Sony (SNE) lost 26.3 billion yen ($289 million) for the period, considerably narrower than a 40.4 billion yen consensus estimate. Sales and operating revenue for the quarter fell to 1.66 trillion yen from 2.07 trillion yen a year earlier, dragged down by a strong yen, flaccid consumer demand and fierce price competition for videogame consoles and TVs.

Looking ahead, Sony improved the outlook for its fiscal year, saying it expects annual losses of 95 billion yen this year, a slight improvement over its initial estimate of 120 billion yen. Still, the company warned that the all important Christmas shopping period would likely be a weak one. “We are quite cautious in foreseeing end-of-year sales,” Sony CFO Nobuyuki Oneda said during a conference call with analysts. “In the first quarter and second quarter there was an upside in sales, but the critical moment is the Christmas season and we are not too optimistic.”

“This exclusive partnership offers you the ability to instantly stream movies and TV episodes from Netflix to the television via Xbox 360. Xbox 360 will be the only game console to offer this movie-watching experience, available to Xbox LIVE Gold members who are also Netflix unlimited plan subscribers…at no additional cost.”

– Microsoft on its Xbox 360/Netflix partnership, Aug. 2009

So much for Xbox 360’s game console exclusivity on Netflix streaming. This morning, the DVD-by-mail pioneer said that beginning sometime next month, owners of Sony’s PlayStation 3 game consoles will be able to stream movies and TV shows from Netflix.

The feature, which brings an unlimited amount of online viewing with any subscription worth $9 or more, will initially require an “instant streaming Blu-ray disc” to enable it. Not the most elegant of implementations, but presumably a firmware upgrade will likely follow and bake the feature into the PS3.

For Netflix (NFLX), the deal provides a chance to broaden its subscriber base. About nine million PlayStation 3 systems have been sold in U.S., and more than 25 million worldwide. So the potential for new customers here is substantial. For Sony (SNE), which already offers movies and TV shows to PS 3 users for a $3 to $4 fee, it’s a way of removing an Xbox 360 marketing advantage Microsoft (MSFT) has been lording over it since this past August.

That’s what ngmoco co-founder and Electronic Arts (ERTS) alum Neil Young said of Apple’s iconic handset at the Game Developers Conference in San Francisco earlier this year, and it’s worth reflecting on a bit in light of a new report from Bernstein Research analyst Toni Sacconaghi that claims the iPhone OS will soon create pricing and customer migration pressure for traditional gaming platforms.

Noting that some 665-760 million games may have been downloaded from the Apple (AAPL) App Store during the last 12 months, Sacconaghi estimates that the installed base for the iPhone and iPod touch platform could amount to about one third of the total handheld gaming installed base by 2012.

“We believe that gaming embodies the power of Apple’s App store: it has dramatically lowered the entry barriers for both developers and gamers alike, resulting in an unparalleled number of available games at affordable prices, which is creating lock-in and enhanced interest in Apple’s high-margin iPhone (and iPod Touch) platforms,” Sacconaghi writes.

Continuing, the analyst adds: “By most measures, gaming has been the killer App Store category, accounting for an estimated 40% of all downloads. Most importantly, we believe that gaming is providing yet another incremental, differentiated reason for consumers to purchase iPhones and iPod Touches, and creates powerful lock-in to the App Store platform and Apple products on a go forward basis.”

The upshot of all this is bad news for traditional gaming console developers–particularly those who have dismissed it as a novelty. “Most gaming developers today view the iPhone and other smart phones as an incremental opportunity, which targets the casual gamer but not the dedicating gaming enthusiast,” Sacconaghi explains. “Over time, however, we believe that the combination of evolutionary improvements in iPhone/iPod gaming functionality, the convenience of the App Store download model, the App’s Store leading title selection and lower price points could cause some migration among gaming enthusiasts to the Apple platform and/or pressure traditional gaming incumbents’ hardware and software pricing.”

And this is clearly what Apple (AAPL) is aiming for. Consider these recent remarks from Phil Schiller, the company’s senior vice president of worldwide product marketing: “People are starting to see what a great gaming device this is. When you think about the companies that came before us…when you played those other systems, they seemed so cool, but now when you look at them, they don’t stack up against the iPod touch….No Multi-Touch user experience, Games are expensive, No App Store, No iPod, Expensive Games ($25-$40) and uncomfortable retail buying experience. [There are] 607 games for PSP and 3,680 games for Nintendo DS. [But there are ] 21,178 Game and Entertainment Titles at App Store.”

That said, Nintendo is cutting the price of its Wii videogame system by $50 in hopes of growing the market for the popular device as we head into the winter holidays. On Sunday, the company will begin peddling the Wii at a suggested retail price of $199.99.

The new price is the first reduction since the console launched in November 2006 and follows similar price cuts by two rivals, Sony’s (SNE) PS3 and Microsoft’s (MSFT) Xbox 360.

All three are hoping they’ll attract recession-addled gamers into the market, and according to Reggie Fils-Aime, president of Nintendo of America, they’ve got decent shot at it. “Our data shows in the U.S. alone there are 50 million consumers who are interested in playing videogames but they haven’t yet done so,” Fils-Aime told The Wall Street Journal. “They are waiting for product innovation or a slightly better value.”

“[A partnership with Apple] is something that’s likely to come over time,” Hastings said. “But nothing in the short term. [With] movie watching, we are not focused on mobile yet, but on the TV, on Blu-ray and on the video game consoles. We will get to mobile eventually, including the iPhone.”

Of course, bringing a Netflix (NFLX) streaming-video app to the iPhone will no doubt take some doing–and a few concessions. Certainly, it seems unlikely that AT&T (T) would be thrilled to have Netflix streaming movies over its wireless cellphone network. So at the very least, the company would have to agree make its app Wi-Fi-only.

Consumers.

Two weeks after Sony lowered the price of the PlayStation 3 to $299 from $399, Microsoft did the same for the Xbox 360 Elite by slashing $100 off the price of the console. In addition, Microsoft cut the price of its now discontinued Xbox 360 Pro console by $50 to $249.99, while supplies last. Both price cuts go into effect tomorrow.

“This is really an effort to pass the cost reduction we are able to achieve through engineering and manufacturing onto consumers,” David Dennis, Microsoft Xbox 360 product manager, told USA Today. “Reducing the number of (models) really just simplifies our manufacturing and makes it easier for our retail partners to manage their inventory and makes the purchase decision easier for consumers. It’s really a win-win-win all around.”

Like Sony (SNE), Microsoft (MSFT) believes the move will lure a new segment of price-conscious consumers into the market and goose sales heading into the crucial holiday shopping season, though it may not prove as effective as the company hopes. To really drive sales, says Jesse Divnich, director of analyst services at Electronic Entertainment Design and Research, Microsoft needs to drop its prices even further.

“Some would argue that Microsoft’s new pricing scheme represents more of a pseudo price drop than an actual price drop since consumers looking to purchase a core Xbox 360 system will still have to pay $299, as they had prior to the new hardware line-up,” Divnich explained in a recent research note to clients. “The price drop on the Xbox 360 Elite means that Microsoft’s core hardware SKU now boasts a bigger hard-drive and HDMI support than its Xbox 360 Pro predecessor.”

Moreover, while the 360 and PlayStation 3 might share the same $299 price point, they don’t share the same specs. “…Technologically the Xbox 360 is not at the same level as [the PS3],” Divnich said. “This puts the Xbox 360 into a tough position where it is outmatched in terms of hardware capabilities at $299 and the Nintendo Wii remains alluring to casual and price sensitive consumers at $249.”

Looking ahead, Divnich predicts that “Over the next year Microsoft will most likely reposition the Xbox 360 Elite model closer to the $249 price point to both pressure Sony and attract potential Nintendo Wii consumers. From a strategic standpoint this would then allow Microsoft to introduce the new Natal model in 2010/2011 at the $299 price point and still have an option for consumers cheaper than the (PS3).”

“In 2004, as you may recall, we launched a slim version of PlayStation 2, a defining moment for that console, helping us to really expand the user base of PlayStation 2 further,” Sony Computer Entertainment Chief Executive Kazuo Hirai said at the Gamescom videogame trade show in Cologne, Germany. “Today is that day for PlayStation 3.”

And so, starting Sept. 1, the PS3 will be available for $299. That’s still well above Microsoft’s (MSFT) Xbox 360, which retails for less than $200 and Nintendo’s Wii, which sells for $250, but it’s a hell of a lot better than $399. And analysts say it will almost certainly spur demand for the console. “People were expecting this to happen. [Sony] had to do something,” MKM Partners analyst Eric Handler told MarketWatch. “This will bring some new customers to the fold.”

Indeed. But how long can Sony sustain such market share gains, when Microsoft and Nintendo are almost certainly mulling price cuts for their platforms as well?

“If we were any more successful, we’d be bankrupt.”

– Sony CEO Howard Stringer on the company’s LCD business, May 28, 2008

About the best thing to be said for Sony’s grotesque financial results is that they came in smaller than expected. The company’s 98.9 billion yen ($1 billion) loss for the fiscal year ended March–its first net loss in 14 years–wasn’t nearly as bad as the 150.0 billion yen ($1.57 billion) figure it had predicted in January or even close to the 173.8 billion yen ($1.8 billion) analysts polled by Thomson Reuters had been forecasting. And the same is true for Sony’s fourth quarter, as well. The net loss of 165.1 billion yen ($1.7 billion) it reported was far better than the 228.7 billion yen ($2.39 billion) forecast.

Still ugly as hell, though. And according to the company’s leadership, its next fiscal year will be little different. Sony is forecasting a loss of 120 billion yen ($1.2 billion). Given that unfortunate outlook, Sony (SNE) is closing three factories in Japan, part of an ongoing effort to shore up a business ravaged by the worst recession in decades. But cost-cutting measures like that can only do so much.

As analysts note, what Sony really needs is a killer product. It is no longer the force it once was in consumer electronics, having ceded its dominance in portable music players to Apple (AAPL) and its leads in the television and videogame console markets to Samsung Electronics and Nintendo. “Their outlook gave me the impression that their business is heading for a gradual recovery,” Fujio Ando, senior managing director at Chibagin Asset Management, told Reuters. “But it would all depend on whether they would be able to start producing popular products, because right now they have no ‘Number One’ products. I see Sony’s branding power weakening.”

And that’s something of which Sony is painfully aware.

“We have two distinct challenges facing us,” Sony CEO Howard Stringer recently told the New York Times. “The first is the global slowdown, which forces us to make significant adjustments. The second challenge is the evolution of our competitive environment. New competitors [are] springing out everywhere.”

Indeed. And while Sony seems to be meeting the first challenge, albeit slowly, it hasn’t yet begun to make headway toward meeting the second. And at this point, one wonders if the company is even capable anymore. As Japanese Economy, Trade and Industry Minister and former Sony employee Akira Amari asked back in October 2006, “What has become of the Sony known for its technology?”

In March, Japanese sales of Nintendo’s wildly popular game console fell below those of rival Sony’s PlayStation 3 for the first time. According to data released on Monday by research outfit Enterbrain, Sony sold 146,948 PS3s in the five weeks to March 29, while Nintendo sold 99,335 Wiis–and, for those keeping track, Microsoft (MSFT) sold 43,172 Xbox 360s. Driving sales: Yakuza 3 and Resident Evil 5–two new titles not yet available for Wii.

Could this be the beginning of a new trend, a dramatic reversal of fortune for Sony, which ceded its gaming console dominance to Nintendo back in 2006? Sony (SNE) clearly hopes so, but Nintendo doesn’t seemed too worried. “It is still the first few months of the year when sales are slow for the industry so we are not particularly concerned,” a spokesperson told the Financial Times. “We hope to line up strong software to support hardware sales in the second half of the year.” And if it’s able to do that, Nintendo probably does have little cause for concern–at least for now. The Wii is still outselling the PS3 by 3-to-1 in the states, and at eight million sold, cumulative Wii sales in Japan exceed the three million consoles Sony’s managed to sell.

Confirming recent speculation, Sony this morning said that it’s dropping the price of the PlayStation 2 from $129 to $99.99 as of April 1. “With this new price, we intend to introduce a new generation of consumers–some of whom weren’t even alive when the system was first introduced in 2000–to the immense entertainment value offered by PlayStation 2,” John Koller, Sony’s director of hardware marketing, explained in a blog post. “In the gaming industry, the typical lifecycle for a console is around five years, but because we build each of our platforms for a large and diverse consumer base, we design our platforms differently. With the original PlayStation and now PlayStation 2, we’ve proven that consumers can rely on our platforms for their gaming and entertainment needs for at least a decade.”

And that does indeed seem to be the case. Though nearly 10 years old, the PS2 remains quite popular. Indeed, Sony expects to sell eight million of the consoles in its current financial year–not so far off from the 10 million PlayStation 3s it expects to sell in the same period. And it will certainly grow in popularity at this lower price point, giving Sony (SNE) a means to really take Nintendo’s Wii to the mat.

Now, about that PlayStation 3 price cut rumor: Sony isn’t planning one, though arguably that’s exactly what the console, which is being outsold two-to-one by the Xbox 360 and the Wii, needs. “As we have stated previously, we do not have plans for a PS3 price drop, and any rumors to that effect are false and are the result of speculation,” Sony Computer Entertainment America said in a statement. “SCEA remains focused on the long-term momentum of PS3. With the industry’s best software lineup this year, combined with our most aggressive marketing campaign to date, we remain confident in our approach and the value we’re delivering with PS3.”

That breathless and swooning introduction aside, ngmoco co-founder Neil Young’s keynote address at the Game Developers Conference in San Francisco today was noteworthy in that it really heralds the arrival of the iPhone as a gaming platform. The GDC is the largest annual gathering of professional videogame developers, so the fact that Young, an Electronic Arts (ERTS) alum turned iPhone developer, delivered his remarks from a stage that will soon host Nintendo president Satoru Iwata and Metal Gear creator Hideo Kojima says a lot about the esteem in which game developers hold the device–dismissive comments from Sony (SNE) be damned.

Apple’s (AAPL) iPhone is still in its early stages as a gaming platform and make no mistake, it is a viable gaming platform, said Young. And he should know; ngmoco–the developer of popular iPhone game titles like Rolando, Dropship, and Topple–just closed a $10 million second-round of funding after only nine months in business.

“Don’t let the haters tell you it sucks compared to the [Nintendo] DS or the [Sony] PSP,” Young said of the iPhone. “It doesn’t. It’s good. It’s clear that the quality of iPhone games is eclipsing its console counterparts, and that’s even more acute when you compare it against the prior generation.” Why?

Unlike its console rivals, the iPhone is always connected, users always carry it, it offers unique features that can’t be found anywhere else–a touchscreen, an accelerometer, connectivity. In this way, said Young, the iPhone is similar to the Nintendo DS. When that device first launched, many thought it would be beaten into whimpering submission by the far more robust PSP. But that never happened. “Nintendo was able to win that battle by combining great software with hardware that it understood very well,” Young said. “If Nintendo made the iPhone, what would they focus on? I think they would build games that could only be on the iPhone. The designs would be progressive, discontinuous, and would have the user and the user’s context always in mind. They would have great underlying game design with native device functionality at the core.”

His point: Graphics and sound alone don’t necessarily make a great app. As Nintendo has shown us with the DS and the Wii, gaming is all about the platform. And Apple has clearly created one to be reckoned with.

Later today, Perlman–former principal scientist at Apple (AAPL) and the founder of WebTV–will officially unveil OnLive, the online service with which he hopes to upend the $46 billion world-wide videogame market. Seven years in the making, OnLive promises to create an on-demand gaming experience that rivals those offered by dedicated videogame consoles. It’s capable of streaming even the most advanced, CPU-intensive games to television and computer–Macintosh or PC–without lag or a reduction in quality. “We’re providing you with the latest high-end titles, the exact same ones you would see at Target or Best Buy, in the same release windows,” Perlman told USA Today. “But what is really cool is you don’t need any high-end hardware to play them. There’s no physical media. It’s an all-digital platform. You never need to upgrade your equipment at home.”

A compelling proposition. A potentially disruptive one too, if OnLive is able to deliver it with the reliability and ease of use it promises. Said IDC analyst Billy Pidgeon, “It’s a good idea and has potential, but the thing I need reassurance on is being able to deliver this over the network. In games there’s no wiggle room–when you press a button to fire you want to fire,” he said. “But if it works, this could be a disruptive.”

Though Wii manufacturer Nintendo posted a 21 percent gain in quarterly operating profit on brisk demand for the videogame console, it slashed its forecast for full-year sales of the device (it slashed its full-year profit forecasts as well–by 33 percent). Nintendo had expected to sell 27.5 million units during its fiscal year, which runs from April until March. Now it expects to sell only 26.5 million. “Wii sales in Japan during the year-end shopping season didn’t meet our forecast,” Nintendo President and CEO Satoru Iwata said during an earnings briefing. “Still, I don’t think demand for the Wii has run out.”

No, of course not. But clearly the Wii isn’t as recession-proof as was once thought. And, despite its appeal to budget-conscious consumers, Nintendo doesn’t feel it’s immune to the general slowdown in consumer spending. Said KBC Financial Products analyst Hiroshi Kamide: “Today’s revision suggests that the roaring pace of Wii growth that we’ve seen until now may be over.”

Live Mesh, though it takes Ozzie five pages to describe it, is essentially a “software-plus-services” platform that uses the Web to synchronize and share data among devices, applications and people (you’ll find a walk-through here and a good overview here).

“Over the past ten years, the PC era has given way to an era in which the Web is at the center of our experiences–experiences delivered not just through the browser but also through many different devices including PCs, phones, media players, game consoles, set-top boxes and televisions, cars, and more,” Ozzie writes. “It is our mission in this new era to create compelling, seamless experiences that combine the power of the Internet, with the magic of software, across a world of devices. … the Web is the hub of our social mesh and our device mesh.”

“The Web is the hub of our social mesh and our device mesh.”

Wait.

Does Bill Gates know that? Because last year he told CNN’s “American Morning,” “We’re making the PC the place where it all comes together.” Clearly, in the ensuing year, Gates and Microsoft noticed that Google (GOOG) et al. are fast shifting computational relevancy to the Web, away from the desktop and, more importantly, away from Microsoft.

Live Mesh, if it’s successful, will change that. Because, as Joe Wilcox notes over at Microsoft Watch, “Live Mesh is Microsoft’s attempt to turn operating system and proprietary services platforms into hubs that replace the Web. Microsoft is building a services-based operating system that transcends and extends Windows and also the function of Web browsers.” Adds Wilcox, “It’s bold, brilliant and downright scary.”