option of taking $100 off the price there.

On the table above I believe the most likely scenarios will unfold like this: Sony will cut the price earlier in the year for the Amercas and later in the year for the E.U where their sales/profit are much higher and there isn't as much need to cut down their prices. With profit from the E.U sustaining the American price cut they will post quarterly profits from SCE.

The response Microsoft is likely to make is to wait and see with regards to the Sony pricecut in Americas. They have market power here and this is their major profit centre and if they move on price the most likely time will be later in the year, especially if they wish to do any revisions on the Xbox 360. With regards to others, Microsofts hands are somewhat tied here. Its hardest to say what they can/will do in this market and it really depends on what gains they can make on their previous price-cut in this market.

mod edit: Fixed your table width (Sqrl)

'Sony is forced out of the console market in 2009' should be moved from under the heading of ideal situations for Microsoft to the new heading: 'Microsoft's crack-pipe fantasies'.

Interesting read, Squillie.

Personally, if I were sony, I'd just go for "50$ drop" and then set up a healthy quotum for the coming year. Add in what they expect to gain, set aside surplus profit (aside from the one they expect anyway) and use that surplus to acquire some exclusivity or some bundling here and there where they know it would work (easiest fix: Championship manager in UK, Tomb Raider in UK, Madden in US).

A simple price cut may bring them back a bit, but they need to step up the aggression levels as well.


MS on the other (as you said) can just lay back and counterpunch.

Squilliam, you are a fan of game theory I see.
I think Sony is sunk at this point. Not just their game division, but the company in general. They are still proitable now, but I bet by this time next year they will be hemorrhaging cash. I bet they complete the PS3, and then sell of the Playstation division. They will need the money.

The possibilities for a price war, really kinda make a $50 price cut the most viable strategy like I wrote above. Its not going to give Sony 2nd place, but it will let them keep close to Microsoft and prevent them from walking away with it and still gives them a chance to be profitable.

I agree with dillanor on this one. How come everybody thinks Sony will leave the console race if they come third (serious question no intended fanbotism so please answer). I mean, ninty finished third last time and look at where they sit now.

Sony out of the console world would make perpeode sad :(.

Pretty much this is their last chance, Microsoft will walk away with Americas if they don't act immediately. So a pricecut + Killzone 2 is needed to stem the tide.

In others they can wait until GT5 releases before they act. Microsoft isn't gaining too much ground.

And yes im a fan of game theory!

Sony getting out of the console market is a possibility. I'd be very surprised if Sony didn't have to downsize in some way by next year.

That said they'd more likely do cuts among all divisions before considering something so drastic.

If the economy looks bad now, wait until 2009. Sony's best hope is for a recovery of the other Western currencies.

NJ, in your opinion, what are the chances of Sony seriously considering getting out of the console market, in case things get even worse next year for the company as a whole?...I realize we don´t really know what´s being discussed at Sony HQ, but if you had to take an eductaed guess...what are the chances?

Sony doing bad financially in the short/medium term is almost a given. If I were them I'd start thinking of ways to save money as soon as possible. Otherwise they'll be asking for a bailout like the banks and the carmakers.

My guesses of the probabilities:

PS3 getting canned: Less than 10%, perhaps even less than 5%.

SCE getting downsized. More than 70%. How serious a downsize is anyone's guess.