Slim PS3 marks new round in console battle

Sony’s games consoles have endured a spectacular fall from grace. In the previous round of the console wars, Sony’s PlayStation2 stormed the market, selling 138m units to date, compared with about 24m Microsoft XBoxes and 22m Nintendo GameCubes.

But the high-spec – and high-price – PS3 has struggled against competitors. It has sold 24m units, compared with about 30m Microsoft Xbox360s and 50m-plus Nintendo Wiis.

Analysts expressed scepticism whether the new “Slim” version of the PS3, unveiled on Tuesday, would be able to put Sony back on top again. The charcoal-coloured “Slim” will be a third smaller and, more importantly, 25 per cent cheaper than the original version of the PS3 – already nicknamed the “PS3 Fat” on gamer chat sites. Ultimately, the move is believed to have been taken at the behest of major US electronics retailers, as they look ahead to the holiday sales season.

Andrew House, head of Sony Computer Entertainment Europe, denied that the cut-price PS3 was a reaction to slow sales.

“We are aware that consumers are watching their euros and pounds more carefully than before and it may make a price reduction have potentially even more impact. But it would not be fair to say this is a reaction to current market conditions,” he said.

The price cut and new design received a broadly warm response from gamers on Kotaku, a blog. “Looking at what you now get in a PS3, it’s the best value out of all the systems,” said one blogger, thanks to its WiFi and Blu-ray player.

Sony is understood to have held off cutting the price of the PS3 for so long because the cost of producing the machines – which include a powerful “Cell” processor and a Blu-ray disc player – was prohibitively high. Sony loses money on hardware at the beginning of every console cycle, but later recoups this as the manufacturing costs decline and it is able to sell higher-margin software to customers. Pushing the price down early would have made this trade-off more difficult.

But the timing of Tuesday’s price cut came as Sony recently said its games business was achieving profitability on a gross margin basis.

Analysts still are unsure how much of a lift the “Slim” can give Sony.

“It don’t think it’s the killer move for Sony, because all the others will react with price cuts as well. But it will help,” said Freddie George, an analyst at Seymour Pierce.

Sony also unveiled a host of online features, including launching its online video downloading service, linking to digital television platforms such as the BBC iPlayer and publicising content on Home, its online virtual world for games.

These are all designed to make the PS3 platform more compelling for users. The company is competing with Microsoft, which announced plans to link to Facebook from its Xbox Live online service.

“These announcements signal that there is a major arms race between Sony and Microsoft to develop these services as quickly and fruitfully as possible,” said Ed Barton, an analyst at Screen Digest, the media research firm.

“Huge companies are using digital media to enhance the value of their hardware platforms. These things, such as gamer friends lists – are more significant than people have given them credit for. This is the kind of hook that will ensure that someone buys a Microsoft piece of hardware during the next transition.”

Mr House said Sony had plans for more social networking features and would not rule out a tie-up with popular sites such as Facebook. He said the online network had become critical to the business.

“The goal is to move from a traditional short, toy-based life cycle to a longer, consumer electronics life cycle. The network allows us to give customers a better sense of value and continuous improvement,” he said.

It is very much in Sony’s interests to do all it can to stretch the length of this current cycle of consoles. Many analysts believe that, in the long run, consumers will be attracted to the superior processing power and features of the PS3.

Additional reporting by Tim Bradshaw in London and Paul Taylor in New York