The 80 gigabyte Playstation3, bundled with MotorStorm

Having long ago run out of adjectives to describe the Playstation 3's tortoise-like sales--just 667,000 units sold in North America this year, compared to 1 million Xbox 360s and 1.73 million Wiis--we knew this day was coming. But given the impact that a Playstation 3 price cut would have on Sony's bottom line, we thought the company might have no choice but to limp along until it could cost-reduce a slew of key components--chief among them, the Cell processor, the Blu-Ray drive and the RSX graphics chip--which we figured might not happen until sometime next year. Think again. Sony Computer Entertainment America has just announced that on Thursday July 12th, it will slash the price of the 60 gigabyte PS3 by $100, from $599 to $499. In addition, the company will introduce an 80 gigabyte model, with the off-road racing game MotorStorm packed in, for $599. Here's how SCEA president and CEO Jack Tretton described the company's moves in the press release that just crossed the wires:

“As we move into the next phase of PS3, it’s important that we continue to evaluate our product line, offering consumers the technology and features that meet their growing needs for new forms of media and the way in which it is delivered,” said Jack Tretton, president and CEO of SCEA. “The introduction of the 80GB PS3, the new pricing for the current 60GB model, the availability of more than 100 new software titles this fiscal year and, finally, the expansion of services for PLAYSTATION Network, will provide even more options for users and will help bring new consumers into the PS3 fold.” 

An SCEA spokesperson attributed the cost reduction to savings that Sony has been able to realize in its Blu-Ray drive manufacturing office. We suspect that they've also removed the hardware chipset that had been responsible for the PS3's backwards compatibility with PS1 and PS2 games in North America and Japan, replacing it with the software emulation backwards compatibility solution that has been in place for European and PAL territories. Finally, recent news out of Japan indicates that SCE has done a significant parts reduction on the slimline PS2, reducing its weight from 900 grams to 600 grams, and shrinking the external power adapter from 350 grams to 250 grams. By wringing additional profits out of the still-popular PS2--SCE expects to ship 10 million PS2s by the end of its current fiscal year in March 2008--the company is again better positioned to absorb the much-needed $100 price cut.

More interesting--though deliberately and frustratingly vague--are some of the reasons behind the introduction of the 80 gigabyte model. The Sony spokesperson indicated that the 80 gigabyte PS3, already available in Korea, is necessary because of SCEA's ambitions plans for downloadable content. These plans, said the spokesperson, include not only such upcoming online-only games as Warhawk and SOCOM: Confrontation, but also an in-the-works video download service that will let PS3 owners download high-definition movies and TV shows, just as Xbox 360 owners have been able to do since November 2006. The frustration comes from the fact that while Sony will signal its intentions for the service during its E3 press conference, it won't go into any more details than that. We hear that it's because SCE Japan is still furiously beavering away at the guts of the service, and in keeping with the lips-sealed-until-it's all-shiny-and-ready-for-primetime culture of Sony's engineers that we discussed earlier this year with Playstation game software boss Phil Harrison, SCE will be, well, keeping its lips sealed until it's all shiny and ready for primetime. Bummer.

For further insights into the current state of the PS3 business, please see our Q&A with Tretton here.

Sony Computer Entertainment America CEO Jack Tretton

To gather some additional insights into the thinking behind the PS3's just-announced price cut and the current state of the Playstation business, we spoke by phone last Friday with Sony Computer Entertainment America chief Jack Tretton. Though his 21-year career in the videogame industry has included stints at Activision and JVC, Tretton's 12-year stretch at SCEA--rising from director of sales to president and CEO--has made him one of the most visible public faces of the Playstation brand. Our conversation began with the vacationing Tretton gently ribbing the Level Up staff about its signature tool, the iGo Stowaway Ultra-Slim Bluetooth Keyboard. Read on.

Have you got out your magic keyboard? [Laughs.]

Well, no, I'm using my PC's keyboard.

I thought maybe you were so into that, that maybe you use that 24/7.

No, no. [Laughs.] I take a break from it when I'm not in the field. Thanks for taking the time to speak with me--I know you're on vacation.

Yeah. My pleasure. This beautiful E3 event being planned the week after the busiest vacation week in the country is another thing that I'll have to thank them for. But money never sleeps.

Exactly. Let's just jump right in.

Sure.

For the first PlayStation, SCEA cut the price by $100 eight months after launch. With PS2, however, SCEA was able to hold at its original price for 19 months. Now with PS3, you're cutting the price just seven months after its launch. You and I spoke extensively before, during and after launch about the value proposition that the PS3 represented: Cell, Blu-Ray, the built in hard drive and backwards compatibility. Why do you think that the perceived value of PS3 was unable to overcome the high launch prices?

Well, the value message is one that is extremely easy to appreciate once you understand it. I think the challenge is providing that education to consumers in a typical retail venue. There's so much for them to absorb before they can appreciate the value, that it's more of a challenge than we faced in previous generations.