PlayStation 3 component prices: Why so high?

Consumers who buy the PlayStation 3 (PS3) will certainly get high-priced components in that new game console whenever it hits store shelves.

The big question will be how much of a financial loss Sony will have to swallow on each box in order to get consumers to buy them.

The estimated total bill of materials for Sony's next-generation game console will be between US$725 and US$905, according to various estimates. In comparison, the Xbox 360 from Microsoft comes with a component bill between US$501 and US$525.

Though Sony hasn't disclosed the price of the PS3, analysts figure it will have to be in the ballpark of US$299 to US$399--the price for the two versions of the Xbox 360. PS3 pricing speculation has heated up in recent days, along with rumors that the long-awaited game console could be delayed for up to a year.

The pricing disparity between the components for the two consoles comes largely because the Sony box will contain a Blu-ray drive, which supports the new high-definition Blu-ray DVD format. That could cost US$200 to US$300 or more per console. The processor in the PS3 will also likely cost more.

The unusual nature of the new console's component menu makes it difficult to pinpoint the cost estimate. The PS3 will be one of the few machines on the market with XDR memory, based on designs from Rambus.

Some analysts have suffered addition problems, too. Merrill Lynch wrote in a widely publicized research note that the component bill would total US$900, not including a detachable drive, but Merrill later told CNET News.com that it meant to say US$800.

Nonetheless, the cost of the rest of the components is roughly equal for both the Sony and Microsoft consoles, according to various analyst estimates.

The materials price estimates do not include marketing, software development, advertising or other costs, which will push Sony's total cost per console even higher. A Sony representative said the company would not comment on pricing.

A mismatch between the retail price and the cost of materials for a game console isn't unusual because console manufacturers expect to make up the difference by selling games to run on the consoles. That's what Microsoft did with the Xbox 360.

The cost of making game consoles also drops rapidly over time because manufacturers don't usually upgrade the configurations year after year, while the cost of the components they're using drop. Merrill Lynch, in fact, estimates that the component bill will drop to US$320 in three years, not including the detachable drive.

Ken Kutaragi, who heads up Sony Computer Entertainment, is counting on it. In 1999, the processor and the graphics chip inside the PS2 took up 239 and 279 sq ml in surface area, respectively, which made them relatively large (and hence relatively expensive) chips, he noted in a speech in February in San Francisco. By 2004, the two chips were condensed into one that took up only 87 sq ml, almost one-sixth the size.