Filed under: Products and services, Microsoft (MSFT), Sony Corp ADR (SNE)

Man, it stinks to be Sony (NYSE: SNE). According to Forbes, the media company has lost $3.3 billion on its PlayStation 3 console so far. Wow. When the mighty fall, they fall hard. The PlayStation 3 is a heck of a powerful system, but the Nintendo (OTC: NTDOY) Wii has captivated players not only with its innovative nature, but with its affordable price. Right from the start, Nintendo decided to go with less high-priced components so that each console sold would generate a profit. Its retail price of $250 is a lot superior than $500 to a consumer’s wallet, especially when a cheaper system is also a lot of fun.

And talk about a hit to PlayStation’s brand equity. Here’s what most people think about the third PlayStation (from my experience at least): it doesn’t have a lot of games available, there aren’t many kid-friendly titles offered, I don’t want to pay that much for a PlayStation system so I’ll just wait for further price cuts. Boy, imagine if Sony has to cut the price even further. Sony already loses a bundle on each system.

Not only is Nintendo hurting Sony, but Microsoft (NASDAQ: MSFT) and its Xbox 360 is also out there causing damage. You can pick up a low-end version of the Xbox 360 without a hard drive for around $280. Too bad Sony decided to incorporate Blu-ray and hard drives into its business model for the PlayStation 3. Admittedly, I thought it was the right thing to do at the time as well, but I guess Sony and I’ve been proven wrong.

Hopefully, Sony is learning as much as it can from this situation so that it won’t repeat the mistakes it’s made when it designs the next console. The big lesson here is that people love power, but they don’t want to pay for it. For now, Sony needs to promote the brand as effectively as possible, there’s really nothing else it can do. An aggressive price cut will further threaten profitability. And as for investment ideas, well, Nintendo is looking superior and superior all the time, although I would definitely wait for a pullback on the price of the stock. If you get it this summer ahead of the holiday season, it might be worthwhile to take a look.

Disclosure: I don’t own any company mentioned; positions can change at any time.

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This entry was posted on Wednesday, June 25th, 2008 at 10:09 pm and is filed under Products and Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.