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While Sony Computer Entertainment division recently bumped up shipments estimates for the PlayStation 2 game console (see this news story for details), analysts believe that the company may lose significant part of its market share in the longer term as a result of late launch of the PlayStation 3 machine compared to Microsoft Corp.’s Xbox 360. The situation may get worse for Sony, as it is believed that game development for the PlayStation 3 is more expensive compared to the new Xbox.

Presently Sony holds about 70% of the whole console market, whereas Microsoft Corp. and Nintendo command about 15% each, but some analysts believe that Sony can lose up to 20% market share in the following years, Reuters reports. Much of the lost share is expected to be grabbed by Microsoft Corp. Wedbush Morgan Securities said in an industry report in July that it expected worldwide PlayStation 3 and Xbox 360 sales to be tied at 23 million units each in 2007.

“The risks are surprisingly higher than people think because unless they can replicate its 70% dominant market position, things are going to be very difficult for them going forward,” said Hiroshi Kamide, a Tokyo-based game analyst for KBC Securities.

The problems with going forward are believed to be associated with the cost of the game console itself, which may prevent some users from getting the machine, and also higher cost of developing games for the console. Both problems may form vicious circle for Sony: if there is not enough consoles sold, fewer game developers will create games for the machine and if there is not enough games, buyers are likely to avoid expensive game machine.

“PS3 will do very well, but it’s said that development costs will be high and it’ll take longer to make games, so it’s likely that it won’t have a full line-up of games until the end of 2006 or the beginning of 2007,” said Hirokazu Hamamura, president of Enterbrain, the publisher of leading game magazine Famitsu.

Recent surveys said that even Japanese consumers are gaining interest in Microsoft Xbox game consoles.

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