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Author Topic: 360 Manufacturing costs down. What should MS do about it?  (Read 2406 times)
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denoginizer
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« on: November 28, 2006, 04:01:27 AM »

According to the article listed below, it now costs Microsoft $323.30 to manufacture a 360 Premium. 

http://www.manufacturing.net/article/CA6394655.html?industryid=44321

The article mentions the possibility of Microsoft including a HD-DVD drive while keeping the price point at $399.  That would be an interesting move.  It could effectively take away Sony's only real advantage on the PS3.  Yet it would really piss off current 360 owners.

Or

They could drop the price of the 360 $100.  I have some friends who work for Micro Center and I was told that the Cleveland area store sold out of all 600 360's they received last week by offering a $100 mail in rebate.  So knocking $100 off after Christmas could really keep momentum going.

Or

They could leave the price as is and turn a profit on the system for a while.

What would you do if you were in charge?
« Last Edit: November 28, 2006, 04:03:49 AM by denoginizer » Logged

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« Reply #1 on: November 28, 2006, 04:08:50 AM »

More than likely they will push that profit for a long time. They are in no hurry to lower prices as they still have an attractive price point. I'd be willing to bet they keep the current pricing till late next year and hit us with a price decrease on the current Premium system and introduce a whole new Premium system with the HD-DVD drive included. That way they take a year soaking up some much needed money on hardware. That said we'll still see a $400 and $300 price system, it's just that the current core system will be silently whisked away with the current premium taking it's place.
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« Reply #2 on: November 28, 2006, 04:56:33 AM »

Option A (HD-DVD included) is a waste.  HD-DVD will  never be used for games unless MS is willing to piss off the 6 million or so people who have already bought a 360.  So including HD-DVD in the package is almost worse than what Sony is doing since Bluray *is* being used to hold game content at least.  HD-DVD bundled in would literally be making consumers pay just to watch movies they may or may not want.

Option B and Option C (lowering or maintaing price) should wait until we see how PS3 and Wii do the first several months of next year.  Right now the 360 has undeniably had a slower uptake than what MS planned/hoped for (10 million before the PS3 came out or in console's first year).  What isn't clear is whether the slower than anticipated sales are 360 specific (ie are consumers just not very interested in what MS has to offer), price sensitive (ie even $400 is more than people are used to paying for a console), or, with PS2 still selling well and generation graphical leaps arguably diminishing, are consumers just apathetic to next generation consoles in general?

 If both PS3 and Wii have slow sales too next year, then I think it's a message that people just aren't as interested in "next generation" as expected and MS can afford to wait a little while before lowering price since they aren't losing ground against competiion.  However if either Sony or Nintendo really break out and their first year sales exceed what 360 has done, then I think MS needs to drop that console property ASAP. 
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« Reply #3 on: November 28, 2006, 05:33:05 AM »

Quote from: Kevin Grey on November 28, 2006, 04:56:33 AM

Option A (HD-DVD included) is a waste.  HD-DVD will  never be used for games unless MS is willing to piss off the 6 million or so people who have already bought a 360.  So including HD-DVD in the package is almost worse than what Sony is doing since Bluray *is* being used to hold game content at least.  HD-DVD bundled in would literally be making consumers pay just to watch movies they may or may not want.

Option B and Option C (lowering or maintaing price) should wait until we see how PS3 and Wii do the first several months of next year.  Right now the 360 has undeniably had a slower uptake than what MS planned/hoped for (10 million before the PS3 came out or in console's first year).  What isn't clear is whether the slower than anticipated sales are 360 specific (ie are consumers just not very interested in what MS has to offer), price sensitive (ie even $400 is more than people are used to paying for a console), or, with PS2 still selling well and generation graphical leaps arguably diminishing, are consumers just apathetic to next generation consoles in general?

 If both PS3 and Wii have slow sales too next year, then I think it's a message that people just aren't as interested in "next generation" as expected and MS can afford to wait a little while before lowering price since they aren't losing ground against competiion.  However if either Sony or Nintendo really break out and their first year sales exceed what 360 has done, then I think MS needs to drop that console property ASAP. 
Are you saying drop the entire Xbox line, or drop the price?
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« Reply #4 on: November 28, 2006, 05:38:40 AM »

Err I think one of those two options would just be plain silly.
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« Reply #5 on: November 28, 2006, 05:46:44 AM »

Quote from: Canuck on November 28, 2006, 05:38:40 AM

Err I think one of those two options would just be plain silly.
Um, obviously, but Kevin's post mentioned dropping the console property, which was not clear. Hence why I asked him what he meant.
« Last Edit: November 28, 2006, 05:51:31 AM by Calvin » Logged
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« Reply #6 on: November 28, 2006, 06:10:32 AM »

Quote from: Calvin on November 28, 2006, 05:46:44 AM

Quote from: Canuck on November 28, 2006, 05:38:40 AM

Err I think one of those two options would just be plain silly.
Um, obviously, but Kevin's post mentioned dropping the console property, which was not clear. Hence why I asked him what he meant.

Yeah, no idea why I was thinking property.  I meant price of course icon_smile
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« Reply #7 on: November 28, 2006, 11:59:46 AM »

Actually if they dropped the price of the premium system to $299 and made a $399 system with the HD-DVD integrated it wouldn't be a bad deal.  If you don't want to watch movies, then buy the $299 system, if you want to watch HD-DVDs then get the new "premium" system.
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« Reply #8 on: November 28, 2006, 01:21:01 PM »

They should just roll with the current price point to make more money.  Why give money away?
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« Reply #9 on: November 28, 2006, 01:26:12 PM »

Quote from: ATB on November 28, 2006, 01:21:01 PM

They should just roll with the current price point to make more money.  Why give money away?

Why? Market penetration.
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denoginizer
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« Reply #10 on: November 28, 2006, 01:28:30 PM »

I don't think making money on the 360 hardware is crucial to Microsoft at this point.  They are making huge profits in the software division, especially server software. Microsoft had profits of around 3.4 billion dollars in Q2 of 2006.  A profit or loss on the 360 is a drop in the bucket either way for them. 

If it were my decision I would drop the price $100 as soon as PS3s are widely available to walk-in customers.  At $299 they would be exactly half the price of the PS3 premium version. Of course who really knows when that will be.
« Last Edit: November 28, 2006, 02:41:20 PM by denoginizer » Logged

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« Reply #11 on: November 28, 2006, 01:30:27 PM »

Considering how much money they have lost on the Xbox line of systems so far, they will probably stick with $399 as long as they can.
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« Reply #12 on: November 28, 2006, 01:32:49 PM »

Yeah.  I'd be pretty upset with a salesman who just dropped the price on one of our fine products just because our raw material costs went down.  We don't compete on price, we compete on having the much superior product.  Dropping the 360's price a little isn't going win people over as much as having the killer app's, Live, and the other things that make the 360 what it is.
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« Reply #13 on: November 28, 2006, 01:36:06 PM »

The should lower all costs by 100$.

299.99 for premium

199.99 for core....

STAY HUNGRY and you will put the nail in the 500-600 sony coffin.

(not that I want Sony to lose, but I do want a 200$ 360) biggrin
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« Reply #14 on: November 28, 2006, 01:51:15 PM »

As mentioned above, dropping the price by $100 would impact the perceived value of the product and lead the casual gamer to think that the 360 might not be in the same league as the PS3.

Games for the system are $60....each. For people considering a 360, I really wonder if a $100 reduction would make a serious impact. Especially on the tail of the PS3 release.

R
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« Reply #15 on: November 28, 2006, 02:59:04 PM »

Id say keep it at the current price for now.

Then when some big game release is happening (halo3, etc.) drop the price of the console. Especially if it coincides with a competitors release of their big game.

Or just wait it the sales numbers are dropping enough where it makes economic sense to drop the price.

Could also keep the price but start packaging it with an older but good game like they did with xbox1 & jsrf/sega gt.
« Last Edit: November 28, 2006, 03:04:48 PM by Creepy_Smell » Logged

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« Reply #16 on: November 28, 2006, 05:10:12 PM »

being a 360 owner for nearly a year(17th december...we're gonna celebrate with night on town and prostitues icon_wink)

i wouldnt mind the price going down for the console,it has been a year..and i have quite a few friends (friends list and 'normal' life)who cant afford one yet still but would like one...and it would be great seeing them active on the 360 games
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« Reply #17 on: November 28, 2006, 05:29:41 PM »

I think a price drop would make sense if it results in more sales (I think it would).  Microsoft can easily afford to lose money on their hardware, and I'm sure most 360 owners make up for the loss quite quickly with Live subscriptions and premium game prices.  Even if the 360 still isn't a big money maker for Microsoft, if it hurts Sony financially (a company that can't afford to lose big money like M$) they could be looking at no PS4 to compete against when the next console generation hits shelves.  Half the time I think Microsoft doesn't worry about what's best for them, but rather what's worse for the othery guy.
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« Reply #18 on: November 28, 2006, 05:45:03 PM »

Dropping the price significantly just as the Sony and Nintendo arrive would be perceived as an act of desperation by MS, and an admission that they are unable to compete effectively against the new competition. Instead, Microsoft should be using this money to increase their marketing campaign. They've recently released a series of television and print ads educating the public on the fact that the 360 now has over 100 games available. They need to continue with that method of advertisement, and couple it with promoting the competitive advantage they have in Xbox Live.

This is an argument better discussed after hardware sales for November and December arrive. If the combined sales for those two months are below 800,000 in North America,  it may be time for more drastic measures.
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« Reply #19 on: November 28, 2006, 06:02:41 PM »

Quote from: HankRaptor on November 28, 2006, 01:36:06 PM

The should lower all costs by 100$.

299.99 for premium

199.99 for core....

STAY HUNGRY and you will put the nail in the 500-600 sony coffin.

(not that I want Sony to lose, but I do want a 200$ 360) biggrin

Agreed, but maybe unrealistic. I say go $349.99 for Premium, $229 or $249 for Core. That creates a fairly substantial gulf in pricing between the 360 and Sony and puts the core where the Wii is.
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« Reply #20 on: November 28, 2006, 06:04:56 PM »

Quote from: Dante Rising on November 28, 2006, 05:45:03 PM

Dropping the price significantly just as the Sony and Nintendo arrive would be perceived as an act of desperation by MS, and an admission that they are unable to compete effectively against the new competition. Instead, Microsoft should be using this money to increase their marketing campaign. They've recently released a series of television and print ads educating the public on the fact that the 360 now has over 100 games available. They need to continue with that method of advertisement, and couple it with promoting the competitive advantage they have in Xbox Live.

This is an argument better discussed after hardware sales for November and December arrive. If the combined sales for those two months are below 800,000 in North America,  it may be time for more drastic measures.

When Honda drops the price on the Accord every time the new Camry comes out, does it make people think its desperation by Honda? I don't think people would think that at all, after all, it happens in business/retail all the time. Stealing the other guys thunder is pretty important.
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« Reply #21 on: November 28, 2006, 06:15:36 PM »

guys, guys - dont be silly!  we live in a capitalist, market economy!  microsoft doesnt get to determine the price of the 360, its you - the sovereign consumer - who by the intricate dance of supply and demand - decides the price

dont you know what capitalism is?

(sarcasm off smile
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« Reply #22 on: November 28, 2006, 06:19:29 PM »

Quote from: jblank on November 28, 2006, 06:04:56 PM

Quote from: Dante Rising on November 28, 2006, 05:45:03 PM

Dropping the price significantly just as the Sony and Nintendo arrive would be perceived as an act of desperation by MS, and an admission that they are unable to compete effectively against the new competition. Instead, Microsoft should be using this money to increase their marketing campaign. They've recently released a series of television and print ads educating the public on the fact that the 360 now has over 100 games available. They need to continue with that method of advertisement, and couple it with promoting the competitive advantage they have in Xbox Live.

This is an argument better discussed after hardware sales for November and December arrive. If the combined sales for those two months are below 800,000 in North America,  it may be time for more drastic measures.

When Honda drops the price on the Accord every time the new Camry comes out, does it make people think its desperation by Honda? I don't think people would think that at all, after all, it happens in business/retail all the time. Stealing the other guys thunder is pretty important.

Cars and car models are a completely different beast. It's nigh impossible to sell an late year 06 when the 07's come in. People think they are diseased or something is wrong with them. That's one of the major reasons why car dealerships are given manufacturers rebates to get that inventory off the lot. However, Cars and Electronics are two compeletely different beasts, and it's tough to compare them as their respective markets react differently.

I'll say it again, MS should drop the current Core system all together. Introduce an HD-Dvd combo model for $400 or so and drop the price on the current Premium ot $300 or so. It wouldn't make games come out on Hd-Dvd all of a sudden, and it wouldn't piss folks off, but it would make sense, allow them to keep reaping a profit on the current Premium system, and still have an ultra competitive model at the $400 price point. A lot of retail studies have shown that when you drop the price on Electronics too fast they tend to give off a perception of cheapness or there being something wrong. Hell, one of the main reasons Nintendo shipped the Wii at $250 is that retailers didn't want the product to look too cheap at the sub-$200 price point. It's a perception, and perception is reality.
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« Reply #23 on: November 28, 2006, 06:24:49 PM »

Quote from: Doopri on November 28, 2006, 06:15:36 PM

guys, guys - dont be silly!  we live in a capitalist, market economy!  microsoft doesnt get to determine the price of the 360, its you - the sovereign consumer - who by the intricate dance of supply and demand - decides the price

dont you know what capitalism is?

(sarcasm off smile

Why sarcastic?  Stop buying them and the price will drop. retard
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« Reply #24 on: November 28, 2006, 06:37:03 PM »

Quote from: Tebunker on November 28, 2006, 06:19:29 PM

Quote from: jblank on November 28, 2006, 06:04:56 PM

Quote from: Dante Rising on November 28, 2006, 05:45:03 PM

Dropping the price significantly just as the Sony and Nintendo arrive would be perceived as an act of desperation by MS, and an admission that they are unable to compete effectively against the new competition. Instead, Microsoft should be using this money to increase their marketing campaign. They've recently released a series of television and print ads educating the public on the fact that the 360 now has over 100 games available. They need to continue with that method of advertisement, and couple it with promoting the competitive advantage they have in Xbox Live.

This is an argument better discussed after hardware sales for November and December arrive. If the combined sales for those two months are below 800,000 in North America,  it may be time for more drastic measures.

When Honda drops the price on the Accord every time the new Camry comes out, does it make people think its desperation by Honda? I don't think people would think that at all, after all, it happens in business/retail all the time. Stealing the other guys thunder is pretty important.

Cars and car models are a completely different beast. It's nigh impossible to sell an late year 06 when the 07's come in. People think they are diseased or something is wrong with them. That's one of the major reasons why car dealerships are given manufacturers rebates to get that inventory off the lot. However, Cars and Electronics are two compeletely different beasts, and it's tough to compare them as their respective markets react differently.

I'll say it again, MS should drop the current Core system all together. Introduce an HD-Dvd combo model for $400 or so and drop the price on the current Premium ot $300 or so. It wouldn't make games come out on Hd-Dvd all of a sudden, and it wouldn't piss folks off, but it would make sense, allow them to keep reaping a profit on the current Premium system, and still have an ultra competitive model at the $400 price point. A lot of retail studies have shown that when you drop the price on Electronics too fast they tend to give off a perception of cheapness or there being something wrong. Hell, one of the main reasons Nintendo shipped the Wii at $250 is that retailers didn't want the product to look too cheap at the sub-$200 price point. It's a perception, and perception is reality.

The comparison was not so much consoles versus cars, it was to illustrate that dropping the price in the face of competition, does not equal a waving of a white flag. icon_wink

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« Reply #25 on: November 28, 2006, 06:54:04 PM »

Here is an idea for them. Manufacturer's rebate. Just in time for Christmas you get a $50 (or $100 would be great!) rebate on any console purchase. Then they can hold out on a price drop, yet ramp up sales this season.  thumbsup
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« Reply #26 on: November 28, 2006, 07:01:37 PM »

Quote from: Tebunker on November 28, 2006, 06:19:29 PM

I'll say it again, MS should drop the current Core system all together. Introduce an HD-Dvd combo model for $400 or so and drop the price on the current Premium ot $300 or so. It wouldn't make games come out on Hd-Dvd all of a sudden, and it wouldn't piss folks off, but it would make sense, allow them to keep reaping a profit on the current Premium system, and still have an ultra competitive model at the $400 price point.

I think bundling HD-DVD in with the unit creates consumer confusion.  Most new customers aren't going to know that games won't ever come out on HD-DVD, so they may feel like they *have* to go with the $400 SKU because the $300 model may seem gimped.  It's the same problem Sony was facing when they were planning on only including HDMI in the $600 PS3- most consumers don't understand the signficance of that and what it means to them.  People will automatically assume that the more expensive version is "better" even if it really doesn't fit their needs.  Which hurts you if the more expensive one costs so much money that it's enough to stop you from purchasing. 

Maybe they could do it by labeling the HD-DVD pack-in SKU as "Media Center Edition" or something but I think it's adding a level of challenge in consumer education that they don't need.  Their only dog in the HD-DVD/Bluray fight is they want Sony to fail- they don't actually get royalties from HD-DVD sales or anything so I'm not sure it's worth the risk.

But, hey, they are putting out something like 8 versions of Vista so I certainly wouldn't put it past them.
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« Reply #27 on: November 28, 2006, 08:27:01 PM »

They have no reason to lower the price until Sony gets their supply going better. When that happens and if the PS3 sales numbers start to rise then they can respond by lowering the price. Until then I don't think they will, as making money off the console this soon is a complete 180 from the first Xbox. I'd guess they want to enjoy it while they can.
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« Reply #28 on: November 28, 2006, 09:34:58 PM »

Quote
Why sarcastic?  Stop buying them and the price will drop.

my only joking point was that this thread began with the very real supposition that microsoft sets the price of its console - an idea thats in absolute contradiction with a free market economy (and also 100% correct)

im sorry i have a weird sense of humor
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« Reply #29 on: November 28, 2006, 10:27:31 PM »


I know 2 people (non-internet, in person knowing) that bought the 360 because of the $100 micro-center rebate.  They wanted one.  Just couldn't afford it.

- shaggy
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« Reply #30 on: November 28, 2006, 10:40:58 PM »

I think offering an HD-DVD 360 so soon would likely piss off all the people who already purchased 360s, especially if it were offered at the same price.

However, since MS is losing money on every one of those external HD-DVD drives, and they may actually be big sellers once somebody makes some Windows drivers for it, MS may want to address that... or MS *could* be intentionally creating this 'stealth' HD-DVD PC market as a big "F.U." to Sony.

If Blu-Ray AND the PS3 fail... Sony could be totally screwed.  And MS has the money to make the aftermath work in their favor.
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« Reply #31 on: November 29, 2006, 01:59:22 AM »

Quote from: unbreakable on November 28, 2006, 10:40:58 PM

However, since MS is losing money on every one of those external HD-DVD drives, a

Are they really losing money?  The reason they can price it cheaper is because the HD-DVD drive is just the optical portion of stanalone player.  The 360 itself handles all of the processing chores.  The HD-DVD and Bluray standalones on shelves now are effectively mini-linux boxes (I believe they even use P4s) which is one of the reasons they are so expensive.  You are basically buying a mini-PC when you buy one of those units.

There is minimal incentive to sell the HD-DVD drive under cost.  Yes, it might hurt Sony but MS doesn't get a cut of the licensing fee for HD-DVD software so there isn't a system in place to make the money back like there is for selling consoles at a loss. 
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« Reply #32 on: November 29, 2006, 02:46:23 AM »

They should use that "extra" money to give free extended warranties to new and previous customers.
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« Reply #33 on: November 30, 2006, 02:24:58 PM »

Just wanted to add another thought, by creating a nicer bundle or better sku in ther future, why would Microsoft even care if it pisses off current system owners? They've already gotten their money out of us. Would people stop buying 360 games because they came out with a better bundle/sku? It's never stopped Nintendo, hell people normally buy their remodels with Glee. So that arguement is moot.

After reading the Next-gen.biz article I feel a lot more confident in seeing a new sku with either a larger Hard Drive, HD-Dvd or both, and a total phasing out of the current Core system. It makes the most sense, they can use manufacturing techniques to lower costs on the other components, stay price competitive and offer a better system. I have no issues with them doing that and I think it will be interesting to see what they do. Odds are that nothing will happen until the end of next year anyways.

http://www.next-gen.biz/index.php?option=com_content&task=view&id=4276&Itemid=2&limit=1&limitstart=0
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« Reply #34 on: November 30, 2006, 08:20:25 PM »

Quote from: Kevin Grey on November 29, 2006, 01:59:22 AM

There is minimal incentive to sell the HD-DVD drive under cost.  Yes, it might hurt Sony but MS doesn't get a cut of the licensing fee for HD-DVD software so there isn't a system in place to make the money back like there is for selling consoles at a loss. 

Sorry if I wasn't clear.  Any moves of that sort would solely be strategic moves to hurt Sony's position as a company.  When your competitor is drowning, throw them an anvil (to paraphrase James Carville.  I feel dirty having done so, however).
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« Reply #35 on: November 30, 2006, 09:30:47 PM »

It occurs to me that if Microsoft is already making a profit on their hardware, and Sony is having the production problems they seem to be having, Sony could be in BIG BIG trouble with the PS3.

Sony needs desperatly to generate some positive buzz.

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