Striking a Balance

What does Sony need to do to make people buy PlayStation 3? It's fairly clear that whatever the magic ingredient may be, the company hasn't found it yet. PS3 is selling, certainly, but it's not selling in remotely the kind of volume needed to challenge Xbox 360 - leaving aside Wii's flyaway sales curve.

Something needs to be done to give the console the kind of spark which will make the market warm to it. But what? All of the talk surrounding the PS3's lacklustre first few months in the market to date has focused on the reasons why the console isn't doing well. Contributions to this debate have ranged from entirely justified criticism of the price point to to rather questionable claims that Sony's problems are down to people on the Internet being nasty about PS3.

In the midst of this discourse, few commentators have actually looked at what - if anything - Sony can do to repair the situation.

The first and most obvious remedy lies with the price point of the console, which is almost universally regarded as being too high. Compared to the Xbox 360, the PS3 is an expensive piece of hardware - and in a market where even the 360's sales seem to be held back by the dominance of cheaper consoles like Wii and PS2, that leaves PlayStation 3 looking like an overpriced behemoth.

Among consumers mostly looking for game experiences, rather than high-def media platforms, Sony's arguments about the PS3's capabilities as a Blu-ray or HD video player so far hold little water when it comes to justifying the price.

A price cut seems almost inevitable in the coming months, if only because it would be suicidally stupid to leave the price at its present level. That will will certainly be positive, but questions must be asked about just how much Sony can shave off the price tag - and how much it will help sales.

As Bank of America's Michael Savner pointed out recently in an interview with Business Week, the price of the PS3 is currently so high that normal price cuts will have little impact on the bottom line for consumers.

He described a USD 50 price cut as "meaningless", and he's not wrong; bear in mind that translated to the UK, where the console retails at an SRP of GBP 425, a USD 50 cut would only bring it to GBP 400 at best. Even a USD 100 cut would still leave the PS3's price tag looking bloated, at GBP 375 or so.

Could Sony conceivably shave more off the figure? Is a USD 200 price cut entirely out of the question? There is precedent for cuts of that magnitude early in the lifespan of a console - the precedent was set by Microsoft, when it hammered down the price of the Xbox within months of launch.

Certainly, the company lost a little bit of face over its decision, but it quickly became clear that it was the right thing to do, as sales of the Xbox surged ahead. Five years on, it's unlikely that the Xbox business would be remotely as successful as it is now were it not for that tough decision on price cutting.

Of more concern is the question of profitability - and whether Sony's management could potentially see a major price cut as throwing good money after bad, given the already enormous costs associated with the PS3.

Significantly increasing the loss the company makes on each console sold would be a painful move, although it's worth noting that the PS3 becomes cheaper to manufacture with each passing day as economies of scale rack up on the Blu-Ray components used in the system.

However, given the immense success of the PlayStation business in the last ten years, Sony may well feel that the division has earned enough trust to justify this further investment. This one is impossible to call - it's certainly tough to imagine a USD 200 cut, but it's not outside the realms of possibility.

The second remedy to Sony's problems lies with software - and here some strides are being made. Successive updates to the firmware of the PS3 have turned the console into an extremely attractive system, especially for anyone who owns a high definition TV; the recent addition of high-def modes for PS2 games is an important feather in PS3's cap.

PS2 games, as played on a PS2, look awful on a HDTV - Sony's superb upscaling makes the PS3's backwards compatibility into an incredibly useful and important feature, rather than just another tickbox on a spec sheet for fanboys to argue over.

On the gaming side of things, the company's score card is still mixed, but improving. Releases on PlayStation Network are filtering through more slowly than gamers had hoped, but at least the future pipeline of games - both boxed and online - is looking more and more impressive.

Given a few more solid date announcements in the coming months (perhaps at the firm's E3 presentation), Sony will have a relatively solid winter line-up - and nailing down exclusivity on Metal Gear Solid 4 and Final Fantasy XIII would be a worthwhile strategy for the company purse, too. Hardcore gamers and those looking for quirky software, meanwhile, have found their views on the console softening thanks to things like LittleBigPlanet.

There is definitely more that Sony can do on this front, though. PlayStation Network, in particular, is simply looking anaemic right now - and we know for certain that it wasn't meant to look this way. Not so long ago, Sony was encouraging small start-up developers to work on projects for PlayStation Network, and bankrolling them from the Sony purse; but to some extent, at least, that initiative appears to have been altogether less successful than expected.

Perhaps the quality was simply lacking in many projects; perhaps, as one developer told me with some measure of bitterness, Sony simply didn't understand what a small business needs to survive, and was "an absolute nightmare to work with", a lumbering giant accidentally squashing the tiny creatures it's trying to make friends with.

Either way, the scheme needs reinvigoration. If Sony wants to match Microsoft's goodwill and Nintendo's innovation, it needs to become an incubator for small development talent, a hothouse environment which encourages small, mostly independent teams to gift the PS3 with a steady flow of clever, innovative, cheap software.

The final element which Sony needs to turn the PS3 around, sadly, is one which is in short supply. That element is time.

Time for high definition televisions to become more widespread. Time for games to finish development and woo audiences. Time for services like Singstar and Home to be launched and to mature. Time for Blu-Ray to establish itself, and become a desirable element of the console. Time for the arrogant-sounding and widely reported comments of executives like Ken Kutaragi and Jack Tretton to be forgotten by a vocal audience who don't forgive easily. Time for consumers to tire of their PS2s and look for the next big thing.

Time, sadly, is a commodity Sony may not have in great measure. The Wii continues to build a market - and Microsoft may have slowed down for now, but it would be foolish to assume that Redmond will never learn how to build mass-market games and services.

By the time Sony clambers back to its feet, there's a real danger that Microsoft, already reigning supreme over the hardcore market, will have learned how to turn out more casual, mass-market oriented games - and will be busy chomping up the consumers who were switched on to gaming in the first place by Sony's efforts in the last five years.

Equally, every day Sony spends languishing in third place is a day when publishers must question their commitment to the PS3 - and once that starts happening, it may well be game over.

It seems almost certain that within Sony, discussions and debates are taking place along these lines right now. There is an undeniable crisis facing the company - not the first it has faced in its long history, and far from the last - and there will be many options for action discussed.

It is certainly not too late for the PS3; consoles have had tougher launches than this, and gone on to be successful, and the PlayStation brand continues to be a vastly important driving force for the industry.

The danger for Sony lies in perpetuating any of the arrogance or assumptions of success which tainted its strategy with the PS3 in the year leading up to launch - because the "It'll be fine, it's a PlayStation!" attitude is what has led the firm to this impasse in the first place.

It may not be too late, but Sony's next move must be carefully considered - because there is a real chance that it could be too little.