This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Sony's PS3: High-Scorer No More

This column was originally published on RealMoney on Dec. 28 at 2:38 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.



After more than a decade at the top of the video game heap, during which it sold more than 200 million consoles, Sony (SNE) is set to be knocked off its firm position as King of the Hill because of its flawed PlayStation 3 strategy. This is only one of many reasons to avoid shares of the consumer-electronics conglomerate, but it's certainly the most important.

Zapped by Blu-Ray

Among the most glaring errors Sony has made with the PS3 has been the inclusion of a next-generation Blu-ray DVD drive in the console. Having seen Blu-ray in action up close, I can say it certainly is impressive.

But it has also had the effect of driving up the cost of the two versions of the PS3 to $500 (20 GB hard drive) and $600 (60 GB hard drive) respectively, much more expensive than the competing Microsoft (MSFT) Xbox 360 and Nintendo Wii, with no discernible improvement in game quality. Shortages of certain Blu-ray components have resulted in extremely short supplies of the PS3, giving Microsoft and Nintendo some running room to build market share.

In addition, the competition between the two next-generation DVD technologies, Blu-ray and HD-DVD, is causing an enormous amount of confusion among consumers and hindering adoption of both. This is a critical issue; slow consumer adoption of Blu-ray will make it more difficult to build economies of scale, which normally result in lower manufacturing costs.

Look at the relatively unsuccessful audio formats DVD-Audio and Super Audio CD for a historical parallel. And in a world where digital distribution of media is becoming more prevalent by the day, it makes little sense for Sony to have made such a bold bet on a physical format.

Sure, we're years away from high-definition video downloads being both quick and economical, but download services such as Apple's (AAPL) iTunes as well as numerous file-sharing programs clearly are shrinking the size of the market for physical media such as DVDs and CDs. Of course, the HD-DVD camp will suffer along with Blu-ray. But Sony is disproportionately tied to Blu-ray, given its strong dependence on its video-game division for profit.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,493.37 -69.93 -0.42%
S&P 500 1,925.15 -5.52 -0.29%
NASDAQ 4,352.6390 -17.1340 -0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs