Tuesday, August 18, 2009

Console Post of the Week: Price Cuts

First off, let's review July NPD numbers again.
Wii: 252,500
Xbox 360: 202,900
PlayStation 3: 121,800
PlayStation 2: 108,000

2008 numbers for comparison.
Wii: 555,000
Xbox 360: 205,000
PlayStation 3: 225,000
PlayStation 2: 156,000

In percentage terms.
Wii: -54.5%
Xbox 360: -1.02%
PlayStation 3: -45.8%
PlayStation 2: -30.7%

Boy, that "video games are recession proof" claim is ringing very hollow now. There's no question that holiday sales this year would be dismal without price cuts.

Fortunately, though, price cuts are on the way. Sony announced at Gamescon today that the long-rumored "PS3 Slim" will be in stores the first week of September for $299 (299 euros in Europe). That's the $100 cut we were looking for, with no feature shrink, and it will substantially increase demand. According to Engadget, in addition to being smaller, it also consumes 34% less power. This is particularly welcome, since the existing PS3 model heats up like a nuclear reactor.

Microsoft is rumored (though not yet confirmed) to be eliminating the "Pro" model of the 360, and dropping the price of the the Elite to $299 to replace it. That's a $100 drop as well, although I think it's much less compelling in a marketing sense than what Sony is doing. I'm not even sure Mom and Dad will understand the difference--it's still a $299 360 to them.

That leaves Nintendo, and here's apparently what they're doing this holiday season: nothing. That's with Wii sales down over 52% in the last four months compared to last year.

Think about this scenario for a moment: Nintendo announces Wii MotionPlus at E3 last year, along with Wii Sports Resort. Instead of coming out in July of this year, though, both the controller and the game come out in September last year. The new Super Mario Galaxy game, announced for 2010, comes out this fall instead.

Wii Sports Resort is a superb game, much better than Wii Sports, which was already one of the most-loved games ever. If Nintendo had done this, I don't think they would be under the severe pressure that they're feeling now. Momentum is a funny thing, and it's much easier to keep going than to recapture.

Take a look at the landscape now. Consumers can choose from a $299 PS3 with Blu-Ray, a $299 360 Elite (or a $199 Arcade), or a $249 Wii. That price comparison no longer looks good for Nintendo, even with the uniqueness of the motion controller.

Looking at it from the outside, I think all of these companies wait too long to cut prices. It's easy to see in the numbers, and every price cut this generation seems to have come 6-12 months later than it should have. But I think the console manufacturers look at it from a different angle. To them, there exists a pool of consumers who are waiting for a price drop. They believe all of those consumers will be captured, no matter how long they have to wait for their price point to be a reached.

So to us, Nintendo has lost a huge amount of momentum. To Nintendo, they have a huge pool of demand just waiting for them at $199. They're not losing sales, they're just deferring sales.

They better hope they're right.

Site Meter