Sony Hopes the PS3 Slim Can Beef Up Sales

The struggling entertainment giant needs a big September start for its latest—and cheaper—PlayStation console to whet holiday-shopping appetites

Sony Computer Entertainment Japan President Shawn Layden with the new PlayStation 3 "Slim"

By Kenji Hall

Could a new, cheaper PlayStation 3 video game console breathe new life into Sony's gaming business? The Japanese electronics and entertainment company is about to find out. On Aug. 18, Sony (SNE) took the wraps off a lighter, more compact version of the PS3—dubbed the Slim—that will cost at least $100 less than existing models. Sony games czar Kazuo Hirai, who made the announcement at Gamescom, Europe's biggest show for interactive entertainment, in Cologne, Germany, said the PS3 Slim will be in stores in Japan, Europe, and the U.S. in early September and that older consoles would be sold at a discount.

Sony badly needs the PS3 Slim and a roster of new games to attract buyers ahead of the holiday shopping season. The reason: Traditionally the October-December quarter accounts for half of annual PS3 sales. Luring holiday buyers is also crucial because Sony is trying to meet ambitious annual sales targets. This fiscal year through March 2010, the company has forecast sales of 13 million consoles, up roughly 30% from 10.1 million last year. So far its numbers are below last year's. In the fiscal first quarter, Sony sold 1.1 million units, down from 1.6 million a year earlier.

Sony's latest move comes as the global recession has hit the gaming industry—once thought to be recession-proof. Market researcher iSuppli forecasts a 4.4% fall in console sales to 52.9 million units this year, from 55.3 million in 2008.

The tech giant has a lot riding on the PS3 Slim's success. The gaming division has lost $4.3 billion over the past three years and is expected to be in the red again this year. Analysts say Chairman and CEO Howard Stringer can't fix what ails Sony until he can turn around the company's TV and games units. The PS3 was supposed to showcase the company's leading technologies when it was released in November 2006 but instead has hobbled Stringer's efforts at reforms.

Pricing Hindsight

Analysts blame the PS3's high price for its failure to match the Nintendo Wii in appealing to consumers who might not normally play games. Before this week's announcement, the PS3 sold for $399 in the U.S., vs. $250 for the Wii and $299 for Microsoft's Xbox 360. Sony and Nintendo launched their consoles within days of each other in '06, but by the end of June 2009 the PS3's cumulative unit-sales were 23.8 million, less than half the Wii's sales of 52.6 million. That has strained Sony's relations with independent game publishers that pay licensing fees to Sony and spend millions developing games for the PS3. Many of them had expected the PS3 to do better than it has, say analysts and industry insiders.

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