Three months ago, a funny “buzzing” noise began in the darkest corners of the internet.

Two weeks ago, it grew to a “murmur,” then a low rumble, and eventually the worn and weathered machinery of the rumor mill settled into a familiar dull roar: Sony was to make an announcement on Tuesday, March 31, and they wouldn’t say what it was about.

“Surely,” mused the masses on blogs and boards, “they must be talking of a PS3 price cut. Their market share dwindles and their software grows stale on the shelves.” But, like a slap to the astonished expression on every speculators face, Sony announced it was the PS2’s price that would get the ax - not the PS3.

There are three reasons why this was a mistake; the first and most obvious of which being the thinning third-party support.

In an article posted on Gamespot.com, as well as elsewhere, a Janco Partners analyst by the name of Mike Hickey explained that “unless Sony can substantively increase the PS3’s installed base, publishers will likely enact ‘a capital reallocation’ of resources to Nintendo’s market-leading Wii.”

Third party folks want more numbers, especially considering the world’s current financial situation. They can only sell PS3 games to people who have PS3 systems, and they want more people to sell to, which leads conveniently into the second reason Sony needs to cut the price on the PS3: they need a greater install base, which they won’t get with the current pricing.

Earlier in March, Eric Brown, EA’s CFO, spoke about the current generation of consoles having yet to reach their potential. In the article, he mentioned some pre and post price-cut figures for the PS2, noting only 21% of the PS2’s lifetime sales came in at the initial $299 price point compared to 45% at the $149 price. In terms of putting more PS3’s in the hands of more consumers, the logic is fairly simple: cut the price in half, sell twice the systems.

But what about the loss on each system sold? The most recent article Google would spit out suggests that Sony loses about $48 for every 80Gb PS3 sold, which equates to about a 12% loss. So if they’re still selling at a loss, how can they justify cutting the price at retail any more?

Consider this: there was an experiment that Valve conducted on their Steam distribution software with the game Left 4 Dead just over a month ago. For one weekend, Valve cut the price of the game by 50%, and they turned around a 3000% increase in sales. Factor in the 50% cut, and Valve still came out 1500% ahead. Valve gave their customers an incentive to buy, and buy they did. The end result was that Valve made more money and their customers were happy to save a little cash, a very literal “win/win.” So Sony’s currently shipping the PS3 at a 12% loss, and if they cut the price by $50, their per-unit loss would be closer to 25%. On the other hand, with a wider install base, Sony would gain more third-party support, which would generate revenue in licensing, and they’d have a better opportunity to conduct the kind of software distribution pricing experiments that garnered (at least for one company) a 1500% return. Granted, not every game would yield a return that high, but one has to admit that 1500% sure seems a lot higher than the 12% per unit Sony’s losing now. Finally, the third and most important reason skipping a PS3 price cut was a mistake: even the people who work for Sony want a price cut. On March 20, 2009, Sony Computer Entertainment America’s Senior VP of Marketing, Peter Dille, was quoted saying, “I think it’s already well publicized that we have a very clear objective from our parent, Sony Corp., that we’re to focus on a profit objective, and with those marching orders it limits the playbook when it comes to pricing and promotion.” This quote is important for two reasons. First, it’s a Sony VP admitting that their objective is not on increasing market share, but on turning a profit on the systems. The most incredible part of that statement lies in the realization that Sony still thinks they can turn a profit at a 12% loss per unit. Dille himself, however, may have inadvertently given gamers a glimpse into the belly of the beast that employs him. “…we have a very clear objective from our parent, Sony Corp., … with those marching orders, it limits the playbook …” As Kotaku pointed out when they reported on this quote, it sounds an awful lot like Dille wants to have more options for his “playbook,” but the top brass at Sony won’t budge. The reality is that Sony is, by all accounts, failing. As their gaming division continues to lose dollar after dollar, their stiff upper lip and determined resolve seem to slowly dissipate into the stubborn tantrum of a child holding his breath until he gets what he wants. Please, Sony, listen to that old rumor mill. It’s millions of contributors aren’t whispering about what they “think” will happen, they’re speculating what they “want” to happen, and what they want – what “we” want – is a cheaper PS3.

Here's the major flaw. When Valve drops L4D by 50%, it costs them nothing. There's no physical product in a Steam download. No manufacturing costs. They've already recouped expenses on that game with millions sold, so anything beyond that is gravy.

When Sony needs to make $80 on their cut of new games or peripherals before they break even - that's a large task. We who frequent the site tend to buy a lot of games. But there are LOTS of gamers out there - the kind that would never spring for the PS3 at current prices - that might buy two or three games a year. That doesn't cover their losses.

What "we want" is irrelevant if they can't provide it without killing their business. What a corporation wants is profits - or in this case - to limit losses so that stock prices stay up and shareholders are happy. Especially Japanese companies. Corporations do not have egos about 2nd or 3rd place. Only employees, perhaps, and fans of products. And employees would rather keep their jobs rather than get laid off just to gain meaningless marketshare - in this case meaningless because selling more consoles at that price would actually be BAD for the company, not good.

You're thinking like a consumer - not like a corporation.

i dont think that most 3rd party games will sell better on the wii look at the dat on the site most 3rd partys do better on the ps3 even with the smaller userbase so i dont think ps3 will lose any support

i also dont think that the sony is losing 48$ on the ps3 right now there not going to give all there secrets out i wouldnt be surprised if there make money on the ps3 now

give it some time though sonys smart there going to wait last minute this year to cut the price of the ps3 im thinking it will be a 100$ one also

there are doing pretty good now with this price there only getting outsold by the 360 by 30k ww weekly and managed to outsell it a few week ago even with this high price point

Third party support is dwindling? What the hell? Then why did Ninja Gaiden II and Tales of Vesperia just go multiplat?

I hate hate HATE when stuff like this is based on information from some analyst, rather than e author analyzing things for themselves. There has been no indication that third parties are abandoning the ps3. In fact, it looks like the niche Japanese development crowd are just finally hopping on board (an example being the recently announced Alterier Rorona).

what a steaming pile of BS. How easy it is to demand that a company take losses when it's not your money. If you ask me, 3rd party support for ps3 never went anywhere...it even seems to have increased.

If a 3rd party game is made for the 360 without an M$ moneyhat, it still makes sense to port to ps3 to sell more. Even if the PS360 gap increases to 12 million (unlikely). The case would still remain.

Sony doesn't need a price cut right now. Judging by their recent financial statement, it would be a bad move. Ps3 won't fall below 100K any week this year WITHOUT a price cut...that's more than enough.

According to this philosophy, all consoles would get price cuts all the time. Heck, why not even pay people to get consoles from you.

The mistake is of course in not taking into account that only the software sales resulting directly from the price cut should be taken into account in a cost/benefit analysis.

Tons of people  will buy a PS3 no matter whether it gets a price cut or not. Let's assume 10 million for the sake of argument. The 3 additional million who buy a PS3 because of a price cut are not going to generate $50 * 13 million = $650 million of software revenue to compensate for the price cut amount (much less the amount they'd need to spend for Sony to break even).

If that didn't make sense, think again. The cost of a price cut is lost revenue from all the buyers of your console, while the benefit only comes from software sales to those who bought the console due to the price cut. That's why price cuts aren't nearly as common as a more naive argument would suggest.

100 reasons for 100 different things.

They will cut it when they have to/are able to/ want to. Selling 30k less a week and double the price is not reason enough right now.

Its math that i'am sure a bunch of people do every day at Sony.

Will cutting 100 push them in the red (more?) but will increased software and Br sales cover that ? will a cheaper PS2 and PSP sales be able to cover increased hardware loses on PS3 due to the cut and so on and on and on and on.

The math has got to make sense.

right now they sell few ps3's at a loss of 80 bucks. Assuming they have already made their money back on previous ps3's sold sony can use the money from costumers with their already paid off ps3's and the new ones to get back the loss they got, this easily translates into profits. But, if they were to put out a 300 dollar one at a loss of 180 they will have a larger volume of ps3's sold and a large amount of losses. This loss would be too large to be put off by game sales by people with paid off PS3's. Therefore, sony would have to rely solely on the consumers with the new ps3s. These consumers would be more casual gamers becuase otherwise they would have bought a PS3 earlier and, becuase of this, would buy less games and sony would have a much harder time recouping the losses if they recouped them at all.

Interesting that this article suggests that Sony marketshare is "dwindling", when, in fact, it is slowly edging upwards each week. The 360 has to maintain a near 3:2 ratio to keep the marketshare as-is, and the Wii a near 5:2 ratio. The Wii is holding on, but the 360 is ever so slowly losing ground (again), in that regard.

The PS3 doesn't need a pricecut to maintain the status quo, and if maintaining the status quo is Sony's goal atm, while they reorganize, then they are doing a fine job.

Sony seems to be attacking the handheld market with fervor lately, and their momentum looks to be improving quite well, while the PS3 gains more software support (esp. from Japanese devs) every day in a slow, but sure, manner.

I'm not sure why people thinks they need to break out the "red button" and chop the PS3's price -- they're doing just fine. It takes a lot of effort to turn a behemoth around -- pushing a button, that costs them a lot of money in the short-term, during a financial crisis, won't help them, or the PS3 by proxy, at all.

There is a lot of pressure for Sony to drop the price (by E.A etc) but it's quite clearly not a priority for them at the mo. They are gambling big by not succumbing to pressure to drop price probably cause they think the PS3 will win at least second place in the long term and eventually be profitable so no need to be hasty. Also there is a new (western) man in charge and I'm sure he has had something to say about it.

Honestly if they drop the price by a hundred quid I'd buy one. By 50 quid and I'd consider it.