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How Sony is killing the PlayStation 3

Sony has decided that reducing the price of the PS3 would be bad for business. But Don Reisinger argues that doing nothing is even worse.

In a recent interview with Videogamer.com, Sony managing director Ray Maguire told the publication that although the company is feeling pressure to reduce prices, it shouldn't be forgotten that Sony "has a business to run" and needs to "do the right thing" for its shareholders.

Maguire is obviously right on both fronts and makes two points that should be enough to make pundits and consumers satisfied. But then again, Maguire's comments smack of desperation and are a ludicrous departure from the gravity of the situation his company finds itself in.

I think consumers realize that Sony execs have a business to run and they need to do the right thing to ensure the company can stay profitable, but doesn't Maguire and the rest of the execs at Sony realize that doing the right thing isn't always keeping the price on the PlayStation 3 so high? Or doesn't Maguire and the rest realize that in order to do the right thing for its shareholders, Sony has a responsibility to be far more competitive and attempt to take control of the video game industry again?

Most consumers realize that's what needs to be done and I'm willing to bet that shareholders realize that too. Sony's responsibility as a public company isn't to "do the right thing." Sony's responsibility as a public company is to maximize shareholder value and a part of that requires the company to make the right decisions. So far, Sony hasn't made the right decisions with the PlayStation 3.

As I've mentioned before, products become successful through price differentiation or feature differentiation. Sony is losing on both counts. The PlayStation 3 is about $100-$150 more expensive than competing products in the market and the console isn't differentiated in any way.

Think about it: Microsoft has an online component that easily eclipses any other offering from its competitors. Nintendo has the Wii and its innovative style of game play. Sony has nothing that can differentiate on any significant level. Sure, some will claim Blu-ray will do it, but there's still little evidence to suggest consumers would pay more for a video game console for its Blu-ray functionality. For proof of that, look no further than current console sales figures--Sony is getting beaten handily each month.

Sony can try all it wants to prove it has the product and strategy in place to do right by its stakeholders, but I don't agree. The company has no other option but to reduce the price of the PS3 and make it a more competitive offering. If it continues to stick to its guns and claim that it needs to keep the price so much higher because of its responsibility to shareholders, I think it's doing them a great disservice.

If Sony really wants to do the right thing and address its issues, it needs to drop the price of the PlayStation 3. It's as simple as that. I know Sony will try to make a cockamamie claim that by dropping the price, it will operate at a loss and lose even more revenue, but let's be honest with ourselves: every single console maker sells consoles at a loss for a while and once it hits critical mass in its production cycle, it can operate at a profit.

Usually, that plan works. But when Sony shipped a console that was too expensive at the onset, it backed itself into a corner and was forced to maintain a price that's simply not conducive to growth. And now that component costs have dropped and Sony can afford to drop its price, it needs to. The game right now isn't about profits, it's about increasing its user base to eventually yield significant profits at some point in the future.

A lot can be said for being more competitive and making the smart moves that may damage the company's financial outlook in the short term, but become a source of great success in the long term. Unfortunately, by thinking about its financial condition in the extreme short term, Sony isn't doing what it needs to do to satisfy its shareholders in the long term.

The PlayStation name isn't what it used to be. And if Sony continues to make the wrong moves and hitch its future to a price strategy that makes no sense, the PlayStation 3 will sink into the realm of irrelevance and the entire PlayStation name could die.

It may sound extreme, but the way management is running Sony right now, it's becoming abundantly clear that that is a very real possibility.

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