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High cost of consoles a "strategic error" for manufacturers

By Matt Martin

Mon 13 Jul 2009 2:08pm GMT / 10:08am EDT / 7:08am PDT

All home console prices expected to be slashed this year to stimulate game sales

Hardware manufacturers have kept the price of home consoles too high for too long, contributing to a slowdown in game sales this year.

That's according to analyst Michael Pachter, who said that a fourth consecutive month of declining sales in the in the US is in-part due to consumer fatigue at the current price points.

"We believe that the manufacturers have made a strategic error by maintaining pricing for too long," wrote Pachter in his latest note to investors.

"We think that the negative software trend is less attributable to a weak software line-up, and can only conclude that until consumers are sufficiently interested in buying consoles, it will be difficult for publishers alone to drive sales higher each month."

Wedbush Morgan predicts June videogame sales of USD 670 million, down 23 per cent on June 2008, with Wii software sales down 24 per cent year-over-year, Xbox 360 game sales down 9 per cent, and a 14 per cent fall in PlayStation 3 software.

But it's a decline in combined sales of Xbox 360, PlayStation 3 and Wii hardware units of 43 per cent compared to last year that will finally force format-holders hands' before the big Christmas selling season, said Pachter.

"We think that the console manufacturers will therefore be forced to consider a price cut before year-end, with Sony cutting the PS3’s price by October 1," offered Pachter. "Further, we do not think that Nintendo’s hardware forecast figures are achievable without a price cut, and we expect one around the same time as the PS3 price cut.

"It is likely both manufacturers will cut by USD 50, with Sony making up any lack of increased demand with a software bundle. We expect Microsoft to follow suit, giving us confidence that US software sales will grow later in the year, notwithstanding negative sales in the early part of the year," he added.

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