Sony has done everything it possibly could over the past year to turn itself into the biggest laughing stock in the gaming industry. The only thing left is for Ken Kutaragi to be involved in a child sex scandal.
So far, they've:
1. Bet all the marbles on Blu-Ray as a media format when it's likely to fail
If you don't know, Sony has had 3 failed media formats in the past (Betamax, Minidisc and UMD). Blu-Ray will be their forth attempt to push a proprietary media format into the world and collect "phat lewtz" off of licensing fees. Problem is, HD-DVD is being supported by far more powerful studios, such as Universal and Time Warner, who intend to do everything they can to stamp out Blu-Ray like a misfired bottle rocket. These studios intend to release such giant movies as Lord of the Rings and King Kong in HD on the same day Sony releases Blu-Ray players. Now, they're trying to launch BR players at around $900. If you don't remember, VHS killed Betamax for one reason: because it was CHEAPER. If Sony truly wants to push BR as a format, they need to make it affordable to everyone and they are doing the exact opposite.
2. Severely overestimated the selling power of the Playstation name
It has long been true that PS is the most profitable venue for Sony. Only trouble is, this has very little to do with Sony's own efforts but is instead thanks to the efforts of 3rd party developers who brought games with large fanbases (Final Fantasy) or huge controversy (GTA) to their console.
In this coming gen, Sony doesn't have the year-long lead on its competition, nor does it have the necessary 3rd party support to push PS3s. With the 360 sharing over 50% of its titles already, reasons to buy a PS3 can be counted on one hand (mainly, MGS4 and FF13).
3. Overpriced the PS3 by a long-shot
Many were shocked when Kutaragi (or whoever it was) insisted with a straight face that, at $600, the PS3 was "too cheap". The truth is, the people at Sony might actually BELIEVE this because, in Sony's eyes, the PS3 is both the successor to it's Playstation line AND a "cheap" Blu-Ray player.
Problem is, I've seen little evidence that consumers will want EITHER, with HDDVD appealing at a lower pricetag and with more popular movies and more movies in general and with the PS3 having few "killer apps", the logic that people will pay $600 because they want both a PS3 and a Blu-Ray player rapidly evaporates.
4. Tried to make a media format succeed via piggybacking it on another product, likely dooming both
The PS3 is Sony's only hope for Blu-Ray and thus, it was their decision to push the PS3 out into the world as a combo unit much like they did with the PS2. The DVD playback on PS2 was highly successful in pushing the console as a cheaper alternative to current DVD players, which were as expensive if not more so.
This would work again with the PS3...were it not being saddled with Sony's proprietary media instead of the format which will very likely be the dominant next generation media format.
As near as I can tell, Sony is setting themselves up for a huge failure. Every Sony fanboy I know has actually come out and repented because they too are appalled at what Sony is doing as of late. If the PS3 was going to launch with its premium package at a competitive $300-400, then I could definitely see them as a contender and as a valid vessel which might carry Blu-Ray into the realm of success.
But at $600, the PS3 becomes a luxury item, and with Nintendo and MS on the gaming front and Universal and Time Warner on the movie front, Sony is being attacked from both sides and their only hope for survival, the PS3, is so badly overpriced that even Sony's fanbase is abandoning them.
Unless Sony decides to drop the price, likely taking an even bigger loss on every console sold, then I cannot see them having any degree of success in the coming console war. If the PSP is any indication, Sony products are PERFECTLY capable of failing, most likely because of the $250 price tag and proprietary media format for movies which makes the console pale in comparison to portable DVD players which can go for as little as $70 and will use existing DVDs which the customer already owns.
So, in a nutshell, I think that Sony can either drop the price of the PS3 or they're royally f*cked. I wouldn't be surprised if MGS4 and FF13 were quickly announced as coming to other consoles shortly after being released on the PS3 due to very poor sales, leaving Sony with little to nothing to speak of in terms of exclusive titles.
MS has already made it blatantly clear that they intend to attack Sony full on this gen, having laid claim to many titles which would have otherwise been PS3 exclusive. With the Wii coming in as a seriously strong contender, Sony will have to convince players somehow that, despite the fact that its competitors are cheaper and offering similar game libraries to the PS3, the PS3 is worth paying $600 for.
Frankly, I don't see it happening.