These days, literally the smallest whisper about falling costs of blue-violet laser diodes will set off speculation about a PlayStation 3 price drop. Yesterday, Sony announced that it would be shipping its second-generation Blu-ray Disc movie player for $100 less than initially announced, fuelling talk of possibly the same cut being applied to the PS3. Analysts sure seem to think that the lowered price of BDP-S300 is a sign of PS3 things to come. Arvind Bhatia, an analyst with Sterne Agee & Leach Inc., says in a Dow Jones story, "If the cost of Blu-ray is coming down, you can drop the price of anything with Blu-ray in it. "
What some analysts may be overlooking is that falling costs for Blu-ray components do not mean a higher profit margin on the PlayStation 3. While standalone Blu-ray movie players are sold at prices above costs, the PlayStation 3 is sold at a considerable loss – a common penetration tactic in the video game console business. The PlayStation 3, compared to its competition, is performing below expectations, leading to a conclusion that the video game market is highly price sensitive. Regardless of Sony Computer Entertainment Inc.'s bottom line, analysts have repeatedly called for a lower price in order to stir PS3 sales. "Feedback from retailers continues to indicate that a price cut on PS3 will be important," Bhatia astutely pointed out.