Another day, another PS3 price cut. Sony (NYSE:SNE) will roll out a $400 model of its fledgling PlayStation 3 video game console, hoping to somehow price itself back into the market it once dominated. The company's also dropping the price of its 80-gigabyte PS3 from $600 to $500.

The new model will have a 40-gigabyte hard drive -- less storage capacity than the mainstream model, but twice as beefy as the 20-gig drive that rolled out with last year's now-discontinued, $500 entry-level PS3.

The $400 PS3 won't play earlier PS2 titles. That's a big downer for PS2 owners who were waiting for a price cut. It's not much of an incentive to upgrade if your existing library is obsolete. Still, the price is right, even it's still a bit higher than the Nintendo (OTC BB: NTDOY.PK) Wii's $250 or the entry-level Microsoft (NASDAQ:MSFT) Xbox 360 at $350.

Is Sony desperate? You bet. Did I mention that this $400 hardcore gaming machine also doubles as a Blu-ray player?

Sony is certainly packing a lot of value into its console, figuring that consumers will buy in sooner or later. So far, the PS3's performance hasn't been pretty for Sony; its sales lag those of both its latest rivals.

Lacking "can't miss" proprietary titles like the new Zelda on the Wii and Halo 3 on the Xbox 360, Sony is realizing that you can't win a video game war on spec sheets alone.

Software developers follow the money. When Sony's PS2 was the gaming platform of choice, top dogs like Electronic Arts (NASDAQ:ERTS), Take-Two (NASDAQ:TTWO), and Activision (NASDAQ:ATVI) had no problem pursuing the larger Sony audience. Now developers are slaving away to make the most of the Wii's revolutionary motion-based controller. (Trust me, Madden football on the Wii is a whole new experience.) Heck, even tiny Majesco (NASDAQ:COOL) is putting out some "cool" Nintendo games.

How low can Sony go? It's been widely reported that Sony was losing money on the initial consoles. It's likely to lose even more with every price cut. Component prices don't fall that quickly. Sony's hoping to offset the subsidized hardware through software sales and the championing of its Blu-ray platform -- but is that even possible at this point?

Right now, it seems that Sony's simply trying to save face. It's as if the company will do anything to make sure that it's not wearing the embarrassing bronze medal around its neck by next year's holiday season.

If that's the case, look out below. Sony has just $399 more in price cuts before it starts giving those suckers away.

A PS3 history lesson:

Microsoft is an active stock pick for Inside Value newsletter subscribers. EA, Nintendo, and Activision are Motley Fool Stock Advisor recommendations. Try any of our newsletters free for 30 days.

Longtime Fool contributor Rick Munarriz is a fan of all three consoles, but finds himself spending way too much time with the family on the Wii at the moment. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is fully backward-compatible.