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Digital Foundry

Is Wii U Too Expensive? And What Happened to the PS3 Price-Cut?

Is Wii U Too Expensive? And What Happened to the PS3 Price-Cut?

Wed 26 Sep 2012 7:00am GMT / 3:00am EDT / 12:00am PDT
HardwareDigital Foundry

Digital Foundry on console build costs and the decisions facing the platform holders this holiday season.

The Q4 debut for Nintendo Wii U signals the coming of the next-gen consoles and the final hurrah for the Xbox 360 and PlayStation 3 - before the debut of their replacements next year, at least. Is it a time to maximise userbase, slashing prices and recouping the investment through software sales? Or alternatively, should the platform holders play it safe and keep prices high? Initial indicators seem to suggest that it's the latter strategy that is being pursued, provoking some level of controversy within the industry.

It's Nintendo's pricing on Wii U that has surprised many, with the 8GB pack coming in at 249/$299 while the 32GB premium version with Nintendo Land pack-in weighs in at 299/$349 (note that UK prices include 20 per cent VAT, whereas US prices lack sales tax). As launch prices go, this isn't bad in comparison to the precedents set by previous console releases, and Nintendo will point to its innovative tablet controller and exclusive games to set it apart from the competition.

However, it's safe to say that the Wii U isn't a typical launch - at its core, the guts of the unit itself has far more in common with current-gen consoles than Nintendo would probably care to admit, improved by various measures in some regards, but noticeably weaker elsewhere. There's also the fact that a lot of the launch software will already be available on consoles that cost significantly less.

"Wii U benefits from a more modern GPU and a useful memory boost, but it's a machine built to a budget and the price-point is around 50 higher than we expected."

To a great degree, price-points are defined by BOM - the Bill of Materials. On the plus side, Wii U benefits from a significantly more modern graphics core, equated by many with an entry-level enthusiast GPU a couple of generations old, provided by AMD. Our sources tell us that the hardware is rich in features compared to the Xenos core within the Xbox 360 (also supplied by AMD) but somewhat lacking in sheer horsepower: still a useful upgrade overall though. However, on the flipside, the tri-core IBM "Espresso" CPU is an acknowledged weakness compared to the current-gen consoles - the processors consisting of revised, upgraded versions of the Wii's Broadway architecture, in itself an overclocked version of the main core at the heart of the ancient GameCube. Nintendo clearly hoped that tripling up on cores, upping clock speed and adding useful features such as out of order execution would do the trick, but key developers are saying otherwise: GPU-heavy games get a boost, but CPU-dependent titles are challenging to bring over to the new platform. Debate still rages over the extent to which Wii U is a next-gen console at all, and whether its pricing fits accordingly.

The overall conclusion one can draw from the core components here is that Nintendo hasn't really paid so much attention to competitive forces, targeting a spec that can be mass-produced relatively cheaply. Areas where we know Nintendo easily outperforms Xbox 360 come to down commodity items such as RAM and flash storage: these are upgrades that won't significantly affect the bottom line. We also know that the silicon is manufactured in the 40-45nm range, giving the platform holder significant leeway to cut costs going forward in the medium to longer term (next-gen consoles will all be fabricated in the region of 28nm next year).

Of course, Nintendo's key point of differentiation is the tablet controller - which obviously adds to the bill of materials, but once again we see a piece of technology built to a price. In a world where Chinese no-name manufacturers can develop capacitive 7-inch touchscreen Android tablets with ARM processors, 8GB of flash storage and 512MB/1GB of RAM priced at 50-60, Nintendo's resistive screen tablet produced in the millions would clearly be significantly cheaper to mass-manufacture - even factoring in the latency free AV transmission tech.

Bearing in mind the challenge Nintendo faces in competing against Microsoft and Sony - with a significant amount of its launch titles already out on the rival platforms - the pricing on the Nintendo console does look a touch on the expensive side, and I expected price-points closer to the original Wii - 180/$250 was instrumental in Nintendo's success back in 2006. Up against the 149/$249 4GB Xbox 360 (where prices fluctuate downwards significantly) there is the sense that Nintendo could well be repeating the mistake it made with 3DS. However, this time I suspect there is more leeway for the platform holder to cut costs if it has to.

"Sony's strategy in bringing a newer, cheaper PS3 to market at much the same price as its higher quality predecessor is somewhat baffling to say the least."

However, based on Sony's announced price-points for the new PlayStation 3 "Super Slim", perhaps Nintendo has got its pricing just right. The new revision is certainly a curious piece of kit - the smallest, most discrete PlayStation 3 yet produced, with a footprint just a little larger than that of an A4 piece of paper. Despite the diminutive form-factor, the machine's got it where it matters - the functionality in terms of both hardware and software is a match for the current PlayStation 3 Slim: the same array of ports, full Blu-ray functionality, and even the ability to insert your own hard drive remains intact, though the situation with the DIY upgrade potential of the 12GB flash SKU heading for Europe exclusively is still unknown.

However, similar to the Wii U, it is a machine built to a price - and that would be a significantly cheaper one than the outgoing PS3 Slim. The mixture of matte and gloss plastics lacks the premium finish of the current PS3 Slim casing, while power and eject buttons again don't match the quality feel of the established unit. However, the most controversial element is the drive bay of the new unit. Sony has gone for a significantly cheaper Blu-ray drive: the slot-loading unit found in previous models has been replaced with a more basic device, featuring a sliding lid cover. It's perhaps a compromise too far - while perfectly functional, the so-so quality plastics and less than smooth travel of the lid across the face of the case are a little disappointing.

If the new PlayStation 3 had seen its reduction in cost-price passed onto the users, any controversy would be effectively nullified, but in the here and now, the value proposition is far from certain and some have even suggested that the new models represent a hike in prices. Certainly, 320GB PS3 Slim bundle deals do seem to offer very competitive value up against the new 500GB model to the point where the additional refinement in build quality may make the older machine a better buy for many people.

Quite why the new PlayStation hasn't seen any aggressive price reduction may seem quite puzzling bearing in mind the simpler construction and quality of materials, but put into context with current production technologies and Sony's own fortunes, the reasoning perhaps becomes clearer. Firstly, smaller form factors are typically driven first and foremost by new efficiencies in chip design or manufacture.

Current-gen consoles have been locked at 45nm for quite some time, and there just isn't enough volume at the cutting-edge processes (28nm and lower) to sustain a multi-million selling device like the PlayStation 3 - any savings here would be reliant on the maturing of the current technology. Thanks to the LinkedIn profile of IBM's Elizabeth Gerhard, we know that Sony has re-architected Cell down to 22nm, but it's surely too early to have that part in production right now. However, the new chassis will surely host the smaller, cooler, more energy-efficient processor in time - just as the PS3 Slim was revised several times with die-shrunk CPU and GPU components. In the meantime, the simpler construction and even the smaller packaging (in terms of shipping costs more than anything) will save Sony plenty of money.

"Microsoft enjoys the lowest build costs with the Xbox 360, and we fully expect to see another Black Friday blow-out - after managing to shift over 900,000 units last year with an aggressive price-cutting campaign."

The other element to factor in to the lack of a significant price-drop is related to Sony's current financial situation: the inclusion of the hard drive adds significantly to the base cost, while the Thailand flood disaster which wiped out HDD production last year must have surely hit Sony's financials hard to the point where we still wonder just how profitable - if at all - the Slim model has been for the company in recent times. It's no mistake that the new entry level 12GB flash SKU factors out the hard drive completely and swaps in a replacement for another expensive part - the Blu-ray drive. I honestly expected a price-point closer to 150 through those factors alone, but it may well be down to retail to make that happen before Christmas.

All of which leaves Microsoft sitting pretty with its 360S: cost-price of DVD drives remains significantly lower than Blu-ray equivalents, and while its processor currently remains at the 45nm fabrication process, it still features an important advantage over the PlayStation 3: both CPU and GPU components are incorporated into a single piece of silicon, slashing production costs - not just in terms of silicon manufacture, but also in terms of related components such as the cooling system. Not much has changed with the 360S since the product launched back in 2012 aside from combining a couple of minor chips, but Microsoft continues to explore new ways of cutting the price and it's almost certain that the central processor will shrink again from its current 45nm, but probably not in time for the holiday season this year.

The overall message we take from recent developments is fairly straightforward: Nintendo has the belief in Wii U to believe that its pricing will be enticing enough and in a way this helps out Sony with its new PlayStation 3 - to the point where it actually feels comfortable to release a cheaper model without significantly adjusting prices. While the jury is out on the potential success of this strategy, Sony has a truly superb value-added secret weapon at its disposal: namely the brilliant PlayStation Plus, with its excellent instant games collection. It's surely a case of when, not if, three-month trial subscriptions will be added to the hardware package.

Meanwhile, Microsoft has the lowest bill of materials of all the platform holders, and based on its outright price-aggression during last year's Black Friday - where it shifted a colossal 900,000 consoles over a single weekend in just one territory - it'll be interesting to see where it heads next for the last great holiday season, and what kinds of deals retail will come up with across all product lines.

14 Comments

Bruce Everiss Marketing Consultant

1,692 594 0.4
The differences in corporate philosophy are very evident.
Nintendo is an entertainment company with a catalogue of major IP. So they make the minimum cost hardware to run the latest iteration of that IP and build in some USPs that enhance the entertainment experience giving them competitive advantage.
Sony are a consumer electronics manufacturer. They make boxes with transistors in them. This has not served them well in many areas against competitors with different focuses.
Microsoft are a software company. They only make hardware as and when they are forced to, so when they do they make it as workmanlike as possible.

But the elephant in the room of this debate is Apple, a marketing company. They look at the customer before everything else. And their Apple TV is shaping up to be a serious gaming offering for the living room. They could do to the established consoles what the iPod did to the Walkman.

Posted:2 years ago

#1

Paul Johnson Managing Director / Lead code monkey, Rubicon Development

925 1,560 1.7
I won't be buying one. I got the original Wii purely to play the bowling game and I was not disappointed. I bought this box to do one thing only, it did it really well and I played it to death.

However it's sat under the TV for a year now after I bought a couple of other games and rapidly decided that every one of them was either "waggle to win" or crippled by the obviously forced use of an inappropriate controller. I'd much rather open a door by pressing A or it just sliding open tbh., and as for driving games - lol.

I think the novelty value of "odd" controllers will have worn off, so all Nintendo are left with is a cheap box to play those excellent IP's on. Again. Again. This product won't fail, but I'm expecting sales to be more akin to their newest handheld rather than their previous console.

Posted:2 years ago

#2

Daniel Hughes Studying PhD Literary Modernism, Bangor University

436 496 1.1
I thought alot of the rumours regarding the CPU, particularly it being three Broadway cores, had been refuted? Or do we now know stories that suggest Wii U's CPU is 'underpowered' are fact? I'd also heard rumours that Nintendo had gone for a surprisingly modern, hence very capable, GP-GPU. Do rumours such as that not get taken into account? I'm very curious as to how much we can trust reports across the spectrum on the Wii U's power. I will say, though, that what developers have said about the CPU often seems to be backed up by "we're not used to the system yet so we don't really know how good it is". Is it really possible to know what's in the Wii U, until someone takes it apart?

I'd also point out we've heard the arguments about under-powered Nintendo hardware three times before, and three times before, the debate has proved pointless. Nintendo's systems succeed because they are entertainment devices, and not technological advancements. The problem for Nintendo's home consoles, and this has been the case since the N64, regardless of specifications, has been securing long-term third party support. The signs are better here than they were with Wii. Nintendo probably have a year or two or cross-platform games from current HD platforms, a window in which to build a fan base for third party games on their hardware but the long-term is obviously more difficult to judge. Right now though, they have exciting, exclusive third party games, that stand a reasonable chance of selling well. Exclusives always sell new hardware--why buy new hardware for cross-platform games? I'd also argue that the cross-platform titles aren't meant to sell the Wii U to current HD gamers--rather they're in the line up for Nintendo-only gamers, who've yet to jump into franchises such as Mass Effect. Not a huge market, for sure, but every Nintendo gamer that buys and enjoys a third party game, is a customer that could return to third party efforts in the future, making long-term support of the Wii U more palatable. I think it's also foolish to assume next-gen MS/Sony systems will see third party support of current hardware disappear--third parties may well feel that they have to continue to appeal to the huge HD install bases in order to fund more expensive development on new machines, and Nintendo could benefit from this. How big the gap between Wii U and MS/Sony's new machines hasn't been established yet, either, but I'd wager it won't be as significant as it was between Wii and 360/PS3.

As for the price, this report leaves out the one factor that has tied both Sony and Nintendo's hands--as Japanese companies reliant on overseas sales for the vast majority of their revenue, they have been, and continue to be, hammered by the strong yen. Sony may very well have opted for a price cut, but between the strong yen and the probable need to slash Vita's price at some point in the future, cutting the PS3 price doesn't seem like a wise move right now--especially if Sony are one year from launching a new home console. As for Nintendo, I think the price in the States and Japan is at exactly the right level. In Europe, however, Nintendo may rue not setting an SRP. But if the games continue to come steadily after the launch window, and when announcements of future titles come, hobbyist gamers may well jump on board for the factor that really does shift consoles: software.

Posted:2 years ago

#3

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

2,282 2,482 1.1
Popular Comment
I am very disappointed that you have bought into the enhanced Broadway triple core rumor. You can't just take 3 single core In-Order-Execution chips and slap 3 together and make it a triple core Out-Of-Order Execution CPU. However, IBM ensures the Power ISA is always backwards compatible such that a newer PowerPC or even Power CPU can run code designed for a much older generation of CPU. Think how all modern x86 CPU's can still run programs from a decade ago.

Further, IBM had no plans to reduce the older PowerPC chips (like Broadway) to anything below 90 nm. Ever wonder why Broadway was never given a die shrink?

And then to say absolutely nothing of the strengthening of the Yen. Look at the following:
Wii - Japan - 25,000 = $205 (in 2006) and $320 (today).
Wii U - Japan - 26,250 = $335.32 (today).

If you notice, the Wii U is actually not that much more expensive in Japan now than the Wii was in 2006. But look at what the exchange rate has done. That is an absolutely huge difference. By the way, Nintendo is taking a loss on that exchange rate. That is the Japanese price for the basic model. It will retail for $300 in the US meaning they are losing $35 in the exchange.

And this goes for Sony as well. This is why Vita and the PS3 Super Slim did not receive price cuts. Which is compounded by their overall corporate financial situation.

And the Yen is expected to gain even further ground over the next year. How do you write a story about price concerns and not touch on the exchange rate factor?

Edited 1 times. Last edit by Jim Webb on 26th September 2012 10:42am

Posted:2 years ago

#4

Rick Lopez Illustrator, Graphic Designer

1,269 942 0.7
For a new console, i think the price is OK. True it is $50 dollers higher than expected, but that new controller also seems to pretty expensive to make. I think the package as a whole is worth the price.

Posted:2 years ago

#5
In Australia, I paid $400 for my day#1 Wii. Basic console, WiiSports.
Now, 6 years later, I'm paying $430 for a Premium WiiU. Controller with screen, 32GB storage, Nintendo Land. Take inflation into account., and its a pretty good deal - better than a launch day Wii.

Its definitely better than $350 for a "Basic" WiiU.

I'm not sure how much the Super-Slim PS3 will retail for here, but it may be similar (if not more).

For the record, the specs I have seen are:
"Tri Core, 3 GHz PowerPC-based 45nm CPU, very similar to the Xbox 360 chip. The CPU features 2 MB cache, 1 MB for Core 0, and 512 KB for cores 1 and 2"

Main difference from a 360, is the WiiU has NO fan - probably requiring an effective underclock.

Posted:2 years ago

#6

David Radd Senior Editor, IndustryGamers

359 78 0.2
I have a theory that Nintendo really wanted the $349 version to be the $299 version, but it was just a little to expensive for them, so they cut some features so that they could comfortably offer the $299 basic model. Most companies like nice round numbers for their console prices, particularly at launch, so I feel like the two SKUs they have at launch is the "complete" model that everyone would have in an ideal world and the $299 model that's at the pricepoint Nintendo wanted to hit.

Posted:2 years ago

#7

Caleb Hale Journalist

156 231 1.5
No fan on the Wii U? That might be problematic. I had trouble with my Wii unit overheating because of running the always-on WiFi connectivity through WiiConnect 24. When it was in standby and the fan wasn't running, receiving the WiFi signal was practically baking the system's innards. It got to the point I not only had to completely shut off the unit when not in use, but unplug it as well to ensure it would work properly the next time I turned it on.

If there really is no fan in the Wii U, then I hope Nintendo doesn't insist this thing be constantly connected to the Internet. The advent of Miiverse, however, tells me this is in the cards. Unless there is something different in the architecture of the console that improves ventilation, I would expect a big problem with overheating.

Edited 1 times. Last edit by Caleb Hale on 26th September 2012 5:32pm

Posted:2 years ago

#8

Andrew Goodchild Studying development, Train2Game

1,254 421 0.3
"How do you write a story about price concerns and not touch on the exchange rate factor? "

Because whilst it may explain why it is priced as such, exchange rate will not justify it to customers if they think it's too high.
(no one goes to a store, decides something is too expensive, but then loads up Oanda on their phone to look at the exchange rate of the country it comes from). That's not me saying the price is bad or good, just that anyone deeming it to high will not see relevence in the exchange rate, so it is not rrlevent to the question, if it is meant to be answered from a consumer point of view.

Pricing based on current exchange rate certainly does no favours for the Vita, and did no favours for the 3DS pre price cut, and although I may be mistaken, I don't think Toyota have been able to add a few grand to their prices to compensate.

Posted:2 years ago

#9

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

2,282 2,482 1.1
Andrew, my point was there was some attempt to explain the price in the article but it left out what is by far the biggest factor for the price. Just as you state that consumers aren't going to look into the exchange rate for why it costs so much, they aren't going to care what the BOM is either.

Toyota had the benefit of already having built in a large profit margin to help buffer currency fluctuations (consoles tend to have little to no profit margin as companies make up their profits in software) and the fact the US auto manufacturers damn near vanished.

Look what happened to Sony recently. $6 billion in losses with a large portion of it attributed to the foreign exchange rate.
Nintendo first FY loss ever...70% of the loss attributed to the ForEx.

Posted:2 years ago

#10

Brandon Hofer Editor in Chief, Totally Gaming Network

16 11 0.7
In my opinion Nintendo nailed the price point for the Wii U. Thinking that it would come out at $249 in the US was being unrealistic. The $299 price point is huge psychologically for parents or for those who might be on the fence. While it is "only" $50 cheaper that could mean a world of difference to some families. For the "core" gamer they will most likely go for the deluxe set (I have mine pre-ordered!) and $349 is not a bad price. The $349 unit also comes with a premium membership into their digital club (I forget the name at the moment) where if you buy titles off of the Virtual Console/eShop you gain points that can be put toward future purchases. That is a great incentive for me to buy titles off of their store.

The Wii U is also backwards compatible with the Wiii which is huge. Families can still play their Wii games, such as Wii Sports, on the Wii U. The Wii has recently come out with some great j-rpgs which I haven't had a chance to fully explore yet and I will probably end up doing so on the Wii U. Being able to utilize the Wii controllers was also a stroke of genius. Now people don't have to rush out and buy a bunch of new controllers for the system. The system basically comes with what you need. In my opinion it was also a brilliant move on Nintendo's part to allow you to use an external usb hard drive. Now we can have the size of the hard drive that we want and we can get it for cheap off of Amazon or Newegg. We aren't forced to purchase an over-priced hard drive like we were on the 360.

Finally, in regards to the Wii U's power it really doesn't matter. The PlayStation 2 was the "weakest" console of that generation and totally dominated. The Wii was the "weakest" console of this generation and completely dominated. In the end I think Nintendo has positioned themselves just right. Early signs of it selling out everywhere are encouraging but only time will tell how truly successful it is.

Posted:2 years ago

#11

Paul Jace Merchandiser

945 1,433 1.5
"Not much has changed with the 360S since the product launched back in 2012"

Actually Richard the 360 slim launched back in 2010: http://www.engadget.com/2010/06/14/slim-xbox-360-gets-official-at-299-shipping-today-looks-angul/

I personally don't think the Wii U is too expensive, it just hasn't shown much software that I have any interest in.

Posted:2 years ago

#12

Greg Wilcox Creator, Destroy All Fanboys!

2,194 1,170 0.5
And in a year, it will be: "Is the Xbox Whatever Too Expensive?" and a bit after that, Is The PS Whatever Too Expensive?" and so forth and so on... People who are fans of these consoles or those who want to get the hot new thing on the block will pay what they feel is right on day one (and those who have money to burn, but got too lazy to pe-order will pay even more from a reseller that makes not an extra dime of profit for Nintendo). That's how it goes and will go for at least another console cycle.

As for the Wii U, I think the price is right, but only if one gets the Premium model. I know Nintendo is going to have to eat it on the extra GamePads, as i can't see them trying to pass off a possibly $100 - $150 controller as "inexpensive" even to those who can afford it.

Posted:2 years ago

#13

Shane Boucher Game Design, Concept Art, 3D Design, Traditional Animation

3 0 0.0
By the looks of pre-sales alone in the USA...there seems to be no price problem with the Wii U...try and find a major retailer in the USA that has not presold out of there first shipments...and if you can find some stock it is only the Basic edition console and some of that stock is being made into more expensive bundles by the retailers. So considering the tech level of the system it is falling almost in line with a solid price point, it was right where I figured it would fall...and we have to say it is better then the $599 Sony pushed on all of us in the USA for the launch of the PS3. Regardless if a lot of us on here that are within the industry plan to purchase at launch, the Nintendo fans and hopefuls seem to be lining up even in these uncertain economic times and an election year to plunk down the $349+ this holiday season. So I doubt that Nintendo is to worried at this point.

Posted:2 years ago

#14

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