Sony has today confirmed what everyone had been expecting: a new PS3 model for $299. But how much will this cheaper pricing structure benefit Sony and stimulate the PS3 marketplace? IndustryGamers contacted several analysts to get their take, and it seems most agree that Sony will finally see a much needed boost in PS3 sales.
"I think a price cut is key to stimulating sales, especially in this economy. It can be really hard to justify a premium price when you have two strong competitors with very solid systems. At a lower price I think there is a great deal of potential to get a lot of the PS2 consumers that were setting on the fence to jump in," DFC Intelligence's David Cole told us. " And there are a lot of those consumers out there....research shows the PS2 is still one of the most popular systems in terms of usage. We had actually built into our forecasts going two years back a drop to $300 in fall of 2009 and at the time our models showed a strong spike in sales because of the drop. Now factoring in the recession it may not be as strong but it is still a net positive for the whole industry when hardware is at mass market prices."
Ben Schachter of Broadpoint AmTech noted that although the price cut will matter, Sony needs to market the machine and its new low price effectively to make it really matter. "Price cuts ALWAYS matter and it will make a difference. How impactful it will be will be dependent on Sony's execution (which has obviously been quite challenged this cycle). I am curious to see how it's promoted," he commented to IndustryGamers. "Will they focus on it as a Blu-ray player? Will they hope that some exclusive titles will drive sales? Will they give retailers lots of dollars to promote it. Bottom line is that price always matters and in this economy that is truer than ever, but after the initial boost, promotion will be key."
Jesse Divnich of EEDAR proclaimed "Hallelujah!" upon hearing about the price drop. Divnich went into great detail on the pricing battle and its potential effect on software sales for the remainder of the year.
You can read his full note on the next page...
Here's is Jesse Divnich's commentary in full:
EEDAR is pleased to see that the PlayStation 3 has finally dropped in price. The new PlayStation 3 pricing scheme finally makes the Sony console a much more competitive product, relative to its closest rival, the Xbox 360. In terms of value, the PlayStation 3 is a superior hardware product in comparison to the Xbox 360; however, this is not to suggest that hardware sales will suddenly shift to Sony’s favor—a superior hardware system is only one variable in the equation for next-generation success. 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. This price drop also places the PlayStation 3 at a competitive price to the Wii (retail MSRP $249). 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. However, the market size of those actually debating between a PlayStation 3 and a Nintendo Wii is relatively small.
Additionally, we do expect Microsoft to make an official announcement, in the next week, regarding the elimination of the Xbox 360 Pro SKU (retail MSRP $299) and the reduction in the Elite SKU pricing to $299. However, we just consider this a pseudo price drop. It is no different from Lexus introducing their 2010 models at the 2009 prices and clearing out their 2009 inventories. Sure, there is a better value, in comparison to the 2009 models, but a consumer still needs to be in the market for a luxury car to reap the benefits. A consumer shopping for an entry-level sedan will not suddenly upgrade to a Lexus just because the 2010 models have been released. EEDAR does expect the Xbox 360 to get a small boost in sales in the short-term, but considers any Xbox 360 sales lift to be a positive byproduct from additional marketing and retail circular placements.
As a cautionary note, since we do not know the full extent of the upcoming Xbox 360 promotion, there is a possibility that one of the systems could have a larger hard-drive at the $299 price. EEDAR, however, does not believe any disparity in hard-drive size will make a noticeable difference in how consumers value each product. Most consumers would not be able to tell you the true difference between a 120GB hard-drive and an 80GB hard-drive in terms of movie/music/game capacity.
Additionally, EEDAR does not expect these price cuts to increase software sales significantly through the holiday season. 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% over current trend; hardly a significant boost. The true benefit to software sales from a hardware price cut are typically realized in the long-term, over the short-term.
The Holiday Showdown
In the past, declaring which console was truly “a better value” was difficult due to the disparity in pricing, but given that both the PlayStation 3 and the Xbox 360 will share a similar pricing structure this holiday season, the sales results will answer the crucial question: “which console is a better value to consumers?” Few will argue against the common belief that the PlayStation 3 has superior hardware and multi-media capabilities; while the Xbox 360 has a deeper software library and superior online services. Consumers, through their purchases this holiday season, will send a clear message to the gaming community. This is truly a Hardware vs. Software showdown.
A New Standard
The $299 price point will likely become the new standard for the next-generation consoles for the next year. Both Sony and Microsoft are acting like 12th round boxers, so exhausted (in this case, financially exhausted) over the three year battle for next-generation supremacy, that neither are likely to deviate from the $299 price point for some time. It is possible that both consoles may reach a $249 price point 12 months from now, but that will likely be the lowest prices will get in the next two years. Going forward, both console manufacturers will focus more on delivering differentiating products and services to increase the value of their consoles. Both will continue to increase the size of their hard-drives and likely add additional hardware and software features to appeal to consumers. It would not be out of the realm of possibility for Microsoft to include Project Natal as a standard attachment with all Xbox 360 systems in 2011. The same goes for Sony’s new motion controller that is currently in development.
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