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Analysts: PS3 Price Cut
Puts Nintendo On The Ropes |
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After facing months of
mounting price pressure, Sony at last knocked $100 off the price
of its hardware platform with the unveiling of the new
PlayStation 3 Slim. As the company strives to regain ground in
the console war -- alongside an uncertain outlook for the
industry's holiday season -- what ramifications will the move
have on the hardware market?
EEDAR's Jesse Divnich says Sony is "finally" positioned much
more competitively in the hardware space. "In terms of value,
the PlayStation 3 is a superior hardware product in comparison
to the Xbox 360," he points out.
But Divnich says that with so many other factors at play besides
equipment comparisons, there won't be a sudden miracle shift in
Sony's favor. "Nevertheless, the PlayStation 3 price cut will
act as a positive catalyst that will close the sales gap between
the PlayStation 3 and Xbox 360," he predicts.
Install Base Boost
Wedbush Morgan analyst Michael Pachter tells Gamasutra the price
cut can break the PS3's depressed trend for the year, but it'll
have to do more than that. "Last year, the PS3 averaged around
240,000 per month in the January – October period, while this
year, it’s averaging closer to 135,000 for the last several
months," Pachter points out.
"There is no question that a 25 percent price cut will drive
sales way above this 135,000 level, but the acid test is whether
sales rise above the 240,000 level," he says. "I think it’s
likely that sales go to 240,000, which will look like a 60
percent gain, but am not as sure that sales will go higher than
that until holiday."
Kaufman Bros. Todd Mitchell expects a modest boost for PS3 sales
ahead of the holiday season, as Sony is likely to engage in
"aggressive promotions" to flush inventory of the current model
PS3. This could raise sales to around 140,000 units per month in
early fall, he suggests.
How Much Will Software Benefit?
Mitchell asserts it's third-party publishers who stand to
benefit most from Sony's move. This is particularly true for
core titles like Madden and FIFA's current-year editions, and
the major holiday release of Modern Warfare 2 "could see an even
larger benefit," thanks to its Christmas timing.
EEDAR disagrees, however, and doesn't think price cuts will
trigger significant software sales increases for the holiday --
certainly not enough to meaningfully impact the industry's
present negative growth trend.
"Even if the price cuts from both systems increase hardware
sales by over 1 million units through the next six months, that
would likely add an additional $200 million to the software
bucket and would only increase 2009 sales by about 2 percent
over current trend; hardly a significant boost," says Divnich.
"The true benefit to software sales from a hardware price cut
are typically realized in the long-term, [not] over the
short-term."
What Will Sony's Rivals Do Next?
Pachter says Microsoft will take a wait-and-see approach. "Last
year, they sold around the same 240,000 per month, so if they
see sales drop to 150,000 or below, I think that they will
likely respond with a $50 cut in mid-November," he predicts. "If
they continue to sell more than 200,000, they will probably wait
till early next year, maybe even until E3."
On the other hand, EEDAR's Divnich expects Microsoft to announce
very soon -- possibly "in the next week," that it will take the
widely-rumored step of eliminating the $299 Xbox 360 Pro SKU in
favor of offering the Elite SKU for the same price. This,
however, is a "pseudo price drop" in Divnich's view: "It is no
different from Lexus introducing their 2010 models at the 2009
prices and clearing out their 2009 inventories," he says.
A Threat To Wii?
Analysts universally agree that Nintendo is the one most at
risk. Mitchell says the company is "struggling to keep the Wii
relevant," and Pachter expects the pressure to increase on the
company now that the two next-gen consoles, at $299, represent a
better consumer value than the Wii -- which is now only $50
less.
"I think that they may see sales suffer, and certainly will see
sales down year-over-year," says Pachter. "So we have to see if
they cut, unbundle and cut, or rebundle (with Wii Sports Resort
plus Wii Motion Plus). They’re hard to figure out."
"While the target audience for the two platforms varies greatly,
some consumers will face a tough decision to purchase the Wii
with outdated processing power or the PlayStation 3 with a
built-in Blu-Ray player," says Divnich. "However, the market
size of those actually debating between a PlayStation 3 and a
Nintendo Wii is relatively small." |
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