Sony is refusing to lower the price of its PlayStation 2 games console in the wake of major price reductions from its competitors. Sony Computer Entertainment Australia MD, Michael Ephraim, talks to ZDNet Australia.

ZDNet Australia: Mr Ephraim, on the subject of console price cuts, Microsoft has savagely reduced its price followed by a moderate response from Nintendo. What is Sony's position in this emerging price war?

Michael Ephraim: We are not moving from our suggested retail price of AU$499 at this time. I would like to clarify that our system is the only system that runs DVD movies off the shelf. The Xbox requires a DVD remote control at AU$49.95. Other competitors do not even provide this functionality.

Also, we are definitely on track with our business plans for the year. Price of the console is a minor point, because content is the main issue. On the content issue we have currently around 260 games available for PlayStation 2. And we'll have close to 400 games by the end of this year.

Secondly on the games, we have a large suite of exclusive titles. For instance, Tomb Raider will be exclusive on PlayStation 2. Gran Turismo 3, one of the largest, if not the largest selling console title, is exclusive to PlayStation 2. Final Fantasy 10, Virtua Fighter 4 and many other games are exclusive to PlayStation 2.

According to Inform, during the week of the 15th of April, if you look at the sell-through of games on all formats, four out of the top five are exclusive PlayStation 2 games.

We now have the PlayStation 2 Platinum range available to consumers, which is the re-release of the best-selling games on PlayStation 2 for AU$49.95. This is including Gran Turismo 3, Formula One, Crazy Taxi, and approximately ten other games. That list will grow to approximately 40 titles by the end of the year.

The PlayStation 2 is the first and only gaming system that is backwards-compatible. This means that the approximately 1500 games available for PlayStation can be played on PlayStation 2.

And just for the record, we have sold 2.4 million PlayStation 1 units in Australia. We have sold 330,000 PlayStation 2 units in Australia since launch. Those are all the reasons, that at this point in time, we will not be moving on price.

How low can a console vendor go in reducing its prices?

I can't really comment on our competitors. I can only say that in Japan, sales in the week of April 8th to the week of April 14th, PlayStation 2 sold 55,000 units. Our competitor who has just reduced their price sold only 1,800 units, as reported by IGNCube and Dengki. And as reported by Inform in Australia, in Australia we are out-selling our competitors by three, or four to one.

Why is there such fierce determination to become the market leader?

At the end of the day, you have to sell the hardware to sell the software. With PlayStation 2, the long-term plan is to unveil additional functionality into the home.

Who loses money when these cuts are made? Do the losses affect the distribution or retail chains?

No. Generally the manufacturer takes the losses on the cuts. If you look at a lot of reports, manufacturers of console games machines lose money. It's the razors and blades game. If a person buys the razors, they keep buying the blades. The company that owns the format is the one that has to ensure that it's a viable business model long term, when you consider the sales of software.

Merrill Lynch has reported that our competitor was losing AU$100 per machine prior to their price cut, about the same as we were losing per machine when we launched PlayStation 2.

What is the lifespan of a console machine these days?

Well, it's hard to say. We launched PlayStation in November 1995. This year we plan to sell another 200,000 units. PlayStation (1) has had the longest lifespan so far. Our target is to have a total installed base of 600,000 PlayStation 2 units by the end of this year.

How do you perceive the games console market of today? Would you say there are significant differences from the days of the PlayStation 1?

I think you need to draw the line pre-PlayStation. The significant difference was demographics. At that time the market was pre-teen. Right now about 55 percent of our consumers are aged between 18-39, while 20 percent are above 39. The major difference since PlayStation was launched, and now PlayStation 2, is it has become a significantly larger audience, the biggest change is the demographics. As we say, it's for people aged eight to 88.

For the last financial year, ending June 30th 2001, the industry value at retail was worth $530 million. That would put it close to the leading entertainment category, close to music and movies. It has become a very large category. Analysts say it is worth $20-25 billion worldwide. And everybody's forecasting massive growth in the next few years.

Do you see console gaming reaching more of an older, more adult focused market share in future?

Well as we discovered, it appeals to the older demographic initially, but as price falls, the younger demographic becomes interested.

When we launched PlayStation 1, the demographic we had was quite similar to what we had at the PlayStation 2's launch. And you find as the price drops, the under 14 year-old demographic started contributing 20-25 percent of the customer base. It really appeals to just about anybody who likes different genres of games. But generally speaking as the price comes down, the younger audience comes into play.

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