Price Drop? SKU You, Buddy!

After being completely ravaged with internet speculation all week Sony let loose their planned E3 announcement late Sunday night. Starting immediately the Playstation 3 60GB model has dropped $110 from it's pricetag, making it $549 CAD. Also, coming in August will be a newer SKU with an 80GB hard drive and MotorStorm packed in for $699. This is good news for everyone who was waiting for the price-drop to pick one up.

However, is it any indication of Sony's lackluster success with the console in it's first 8 months that a price-drop, the fastest in game history, is required for the system to seem viable in the market? When I first heard the rumours I talked to a Sony representative in Toronto, he denied the possibility of a price drop but did mention that the cost of parts to produce a PS3 dropped $100. This means that rather than inching closer to turning profit for their machine, Sony has been forced due to bad sales to flip the discount to the consumer side. They truly are in a difficult position where without their high price-point the console is loosing them tons of money per unit, and with it noone wants to buy.

Thus the 80GB unit. Packing in an aged 1st party title is an age old trick in adding inexpensive "value" to a system. MotorStorm, while retailing for $69, does not cost Sony $69 to make. Most companies sell $10 first party titles to employees for around $10 and still make money. There is a large profit margin on this title for the company and thus a natural as a pack-in, the consumer starts counting from $70 to justify the full priced SKU. That leaves the 20GB enhancement at a percieved value of $80. Wait, what?! People were outraged when Microsoft tried to charge and addition $50 for 100GB extra and an HDMI port and here we see Sony charging $80 for 20GB? It gets even crazier when you remember that the PS3 uses regular SATA drives and you could swap out for a larger model way cheaper. That's a pretty bold move, but one that is neccessary if Sony ever hopes to turn a profit on this console.



The interesting thing comparing the Xbox 360 Elite and the PS3 80GB is while the 360 added the HDMI port, the 80GB PS3 has lost it's Emotion Engine chip. This means that newcomers to the system will be given the European shaft when it comes to backwards compatibility. Not all games will work, and the system will run your copy of God of War through emulation now. I personally think backwards compatibility is ridiculously unimportant as a gamer, but shouldn't a higher priced SKU be gaining functionality instead of loosing it?

The market has shown a positive reaction to the price-drop, reaching #1 on Amazon's best sellers list with more than 4,000 units sold since yesterday and pre-orders for the 80GB are starting to gain interest. However, it's puzzling to me that when the console launched with 2 SKUs, one $549, the other $649 and noone picked it up. Now, less than a year in the same 2 price points are offered with a little more value and it is enough to convince people. It certainly isn't because of it's expansive library of titles, but probably still as it's best selling point, the cheapest Blu-Ray player on the market.

I think with E3 in mere days you will see interest in the system pick up as I'm sure Sony's finale will be a slew of games announced for the system both from Sony and third parties. It really is the last step in getting people to want the system, because what difference does it make if your system is $549 or $699 if there is next to nothing to play on it.