Sony likely to price Playstation 3 above $500

Chicago (IL) - Georges Fornay, president of Sony computer Entertainment Europe, provided the first credible information on a possible price of Sony's next-generation game console. According to media reports, Fornay predicted a price range of 500 to 600 Euro, which could mean a price of at least $500 and as much as $750 for US consumers.

If you thought Microsoft's Xbox 360 was expensive, think again. Sony apparently believes that the excitement of high-definition gaming on the Playstation 3 (PS3) is worth much more of your savings than a previous generation PS2, which initially sold for $299 or even Microsoft's Xbox 360, which is offered in two versions for $299 and $399.

Several media reports today quoted an interview of European radio station Europe 1 with Fornay, in which the executive apparently mentioned that the new console may landing in a price range between 500 and 600 Euro, which would make the PS3 by far the most expensive console on the market.

Pricing for the US console remains a mystery and we only can guess what Sony is planning. What we know, however, is that Europe pricing rarely translates 1:1 into US Dollar pricing. On this side of the Atlantic, retail prices are often lower as (1) sales taxes are already included in Europe pricing and (2) higher market volumes in the US can compensate high price tags. Of course, currency exchange rates are an unknown variable in this game.

The current Euro-Dollar exchange rate would indicate a minimum price of $610 and about $750 on the high-end for the PS3; taxes and volume benefits are subtracted, and a US retail price between $500 and $600 appears to be more realistic.

But even a $600 price tag may be considered a bargain, if Sony's production cost of the console is considered. According to a Merrill Lynch analyst and a report published in the Financial Times in February of this year, Sony's total material cost per unit could approach $900: The company could be spending as much as $230 per unit just for the 3.2 GHz Cell processor that IBM plans to produce for PS3, plus $350 for the Blu-ray drive and $70 for the Nvidia RSX 550 MHz 1080p graphics processor.

Microsoft sells the Xbox 360 well below the production cost as well. Market research firm iSuppli said in November of last year that Microsoft may be spending as much as $550 to get a $400 console out the door.

UPDATE 6 April 2006 1:16 pm ET: In an official response, SCEE corporate communications did not confirm reports that the PS3 will cost up to 600 Euro. Instead, the company told that the indication of a price point has been "a mistranslation or misunderstanding of the discussion, which was actually focused on the relative value of PS3 as a Blu-ray Disc player."

UPDATE 6 April 2006 4:15 pm ET: Retailers familiar with the European market have noted that price quotes for that market generally contain nationwide taxes, which can range between 15-20% for countries throughout the EU. Assuming Georges Fornay intended to draw an allegory for the Europe 1 interviewer, with €500 - 600 as the base price range in that ballpark, and with French sales taxes as high as 20%, Fornay's estimates would translate to between $489 - 587. This is assuming today's currency exchange rates, however, which are subject to change, especially in the wake of skyrocketing energy prices, as well as the soaring price of gold and other commodities.