The race for low-cost HD players
Sony recently lowered the price of its upcoming HD Blu-ray player, to $499.00. Though Sony claimed that this was due to lower productions costs for Blu-ray related parts, it is clearly a response to Toshiba's $100.00 rebate, which appears to have injected a lot of life into HD-DVD player sales. In the first week, Toshiba experienced gains that were 5-10 times the sales rates prior to the rebate program.
Clearly, price matters in home electronics, which isn't a revolutionary concept. The fastest selling game console right now is the Wii, which just so happens to be the lowest-cost next generation console you can buy, as $250.00. Sony still sells stacks of PS2 devices at $129.00 a pop, a console that swims in a sea of games created by that consoles past success, all of which are compatible with the PS2 (not so much the PS3). As HD TVs have sunk well below the $1000.00 mark sales have improved dramatically (though Standard Definition sets are still far and away the most common).
Granted, there are diminishing returns to price reductions, as a drop from $100.00 to $50.00 isn't likely to spur huge sales gains. $250.00 to $300.00, however, is generally acknowledged to be the "magic" price point where consumers will start to buy large numbers of video playback devices (at least, among those who own HD TV sets).
Winning the low-price race would be hard enough for Sony given the higher costs associated with Blu-ray production. Worsening the situation are flagging sales of the PS3. Reports of layoffs in the PlayStation division abound on the Internet, and in Japan, sales of the PS3 have been slowing, run over by the raging success that is the Nintendo Wii.
As reported previously, 94% of all Blu-ray players sold are accounted for by the PS3, making the success of the PS3 critical to the outcome of the HD disc format war...unless Sony and partners can convince more to buy standalone players. Not only has the HD-DVD camp done better in that regard, but they are also better positioned to offer the lower price points that have proven in the past to spur demand for video playback devices. The PS3 might subsidize Blu-ray playback as a feature, but it still costs $600.00.
Price reductions for the PS3 would be hard to manage. Sony's PlayStation division has lost $2 billion for the company, and lowering the price would worsen the situation. Even if Sony worked up the courage to lower prices, however, Microsoft has been making a profit on each XBOX 360 console for awhile, a profit that has only increased over time. This means they have plenty of room to lower prices to respond to moves by Sony. In other words, Sony could lower prices, but reciprocal price moves by Microsoft could deprive them of the sales bump they seek.
Blu-ray disc sales have managed to come from behind and pull ahead of HD-DVD disc sales. However, as noted before, that lead is shaky, built as it is on the success of the PS3. The PS3 is, at its heart, a game console, irrespective of its capabilities as a dual status device. That means the PS3 needs to succeed as a game console if Blu-Ray's sales lead is to continue, an event that appears less likely with every passing month.
By the way, "The Matrix" trilogy is now available in HD-DVD.