...had people thank them for it

Make them think they are buying 2 things: A PS3 and lifetime Multi-ID subscription to the PSN.

How do you do that? By offering a cheaper PS3 with a "4 easy payments of $49.99" PSN subscription, which is actually simply making a large deposit on your PS3 and paying off the balance over 1 or 2 years.

To break it down (and I'll use US$ since working in local currency might be confusing):
Launch price was what $600? But break even price was more like $700? Lets say for argument's sake that Sony woulda made $1 profit if they retailed the PS3 for $699 at launch. So to make profit day 1 Sony needs to get $699 from each PS3 sold. They sell the launch model with full b/c 4xUSB WiFi 60gig HD etc with 4 PSN pricing plans:

1. Pay $699 now (or 3 easy monthly payments of $233) and get your PS3 multi-ID lifetime subscription to PSN with no further payments ever.
2. Pay $599 now (or 3 easy monthly payments of $199.66) and pay for your PS3 multi-ID lifetime subscription to PSN via 2 easy annual payments of $50.
3. Pay $499 now (or 3 easy monthly payments of 166.33) and pay for your PS3 multi-ID lifetime subscription to PSN via 4 easy 6 monthly payments of $50.
4. Pay $599 now (or 3 easy monthly payments of $199.66) get 1 year trial subscription to multi-ID PSN, if after 1 year you want to stay on the PSN you pay a one off $100 PS3 lifetime subscription to PSN, if you don't want PSN access then you pay no money, but if you want to sign up for PSN later then the PS3 lifetime subscription fee will be $120.

Sales banter sales banter, 10 year lifespan 10 year lifespan, blah blah blah, Sony makes profit on nearly every console sold.

The average punter forms the impression that the RRP for the console is a modest and reasonable $499. Fast forward to today and the average punter believes the RRP for the 80gig, fully b/c (or maybe software emulation), 4xUSB Wifi PS3 is $299 with 3 easy 6 monthly payments of $50 for PS3 lifetime PSN subscription, or $349 with 2 easy annual $50 payments for PS3 lifetime PSN subscription. Fall (northern hemisphere) 2009 80gig PS3 slim b/c 4xUSB, Wifi etc $199 plus 2 easy annual $50 payments for PS3 lifetime subscription.

There are ways Sony loses money on some consoles, but really most people are going to get the PSN subscription eventually. In the very least Sony would have lost less money than they have with the strategy they went with. They woulda sold more consoles (though PS2 woulda died a much quicker death), and they might just be level pegging with the 360 today and even held Wii slightly in check (though I doubt it would have dented Wii by too much). At some point they could then announce that there is so much money generating activity going on through PSN that subscription fees are no longer needed and so the base PS3 price ($199 slim) is all you pay. $199 might be a slight loss still, but the truth will be that the money generated through PSN, software sales and peripherals more than off-sets the loss.

So there you have it, good old consumer manipulation.

I believe Sony themselves claimed that the consumer was getting such a great deal since they should be selling it for $800. Also, the hardware price breakdowns backed this up fairly well off the start.

Also, this plan is essentially a credit line so now Sony has all the overhead of managing billing people. That would make things cost a lot more, so add another $100 per system. If you thought $600 was too much off the start, $900 would be way to much.

yea dude that crap is way to confusing to customers that already have sh*t for brains, i tried to tell someone the differeence between the old 40 and 80 gb ps3's and they were like "WTF he talking bout?" with customers if ur not simple and straightforward you can forget it

I think sales would be much worse with this.

Kaz should say during E3 2005: "Playstation 3 will retail for 1199 US Dolars" and at the end of the show announce price cut.

It cost $850, and the free PSN is a major asset

That would be a nightmare to organize. Why would a store that bought the PS3 at their full price allow you to finance it (and not get anything extra back!)?

Also, taking away free PSN would take away one of the few tools fanboys have to swing around.

How would they even handle the sales of this? Retailers would tell them to take a hike because they wouldn't want to deal with that. They'd be sold only at the Sony Store (or whatever they call them now) and The Home Shopping Channel.

Essentially his saying if MS can make people believe their console with online subscription and a lots of hardware issues and hardware things lacking, Sony could have made online subscription only to make the price cheaper.
If 360 fanboys really believe their console is a better deal because of initial price, Sony could do the same.
But Sony choose to give customer the best hardware with blu-ray and free online because they really though the fans would see what a great deal that was.
Customer aren't that smart to see trough the live and 360 hardware add-ons bloodsucking costs and to see how ps3 is the best value.

I would easily have paid 1000 Euro for a PS3.

Regarding me personally, I'm sure they are well beyond the break-even point.