first blood!!

That's obviously one of the potential consequences of an economic downturn. People become much more cost conscious. Instead of buying the top of the line Panasonic or Sony LCD using their 18% interest credit card from a bank which went bankrupt, they buy the el-cheapo Walmart LCD using the pocket change they dug out of the couch (or just keep their old TV which still works fine).

Its kinda what I said and couldn't agree with you more. I hate to see the PS3 failing in sales, but Sony has completely overlooked of how sales can end up that badly. Not sure about the US but in Europe in some countries we had a recession. In the Netherlands there's been a recession for like 5 years and still going on. That's why our economics isn't growing nor falling but people have less money to spend every year as things are getting more expensive, but we don't get a dime extra.

During the financial crisis a lot of companies and banks are going bankrupt due to the hard economic times we are all facing. How long will the downturn will last for?
Sony along with lots of companies are all going through hard times and less people are buying luxury products and watching every penny they spend.

I hate to correct you, but our fine country is one of the few European countries that's actually NOT in recession. We do have lower growth though and probably negative growth next quarter.

Thats pretty much what I expected. Unfortunately this credit crisis has hit at almost the worst possible time, they have a lot of games set to release next year and every lost sale now will hurt them additionally when they consider the 1/2 possible first party title sales they lose as well.

The number of studios they have now was only really tenable when they had a PS2 sized userbase, currently they are trying to feed a developer population greater than Nintendo on the userbase of a third place console 2 years into the generation. Furthermore, theres some pretty hefty third party competition for games next year as well so its not like a Nintendo Gamecube where they knew they would sell like hotcakes inspite or because of a lack of competition.

hope the recession in US can last longer :P

That's quite an important observation on the unsustainability of having so many 1st party studios for a small userbase. However, what would happen if they were to close down a lot of studios?

How to keep the appeal of the PS2 in the so called "emerging markets"? How to keep the faithful Sony fan on board for the PS4 when a lot of franchises are gone? Unless you think 3rd parties can carry the PS3 by themselves, it doesn't seem like a very good idea to close down a lot of studios.

In my opinion, SCE must either stay more or less as it is or just get scrapped. Middle-ground solutions don't work very well here. It's not analogous to eliminating a few models of TVs or phones that everyone will soon forget about.

Their issue is that they only have one Halo sized release in Gran Turismo. They have too many average or "middling" series really. They spent up large, perhaps they didn't spend wisely with the money from the last generation. You could say they were too keen on copying Nintendos strategy. Average games and studios do not generally become console selling material, and if they give you a financial loss as well it doesn't make sense to keep them on.

@Squilliam: So you're saying that a lot of their studios are not necessary to keep the PS2/PS3 going and jump-start a future PS4?

I realize that I may be overestimating the importance of some of their studios, but given that 3rd parties have probably lost most of their illusions about the power of the Playstation brand, I believe they'll have to mount a serious development effort if they want to make a successful PS4.