In the latest sign Sony is stumbling in its battle for control of the $30 billion video game market, the electronics giant slashed the price of its PlayStation 3 game console by $100, to $499, after just seven months on the North American market.

The 17% price cut comes days after a company executive denied a change was imminent and will probably increase financial pressure on an already unprofitable division at Sony («www.businessweek.com»). The move could put pressure on Microsoft («www.businessweek.com») to cut prices on the Xbox 360, itself plagued by an unusually high number of glitches. It also serves as a reminder that Sony’s console—feature-rich as it is—carries too high a price and lacks enough exclusive games to woo buyers from «investing.businessweek.com»’s popular Wii. On the eve of the E3 games expo in Santa Monica, Calif., the pricing move is a nod to the increasingly important role independent developers will play in deciding the outcome of the three-way game console battle.

After the introduction of new consoles over the past two holiday shopping seasons, it has become crucial for each company to deliver innovative and exciting games that will entice shoppers to buy its system over another. Sony plans to release more than 400 games from now until the end of March across all its game platforms, though it has yet to offer a breakaway exclusive with the PS3. Unexpected Timing

Meantime, the company is showing it is willing to stomach further losses in its gaming business and, in particular, the PS3, which includes a high-end Blu-ray DVD player, wireless Internet access, and a powerful custom processor, to keep wavering developers from jumping to those rival systems. “This is good for everybody—but, potentially, our competitors,” «investing.businessweek.com», president and CEO of Sony Computer Entertainment America, says of the cut.

While widely expected to happen sometime before the important holiday shopping season, the announcement was nonetheless surprising after a top company official in Japan on July 6 denied a price cut was in the offing. Sony has been reluctant to reduce the price too quickly in part to avoid appearing desperate this early after the introduction of a console.

Another reason for reluctance to trim prices: The game division is a drag on earnings. Last fiscal year, Sony’s operating profit tumbled 68%, to $598 million. That’s due in part to gaming division losses that exceeded $1.9 billion. (The previous year, the division booked a $72.5 million gain.) Morgan Stanley («www.businessweek.com») analyst Masahiro Ono reckons the gaming division will lose another $240 million this year despite an expected 50% rise in sales. Software Key to Profitability

Much of the blame lies with PS3, which is failing to meet expectations. Sony Chief Financial Officer «investing.businessweek.com» said in May the company failed to reach its PS3 sales targets (see BusinessWeek.com, 5/16/07, «www.businessweek.com»). Although Sony had forecast global shipments of 6 million machines by the Mar. 31 fiscal yearend, its factories made and sent off just 5.5 million.

When the PS3 launched in November, 2006, analysts estimated Sony lost more than $200 for every console sold (see BusinessWeek.com, 11/16/06, «www.businessweek.com»). Console makers typically are willing to take huge losses in the first two years after the introduction of a new model. They often recoup the investment and post big profits as the cost of components falls sharply and as they grab huge profits from the software that accompanies the systems.

VICTORIA has legitimate concerns about the Commonwealth takeover of the Murray-Darling Basin irrigation system, says a senior agricultural economist.

In Farm Policy Journal, Alistair Watson says the Commonwealth’s plan is a radical solution to an indisputable litany of problems. These include a history of slow progress and interjurisdictional bickering, and a failure to put a cap on water diversions and to punish miscreant states, he says.

Dr Watson, a freelance economist, is a former chief research economist at the Australian Bureau of Agricultural and Resource Economics and senior lecturer in agricultural economics at Melbourne University.

He says the Commonwealth will revise the water cap, taking into account groundwater, losses from afforestation, farm dams and diminished flows after investment to increase water efficiency. “How revised is ‘revised’ is a matter of conjecture,” he says, an issue that only Victorians have taken seriously.

“Referral powers could result in a future Commonwealth government taking major decisions that could affront farmers or environmentalists,” he says.

Dr Watson says a weakness of the Murray Darling Basin Commission (MDBC) is that it has operated by consensus. “A Commonwealth takeover will not remove the underlying conflicts between the states,” he says.

“Nor will disagreements between irrigators and environmentalists be removed.”

Dr Watson says Victoria has not been a backslider on the cap, and agrees with the Commonwealth on policies for water trade and exit fees.

The state has legitimate queries on the national plan. The Commonwealth has targeted the Goulburn and Murrumbidgee rivers in the south, but not the Queensland and NSW tributaries, where some of the worst abuses occur. “The Commonwealth cannot have it both ways by picking and choosing which rivers it wants to manage,” he says.

Also, would the Commonwealth take responsibility for managing water for plantations and urban dwellers in its area of interest, he asks.

Dr Watson says the national plan is overdue. “There is too much irrigation in Australia because of previous political excesses,” he says, but reform is tricky.

For example, government payments to irrigators for investments inside the farm gate send a confusing signal. “Like all input subsidies, this part of the national plan will distort on-farm decision-making, and is inequitable to those who have acted already in response to market incentives to save water,” he says.

Dr Watson says a Commonwealth takeover would cause administrative confusion. Apart from rural water authorities, other state agencies are involved in water and land management, such as the Environmental Protection Authority, he says.

Rather than a Commonwealth takeover, Dr Watson says Canberra and the states should finish existing programs for the Snowy and Living Murray initiative, and clean up the MDBC by removing the effective veto given to each jurisdiction. “Penalties should apply to non-compliance with the cap,” he says.

Dr Watson says the economic rationalist’s nightmare is that history may be repeating itself. “Excessive reliance on engineering solutions to water shortages is a mirror image of the technology-driven ethos that created those shortages in the first place.”

«www.farminstitute.org.au»

NULLIFYING a company’s carbon emissions simply through the purchase of carbon offsets misses the point. More important is cutting energy use and emissions at the source.

That’s the view of Victoria’s Environment Protection Authority, which, in developing a standard approach to seeking carbon neutrality for itself, is now gearing up to share its experience with companies large and small.

“The EPA has never been as swamped with requests from the business community for help,” said Terry A’Hearn, the EPA’s director of sustainable development. The jump in interest reflects the planned introduction of a national carbon emissions trading scheme set for no later than 2012.

The EPA’s draft Carbon Management Principles restate a few ideas that won’t win a prize for surprise, such as “you can’t manage what you can’t measure”, and suggestions for switching to renewable sources of energy and adding hybrid- or LPG-powered vehicles to the corporate fleet.

The key insight, though, lies in prodding companies to take direct responsibility for cutting their own greenhouse gas emissions, rather than purchasing offsets, such as from companies and farmers offering mass tree-plants to sequester carbon.

Carbon emissions, most of which result from energy use, would increasingly become a risk that prudent companies would seek to minimise, particularly once that pollution effectively became taxed in an emissions trading system, Mr A’Hearn said.

The set of guidelines aims to help companies identify their total emissions and determine the proportion they can eliminate or offset cost-effectively.

“Certainly in the green power market, and a number of offset markets, prices move quite rapidly, so you’re exposed to that sort of risk,” said Mr A’Hearn. “If you’ve eliminated the energy in the first place, you’ve just eliminated all those risks.”

The Plastics and Chemicals Industries Association, an organisation of about 250 companies nationwide, is one of the first groups to sign up to the EPA’s carbon management program.

“Our experience is that EPA Victoria is certainly leading nationally, in terms of environmental agencies,” said chief executive Michael Catchpole. “It’s a very good model and appears to be applicable across the country,” he said, referring to the carbon principles.

While member chemical companies including Orica and Australian Vinyls Corp have been active for years in efforts to reduce energy use and therefore, emissions the planned trading scheme is giving carbon control new urgency. “It’s causing companies and groups of companies to act now,” said Mr Catchpole.

“Some say they have done the easy bit, muddling through, while the next stage will require major operational changes, and that means much more planning.”

Through groups such as PACIA, the EPA hopes to hone the model further, and reach many of the country’s biggest emitters via workshops and seminars.

The EPA is taking comments on its principles via its website until the end of October. BLOG CENTRAL Is carbon trading the answer to global warming, and how do we make sure that claims made by companies stack up? To comment, go to blogs.theage.com.au/managementline

«epa.vic.gov.au»

«www.pacia.org.au»