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On November 17, Sony will release the PlayStation 3, kicking off the latest round in the video game console wars. But this is not like the battles of the past for Sony, whose annual revenue now hinges disproportionately on outselling rivals Nintendo and Microsoft. Sony doesn't seem to realize the situation it's created for itself, gambling its gaming business on a strategy that will alienate the very public that made earlier PlayStations undisputed leaders for the last decade.

Sony revealed last month that profits for the second quarter were down 94 percent to $14 million due to the recall of 9.6 million faulty laptop batteries at a cost of $432 million and the $367 million operating loss of the gaming division, attributed to preparation for the PlayStation 3 launch and declining sales of PlayStation 2 and PlayStation Portable.

The Technology

The company's future relies on the PlayStation 3 and the technology that comprises it. Originally slated to launch Spring 2006, the PlayStation 3 release was delayed until November because its two most exciting pieces of technology weren't ready -- the Cell processor chip and the Blu-ray drive. The complexity of the chip, co-developed with IBM and Toshiba, delayed the manufacture of a large enough quantity of consoles for a system launch. "The strength of the PlayStation 3 versus the competition lies in its 'future-proof' technologies," says Kaz Hirai, CEO of Sony Computer Entertainment America.

The Blu-ray Disc was jointly developed by the Blu-ray Disc Association (BDA), a group of the world's leading consumer electronics, personal computer and media manufacturers (including Apple, Dell, Hitachi, HP, JVC, LG, Mitsubishi, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony, TDK, and Thomson).

This next-generation optical disc format has a slight technical superiority over its rival the HD-DVD, due to its ability to hold up to 25GB of data on a single-layer disc and 50GB on a dual layer disc vs. the HD-DVD's 15GB. But the price of greater storage will be high. The future of the $24 billion home video market will depend on which format wins over the marketplace. This means the PlayStation 3 is fighting a war on two fronts, one on the gaming console front and the other on the video front. Since the Blu-ray technology is a new one, it has taken a much longer time for Sony to produce the necessary components for a console debut.

With all of the delays and expenses involved in creating a superior product, not only did the electronics company suffer a quarterly loss, but it's also passing on some of the expense to the consumer. A PS3 will come with a hefty price tag, costing between $499 and $599, depending on the configuration of the system. "Over its lifetime, the PS3 represents a very good investment," says Hirai. The delay of this technology also hurt Sony with its competition. When the PS3 is released on November 17, Microsoft will already have a lead with 6 million Xboxes shipped worldwide and over 100 games for consumers to choose from. Sony will only release 500,000 units in both America and Japan, compared to Nintendo's worldwide launch of 2 million Wii consoles. Further consequences will arise for Sony from its delay of the European release of the PS3 until March.