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PS3 "could lose more market share" without price cut

PS3 "could lose more market share" without price cut

Tue 16 Oct 2012 9:17pm GMT / 5:17pm EDT / 2:17pm PDT
BusinessHardware

Analysts appear to be split on just how important it is for Sony to react to recent price drops from Microsoft and Nintendo

Microsoft today confirmed the retailer promotions we've been seeing on Xbox 360 bundles. The $50 price reduction is apparently temporary to drive sales through the holidays, but it does help drive interest in a market where Xbox 360 is already outselling PS3 each month. On top of that, Wii U is about to launch and Wii has seen a price cut as well. What's Sony to do?

Sony is the only the console manufacturer not to drop price this fall. In fact, the super slim model was released, strangely, at an MSRP that's $20 higher. Some analysts believe it's imperative that Sony chop PS3's retail price now.

"It's good to see price cuts on Xbox 360 bundles in addition to the lower Wii pricing.  This should help increase industry revenue for 2012 [but] PS3 could stand to lose more market share.  I'd like to see Sony bring down PS3 prices to better compete with Xbox 360," Inside Network analyst Billy Pidgeon told GamesIndustry International.

Colin Sebastian of RW Baird agrees. "Sony needs to drop the price of the PS3, which would be well timed Q4 before the expected announcement of the PS4 sometime in early 2013," he said.

While PS3 is consistently in Xbox 360's rear-view mirror, IDC Research Manager Lewis Ward doesn't believe a price cut will happen this holiday. "Sony dropped their console prices $50 in 3Q11 so I don't expect another price cut this holiday season. I don't think Sony will have terrible game sales results this holiday season but I also won't be surprised if they come in 3rd when it's all said and done," he told us.

"The fundamental question for Sony right now is how many incremental PS3 units could they sell at this point in the cycle if they cut price now? "

PJ McNealy

"What we'll really have this holiday season in North America on the low end of the console scale is the ~$130 Wii bundle  going up against the '$99' 4GB X360 version (with the 2-year, $15/month Gold subscription required), and then the PS3 starting at ~$250 for the 160GB version.
 The PS3 'super slim' is really a European phenomenon. It's a way to get the price down in Europe this holiday - by slashing the onboard memory to bare bones. From my perspective, the SKU is basically an outlier that was specifically tailored to drive up the PS3 installed base in Europe, where the PS3 has emerged as the #1 selling console in 2012.
"

EEDAR's Jesse Divnich sees this holiday as a "war on pricing" but the best we'll see from Sony is more bundles. "It is clear that all the current generation consoles are getting a little long in the tooth and unfortunately releasing new models or upgrades is not as strong a motivator as in prior years. What we are likely to see is a strong presence of hardware bundles this holiday season. Offering current holiday hardware discounts, but the inclusion of more and even better software. We'll likely see many hardware bundles packed with AAA titles; whereas in prior years hardware bundles generally had A to AA rated titles. Both Microsoft and Sony will be aggressive on their holiday promotions. I am sure Sony is adequately prepared with proper discounted bundles," he said.

Of course, the real problem for Sony is a financial one. The corporation as a whole has been struggling, and the games division in the last quarter posted an operating loss of $45 million while Sony posted losses overall of $312 million. A price cut on PS3 simply might not be feasible no matter how much it might spark sales.

"The fundamental question for Sony right now is how many incremental PS3 units could they sell at this point in the cycle if they cut price now? My opinion is that it likely wouldn't have a big impact for Sony this calendar year," remarked DWR Research analyst PJ McNealy.

"Sony is trying to minimize losses right now after posting terrible financial results in the past year. I think the solutions for them right now are more focused on a slim PS3 with bundles. Sony has some unique leverage that Microsoft and Nintendo don't have -- a movie studio and music label," he continued. "Sony hasn't been shy to bundle games with movies and I can see more creative bundles coming from Sony while trying to maintain the current pricing structure."

Mike Hickey of National Capital Alliance noted the financial burden as well. "I think philosophically they'll take slower growth and a bit of profit versus more sales and any more bleeding. They're in a position now where they don't want to take any more losses," he said. "We expect there will likely be a PS4 next year, and I think that's where they're putting the majority of their resources. Clearly they're not showing willingness to drive velocity with a price cut, but their competitors are."

"I don't think they're going to get a lot of movement out of the super slim PS3. I don't see it being a real catalyst for driving hardware, and at this point in the cycle you have more of a value buyer, and those consumers are incentivized through a price cut. Without one you're not going to see any pickup in demand, other than some seasonal ones."

Ultimately, a PS3 price cut will happen, but it's much more likely to be sometime closer to when PS4 is a known quantity. "If they cut the price now, they'll just have to cut it again when they announce PS4," added Hickey. "So maybe they are thinking 'Let's limp this through until the announcement' and then they'll do the next price cut similar to what Nintendo did with Wii in front of Wii U."

7 Comments

Bruce Everiss Marketing Consultant

1,692 594 0.4
Now that it doesn't matter MS are putting the screws on Sony in the market. Or are they just shifting inventory?
The 360 has always been cheaper to make than the PS3. Also Microsoft have lots of money in the bank and Sony don't. So Microsoft could easily have walked all over Sony years ago. Why didn't they? It is almost as if they are frightened of all the anti trust, anti monopoly police around the world. Or maybe they were concentrating on building the product as an all round entertainment hub and content server.
MS have been very conservative and unagressive with their 360 marketing. It will be interesting if the gloves come off in Apple TV Vs Xbox 720 battle. But then the Molotov Ribbentrop pact between Apple and Microsoft might tone things down a lot.

Posted:2 years ago

#1

Keldon Alleyne Handheld Developer, Avasopht Ltd

470 476 1.0
Also Microsoft have lots of money in the bank and Sony don't. So Microsoft could easily have walked all over Sony years ago. Why didn't they?
http://www.joystiq.com/2005/09/26/forbes-xbox-lost-microsoft-4-billion-and-counting/
http://www.dailyfinance.com/2012/07/15/how-one-of-microsofts-greatest-consumer-successes-/

In short, the $4Bn loss from the Xbox is a big investment already, yes they do have massive assets but you can't force the market to move overnight. The fact that the XBox 360 outsells the PS3 is a big enough win to me considering the phenomenal success Sony had with the PSX and PS2.

If Forza can make GT (and other key franchises) obsolete, the 720 may have the potential to really outdo the PS4. I'm sure you would agree that MS' strategy with being early and establishing a strong network of online players was a massive strength, even today I see lots of people purchasing XBox versions of games over the PS3 because they want to play with their friends.

I'm still surprised MS have got this far, I thought it would have been a big flop.

Edited 2 times. Last edit by Keldon Alleyne on 17th October 2012 10:30am

Posted:2 years ago

#2

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,287 2,507 1.1
Not only can a lot of the X360 losses be written off but Sony has lost as much if not even more this generation than MS did.

Let us not forget the unfavorable foreign exchange rate. That makes it much, much harder for Sony to cut the US and Euro price now than last year.

This is why Vita has yet to see a price cut.


I personally think that MS is leaving money on the table. They didn't need this price cut.

Posted:2 years ago

#3

Nick Parker Consultant

306 186 0.6
We are talking about the USA in this article. In Europe, and indeed EMEA, the Xbox 360 is not outselling the PS3 each month. Sony sees PS3 being viable for a longer term than Microsoft does for the 360. When the 360 was launched, Microsoft turned off production of the original Xbox which it may again consider for the 360 when the next gen device is launched. Sony came to the current gen market late as it wasn't competitive in its first two years due to premium price tags. Maybe Sony is planning price cuts early next year then again at strategic points to prolong the life rather than a slash and burn policy which would suck in consumers too quickly and leave an empty market for 2014 and beyond.

Posted:2 years ago

#4

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,287 2,507 1.1
Nicholas, MS stopped production (and in fact rushed to get the X360 to market quickly) because of the poor deal they had with nVidia and their HDD vendors. Neither company was willing to reduce the price of their components to MS. Microsoft was dropping the price of the Xbox to stay competitive with the PS2 but their BOM was not dropping accordingly so they were taking huge losses. This forced them to rush the X360 to market and cut the Xbox production as soon as possible.

Notice how MS is not dealing with either of those same vendors anymore and has a very different contact structure for the Xenos GPU?

When the Next X hits the market, they are not likely to drop support for the Xbox 360 as they did with the Xbox.

Posted:2 years ago

#5

Tom Keresztes Programmer

700 354 0.5
Neither company was willing to reduce the price of their components to MS.
In 2002 Microsoft and Nvidia entered arbitration over a dispute on the pricing of Nvidia's chips for the Xbox.[13] Nvidia's filing with the SEC indicated that Microsoft was seeking a US$13 million discount on shipments for NVIDIA's fiscal year 2002. Microsoft alleged violations of the agreement the two companies entered, sought reduced chipset pricing, and sought to ensure that Nvidia fulfill Microsoft's chipset orders without limits on quantity. The matter was privately settled on February 6, 2003

(from wikipedia)

Posted:2 years ago

#6

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,287 2,507 1.1
I'm aware of that suit, Tom. The problem is that suit only applied for that 1 fiscal year and it wouldn't change the specifics of the contract that both parties had initially agreed to so long term prices would never really came down. Nor would I consider being forced to reduce a price as "willing". But the key statement is that the matter was that they settled privately, outside the courts, meaning the specifics of the suit itself are irrelevant.

My understanding is that was when MS said, "Forget it, let's move on to the next generation." And little more than 2 years later a new console hit the market.

Guess when planning began for the Xenon chip began? February 2003. Also that month, MS had a huge event to recruit support for the platform and Peter Moore joined MS. The very same month that MS and nVidia settled out of court. Makes you go "Hmmmm."

Posted:2 years ago

#7

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