Blu-ray a player in PlayStation pricing

Sony, which unveiled the specs and pricing of its PlayStation 3 at the Electronic Entertainment Expo in Los Angeles on Monday, will charge $499 and $599 for the consoles when they arrive in November.

Microsoft charges $299 and $399 for its Xbox 360, which debuted last year. It has shipped about 1.6 million and hopes to have delivered around 5.5 million by the end of June.

While it might look like Microsoft has a $200 advantage in price, the comparison is a lot more complex than it looks.

For example, Microsoft's $299 machine doesn't include a hard drive. The $399 Xbox 360, the more popular model, comes with a 20GB hard drive, making it similar in configuration to the $499 PlayStation 3.

More important, the Sony console comes with a high-definition Blu-ray DVD drive for playing movies. Standalone Blu-ray players are likely to cost close to $1,000 when they arrive later this year.

"The PlayStation 3 will look very inexpensive (compared) to the Blu-ray player," said Van Baker, an analyst at research firm Gartner. "You're paying 100 bucks for the privilege of having a Blu-ray player. It is a very aggressively priced movie player."

But that raises another question: Will consumers consider the movie question when buying the consoles?

"It's cheap for a Blu-ray drive and expensive for a game machine," said Stephen Baker, an analyst at NPD Group.

Trojan horse in living room
When the PlayStation 2 and Xbox launched in the '90s, analysts and reporters speculated that the consoles might be Trojan horses that enter the home as games machines but end up subsuming DVD players and home computers. The PlayStation 2 did help build awareness for the DVD format, but the takeover predictions didn't pan out. Sales of PCs and standalone DVD players continued to zoom.

Both Baker and Baker said the price difference between a PlayStation 3 and a Blu-ray device could work to Sony's advantage, as people who want a Blu-ray player might decide to pick up the game console instead. Still, Sony will have to outline the value benefits clearly and will have to work hard to avoid confusing consumers, NDP's Baker said.

Many also believe that buyers will sit on the sidelines until the battle between Blu-ray and HD DVD formats to become established as the successor to DVD is worked out. Consumers, in fact, have voiced their concerns on chat boards and in reactions to stories.

"If you want to force these titans into reaching an agreement on a single format, just don't buy the product. I won't be buying a player until there is a single format," wrote CNET News.com reader Brian Grant in reaction to an article in January.

Thus, the potential advantage for Sony in offering a cheap next-generation movie player could be attenuated.

Microsoft, which supports the rival standard, plans to release an HD DVD add-on drive for the Xbox. While the price isn't known, the add-on will close the delta further between the two consoles.

Still, by making high-definition DVD capability an option, Microsoft doesn't have to market the Xbox 360 as a two-function device.

Appealing to the hard core
But Sony could benefit from another somewhat unusual circumstance of the game market. Hard-core gamers--the initial target market--really don't care about price, said Chris Crotty, an analyst at iSuppli.

"I don't think the price of the PlayStation 3 is too high," Crotty said. "Look at what people were willing to pay for the Xbox 360 when it first came out. People were paying over $1,000 on eBay."

Both Microsoft and Sony have to subsidize their consoles. Each $399 Xbox 360 likely cost the company $525 in components alone last year, Crotty estimated. The subsidy on the PlayStation 3 is expected to run about $300 or $400. Declines in component prices, however, should eliminate the need for subsidies, and both companies will likely be able to sell their machines for profit in a few years, analysts predict.

Other factors will play into the mix as well. Both companies will have to woo developers to release games on their respective platforms. Sony will have an advantage in Japan, a country where Microsoft has always had difficulty making sales. Microsoft, however, has already been selling Xbox units briskly in North America and Europe.

But as far as the gaming experience is concerned--the key factor for gamers making early purchases--there doesn't seem to be anything fundamentally separating the rival consoles, analysts said.

"I can't see anything dramatically different between the two," Gartner's Baker said.