Sony and Microsoft have dropped the prices on their consoles recently as the the Xbox 360 Elite and PlayStation 3 are now $299, with Sony’s new PlayStation 3 "Slim" model debuting this week at the same price. Along with the price cuts, industry analysts are taking a look at how these drops in price will effect Microsoft, Sony, Nintendo, and the game industry as a whole.
"Historical sales, accounting for inflation, suggest the $249 to $299 price point is the sweet spot where the industry can expand at a comfortable rate while still delivering profitability for the console manufacturers," said Electronic Entertainment Design and Research’s Jesse Divnich. "A $249 to $299 price point over the next two years would give Microsoft, and Sony, the breathing room needed to improve manufacturing efficiencies while expanding upon the margins on each system sold. Any improvement on the bottom-line will allow Microsoft and Sony to each to properly fund new and innovative features that will drive our industry forward."
Divinch believes that the Xbox 360 will have another $50 price cut within the next year, as it is still more expensive than the Nintendo Wii and has lost the bargain price high ground it had with the more hardware-heavy PlayStation 3.
"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," he said. "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."
Wedbush Morgan Securities’ Michael Pachter feels that a $50 price drop for the Xbox 360 will come if sales decrease and believes this latest drop was more of a replacement. "They replaced the old $299 model with a new (black) improved (120Gb) $299 model," he said.
As for Nintendo, Divinch believes that the company is in danger of losing the mainstream audience that it has held since the release of the Wii. "Essentially, Nintendo stole potential PlayStation 3 and Xbox 360 consumers from this hardware lifecycle three years in advance," he said.
Divinch also called for a $50 price cut for the Wii.
"In order to maintain this position Nintendo should drop their Wii console down to $199, not because the current Xbox 360 or PlayStation 3 pricing structure poses a threat; rather, because they will eventually pose a threat," he said. "Nintendo’s strategy should be to capture as many consumer dollars as possible while their competitors are still weak in their offerings to the casual audience and price-sensitive consumers."
However, not everyone feels that more price drops will be coming. Broadpoint AmTech’s Ben Schachter and Lazard Capital Markets’ Colin Sebastian believe Microsoft will see a healthy increase in sales. Schachter also feels that simplifying its SKU count by eliminating the Xbox 360 Pro as well as keeping the Xbox 360 Arcade, priced at $199, will help Microsoft and keep it in close competition with the Wii.
Sebastian believes that the price cuts will also help an industry that has been hurt by the ailing global economy, suffering five months of consecutive US retail sales declines. "A hardware price war is good for the industry, particularly given the recent slowdown," he said. Sebastian stated that Nintendo has been working on hardware bundles with the Wii to stay competitive, but that a price drop could be possible if sales don’t increase by October.
[Gamespot]
