Sell at a loss and make it up in volume

PlayStation 3 on Rescue Mission

Sony will not disclose the total cost of creating the PlayStation 3, which has been in development for six years. But analysts say the sum reaches into the billions of dollars. Sony has revealed that it spent $2 billion on one major component alone, the high-speed Cell microprocessor, co-developed with I.B.M. and Toshiba.With such vast investments, analysts estimate Sony will have to sell 30 million to 50 million units just to break even. To be the sort of mega-hit that Sony needs, analysts say the new game console will at the minimum have to outdo its predecessor, PlayStation 2, which has sold 106 million units since 2000.

Sony is also counting on PlayStation 3 to promote other technologies that it has developed, the Blu-ray next-generation DVD drive as well as the Cell chip. These technologies give the new PlayStation more processing power and sharper graphics than rivals, but also makes it expensive: a model with a 60-gigabyte hard drive will list at $599 in the United States, and one with a 20-gigabyte drive will be $499. […] And even at those prices, most analysts say, Sony will be selling below production costs, and possibly losing hundreds of dollars a machine.

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