The game console business could be the thing that pushes Sony into extinction. That's right: not just out of the game business, but out of business completely. Consider the numbers:

Sony has a book value of $27 billion. It has nearly $9 billion in cash. Sony's not going anywhere. Or is it?

Sony is looking at a potential for demise it has never faced before. With the failure of its TV and music electronics businesses and its up-and-down movie business, it has relied more and more on the video game business to keep profits up.

The problem is, the game business is a black hole. Sony will be eating somewhere between $200 and $400 (and I think those numbers are conservative, as they don't include sales and marketing) on each sale of a PS3. From a business perspective, I think they would be better off scrapping the PS3, taking the PR hit on that, and either:

• exiting the game console business
• follow Nintendo's lead, and build systems that can be sold at a profit

I don't expect either one to happen soon - there's too much pride and money wrapped up in the PS3. Like any large project, even the prospect of sure doom isn't enough to derail it. You see this sort of lemming-like charge to the cliff in software projects all the time - but here Sony is doing it with hardware. I'm hardly the only one ringing this bell; CNet has been on this story too:

In a February story for CNet, it was estimated that the total cost of components for the PS3 would be in the neighborhood of $725 to $905 -- and that was before it was rumored that Sony would have to put PS2 components in the box because the new chip lacked the ability to emulate the earlier PSOne and PS2 games.

The CNet story said, "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."

Meanwhile, faced with the prospect of continued high costs - Sony is engaging in corporate denial:

Sony Computer Entertainment president Ken Kutaragi was not ambivalent about the pricing of the console -- he kept saying it was a premium machine, sold at a premium price. Want a PS3? Work a little harder!

"Our ideal," Kutaragi said, "is for consumers to think to themselves, 'OK, I'll work more hours and buy it.' We want people to feel that they want it, no matter what."

If Sony were the only vendor in this space, that might work. The XBox 360 is a nice system though, and it's a lot less expensive (never mind the Wii, which at $250 will be in the "what the hell" range for most prospective buyers). The loss numbers for Sony start to look very, very ugly: $1.8 B by April if they drop $300 per box, $2.4 B if they drop $400 per box. That's a huge bleed, and it's going to get attention all the way up the food chain at Sony HQ.

I think it's past time to put out the "sell" order on Sony stock.

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