@NJ5: Hasn't sony always been doing profit (no matter how small)? I can't imagine them being so daft to spend all their profits and not keep something "for a rainy day".

They may get hit by the crisis (like many others will / have been), but that severe seems weird to me.

Is Sony in that much of a dire situation right now? It's currently dead last, but I doubt downsizing will happen that fast. I'd say it might begin in 2010 at the earliest.

It's true that Sony has been doing profits, but very fragile ones. Their profit margins are ridiculously low, in the order of a few percent if I remember correctly.

Couple that with Western currencies losing around 20% of their value, with the knowledge that most of their sales are done overseas. Add in lower consumer purchases, and you have the recipe for severe problems at Sony.

@Squilliam

Your graph is flawed, because it neglects another valid line of thought. Either the manufacturers can stay put, or decrease the price point in your scenario. For Sony that may very well be the only options. However Microsoft has a third option, and that is value increase. Not so much as games included, but library acquisitions. The infamous purchasing of exclusive titles for their platform.

Microsoft has reached the proverbial main stream price point. So they probably would focus assets towards purchasing exclusive games, and that is actually strategically the soundest decision. Allowing them to crush Sony from two entirely different angles. Either forcing Sony to fight on both fronts, or forcing Sony to concede defeat in one area or the other. Sony probably could not do both. They either need to preserve their library or lower the consoles price.

Bottom line Microsoft has a lot more flexibility in their strategy. I would be more apprehensive about what games Microsoft has on the roster for next year. That could be their knockout blow. While Sony is trying to find a way to reduce the price. Microsoft could build an unstoppable lineup.

@perpride - When Nintendo was in 3rd they were still making a ton of cash. Nintendo doesn't follow the 'blades and razors' model of selling consoles at a loss. They always make money. Sony on the other hand will probably end this generation in the red. If they continue with a PS4 expect a radically different approach to the business because the current model sucks. As it stands right now all the profit Sony has ever made off of PS & PS2 has been lost on PS3.

MS is also extremely deep in the red from past loses despite some small profit for the last two periods. It should end this generation in the black from 360 but probably never recover the 4 billion lost on xbox.

Therefore if Sony as an entirety starts to bleed cash, which is very likely in the current marketplace, jetising the PS division would immediately help the bottom line. Not saying it'll happen but you know they must be at least considering it should things go awry.

Sony wont leave the console market, not a chance. Look at Nintendo. The Gamecube was a flop but look at the Wii. I also think the PS4 will launch cheap, cheaper than the next Xbox

If they don't make a profit and then do a substantial cut like $100 like a lot of people want Microsoft may react by attempting to bury them financially. If they cut the price by $100 and Microsoft follows suit they can rack up even heavier losses and Sony as a whole cannot afford such losses. If Sony drops out of the console race next generation then Microsoft would have achieved their objective and a two horse race is potentially more profitable than a 3 horse race.

Essentially the safest thing for them to do is attempt a profitable third place rather than try to take on Microsoft who have a larger install base and the Live revenue streams and can afford to slash prices.

@squill............thats a shit read, honestly it is............ps3 is doing perfectly fiine considering the economic downturn, a 2009 price cut across the board will sell more ps3 consoles than 360, u seem to be a sales man and u would have noticed ps3 sales in 2008 it did perfectly fine. once ps3e reaches a mass market price like 360 has, i dont think mcrosoft would be able to compete............. u r amoungst the ones who kept quite during the year, and now that impulse purchasers are buying more 360 than ps3 for xmas uve decided to come out of the bike shed and try to paint doom on ps3 wen theres nothing to paint doom about anyway.

My bet for 2009 out of your choices is:

- Microsoft does nothing, Sony drops by $50. Unlikely it will be by $100.

Dropping the price to $350/$450 will still be huge though and increase sales to 360 levels. $100 price cut to $300/$400 would put PS3 sales well above 360 sales and even rival wii sales.

I beleive there is higher demand for PS3 than 360, its just the price stopping people from buying the PS3. Why spend $400 when you can spend $300 on the Premium Xbox which has most of the same games except some exclusives.