Sony has taken a bad beating recently in not only the blogosphere but the mainstream media as well. This is because of two products that are very much related: the Playstation 3 and their Blu-ray format. It’s really a catch-22 situation for Sony. The Playstation 3 can’t seem to get off the ground because of the Blu-ray player and likewise pundits are predicting the fall of the blu-ray format now because of the failure to get the PS3 off the ground.

Despite being by far and away the videogame market leader after the Playstation 2, Sony has only managed to move something like 1/4th as many PS3s as Nintendo, the former distant 3rd player in the industry, has moved of the Wii. This has been due to production issues with the Blu-ray players included in the PS3, and while this is by no means good for Sony, that excuse may have helped them save some face. Even if there were enough PS3s on the market, were there that many people who wanted to rush out and spend $600 on a videogame console when you could get one for $250 (the Wii)? I think it is VERY likely that all things (meaning number of units on the market) being equal, Nintendo still would be beating Sony in terms of consoles moved so far.

The production issues are bad, but it’s the cost that is really going to kill Sony. The ironic thing is that the PS3 is actually a good deal. It is BY FAR the cheapest blu-ray player on the market…and it has a whole nextgen videogame system attached to it of course.

Hindsight is 20/20 and it’s now very clear that Sony should not have tried to release the Playstation 3 with a Blu-ray player built in. This points to another major problem Sony has; they try way too hard to create and integrate their own formats into their products. No one wants a UMD movie, no one wants a memory stick, no one wants a mini-disc, no one wants whatever format it was that they tried to use with their mp3 players at first. If Sony didn’t invent the Blu-ray format would they have insisted it be included in the PS3? No.

Think about that for a second. If Sony hadn’t included the Blu-ray player in the PS3 they likely could have sold it for somewhere between $300-400, matching the Xbox 360. They could have then done what Microsoft is doing now and made a stand-alone player that you purchase separately. The 360 with the $200 HD-DVD add-on is still $600, but no one seems to notice or say anything bad about it. Sony easily could have done that and then when the Blu-ray player finally became cost efficient, then they could have included it in the PS3 (something I’m sure Microsoft will eventually do with the HD-DVD drive).

Sony claimed this week that the manufacturing problems for the PS3 have been overcome and they are now ready for a full scale roll out. Who knows if that’s true or just some Sony spin, but more importantly, Sony may be too late. The holiday spending season ends in a week and Nintendo has cleaned up with both sales and buzz while Microsoft has seen big boosts as well likely thanks to Sony’s inability to get enough PS3s on the market.

What does Sony need to do? Something rash. Something to silence critics. They need to slash the price of the PS3 $250 down to $350, undercutting the Xbox 360 and making the PS3 only a $100 premium over the Wii. Sony would be losing A LOT of money for every PS3 they sold, but they would quickly see their buzz turn very positive and sales would go through the roof. Think about how many PS3 games AND Blu-ray movies they would sell if they did that.

Right now critics are calling the Blu-ray just about dead, and ready to declare HD-DVD the winner in the format war, but if Sony cut the PS3 price that outcome could easily be reversed…especially since most still agree that Blu-ray is the superior technology.

One $250 price cut in my mind could win both the nextgen console war AND the nextgen DVD war. They’d lose a lot of money on the PS3 at first, but in the long run they’d win out. Sony is a big enough company that they could afford to take the hit for a few months.

Should they do it? Of course. Will they do it? Of course not.