Sony Corp.'s disastrous launch of its next generation video player, the Playstation 3 (PS3), is a factor in the layoff this week of 80 to 100 U.S. employees of Sony Computer Entertainment, mostly at their headquarters in Foster City, California. This follows in the wake of the botched business plan for the PS3 that cost Sony about $2 billon last fiscal year and has raised questions about the long term viability of the Blu-ray hi def format.
Although SCE execs predict the unit will turn a profit this year, and Sony still strongly supports the Blu-ray format, questions have been raised about the long term viability of the Blu-ray business plan.
Sony Corp. was criticized at the end of last year for being late to market with the PS3 due to reported manufacturing problems. Even when they had a machine to sell, it was widely reported that Sony was losing as much as $200 on every sale of a $500 player. Sony called it an investment because the machine owners will then buy lots and lots of discs. It's the classic theory of give 'em the razor and then sell blades forever.
Unfortunately, so far it has not worked. It turns out most people who buy a PS3 actually want to play video games. Few bought it for movies alone simply because it was a cheaper way to get a Blu-ray player, which came built into each P3. Many who wanted cheaper players simply bought the competing HD DVD players at half the cost of the Sony units.
Some gamers were actually angry at Sony for sticking a Blu-ray player in the PS3 at all because it boosted the price at launch by an estimated $200. Microsoft sold the Xbox 360 for about half the price of a PS3, and then offered its high definition HD DVD player as an add on device for about $200 to those who also wanted to show hi def movies.