Pachter: PlayStation 4 to sell for $349, Xbox One $399

Bill of materials for new hardware $275 - $325; subsidised Xbox One likely

Investment firm Wedbush Morgan has suggested the PlayStation 4 will retail in the US for $349, significantly lower than the PS3's starting price of $599.

In an E3 preview note to investors Michael Pachter, analyst at the company, estimates that the PlayStation 4 has a bill of materials at around $275, while Microsoft's Xbox One costs around $325. As such, Wedbush is expecting the new Microsoft console to cost $399.

"If the Wii U's popularity does not improve by the end of the year, many third-party publishers may pass on producing games for the console"

But while Microsoft's new hardware may be priced higher initially, it's also more likely to be available at a subsidised price to the consumer through a subscription contract from a broadcast, cable or ISP provider.

"We believe the ability to watch live TV from a cable, telco, or satellite set-top box through Xbox One could entice an MSO to drive subscriptions through a subsidised box in exchange for a multi-year contract. The 'always connected' requirement for the Xbox One likely means that a broadband connection will be required, suggesting to us that ISPs may have an incentive to offer a subsidy as well.

"In addition, Microsoft could conceivably subsidise the Xbox One through prepaid Xbox Live Gold subscriptions (as it has done on a limited basis in the past) or premium Skype functionality as well. Similarly, Sony could subsidise the PS4 through prepaid PlayStation Network subscriptions, but unlike Microsoft, it does not have a history of doing so," he added.

Looking at Nintendo, Pachter suggested the company needs to prove to consumers at E3 that it has an enviable line-up of titles for the rest of the year.

"Nintendo risks losing additional share to its console competitors if the quality and volume of content available for Wii U does not pick up markedly in the near-term.

"In addition, if the Wii U's popularity does not improve by the end of the year, many third-party publishers may pass on producing games for the console. We note that EA recently announced that it had no Wii U games in development, and it remains a possibility that the publisher will abandon the platform entirely. Should other third parties follow EA's lead, the Wii U could be relegated to a first party only platform."

While all eyes will be on the new console generation, Wedbush Morgan is also expecting a round of price cuts on the current generation technology. The PlayStation 3 and Xbox 360 are likely to have another $50 shaved off their prices, with the Wii dropping to $99. As well as a Vita price cut from Sony, there's also the possibility that Nintendo will try and boost Wii U sales with a $50 price cut or new software bundle.

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Latest comments (16)

Craig Burkey Software Engineer 9 years ago
The PlayStation Plus service seems to be designed for this sort of thing, hook earlier adopters on a 2 year contract at the end of which they'd of built up quite a game collection for which they'll have to maintain the sub to keep access to it

Edited 1 times. Last edit by Craig Burkey on 3rd June 2013 2:37pm

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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.9 years ago
Why do I feel like he's lowballing these numbers?
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David Serrano Freelancer 9 years ago
The question is will Microsoft's investment in development of the Xbox One's set top box and interactive TV features inflate the retail price?
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Show all comments (16)
Kenneth Bruton Producer 9 years ago
I feel his estimates are close, but we will have to wait and see. Both are premium investments, both with no backwards compatibility, with the XBOX ONE being more geared towards filling the living room experience, I feel the subisdized model will move more units. The PS4, I think, being a bit more powerful needs to, at launch, have a compelling game line-up, and be bundled with the unit to maximize its selling capability. It is still a matter of waiting to see what each will do.
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Christopher Bowen Editor in Chief, Gaming Bus9 years ago
I'm in agreement with Kenneth. I won't believe anything until I see retail's numbers.
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Makeda De'Jene Creative Director & Founder, Zombie Gamer Online9 years ago
I absolutely agree with you on this. I feel like the subsidized models will sell well also, but only under the illusion that they are paying less, when in actuality-- they are paying more. It's kind of like buying a cellphone "cheaper" if you agree to a 2 year phone contract. You aren't getting the phone for less, you're just paying less up front. Through paying them in the long run, you'll pay way more than what you would have paid for if you bought the phone upfront, so in the end, if both companies follow though with the subscription services, they'll definitely make more money.
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Greg Wilcox Creator, Destroy All Fanboys! 9 years ago
Well. I believe it's up to EVERY journalist here to let their readers know the whole truth. Don't let either company get away with duping less savvy consumers with a "low" price point and promises of features without revealing the true cost to those new and old buyers who don't quite grasp this sort of business model.
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Klaus Preisinger Freelance Writing 9 years ago
What was the last subsidized thing that was not overpriced in some other way?
Why not buy at a store offering monthly installments?
When will Michael Pachter announce the Wii U HD?
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Bruce Everiss Marketing Consultant 9 years ago
Amazon UK's placeholder price for both consoles is 599.99
Zavvi's is 399.99

Initially they can price high to profit from the early adopters and fanboys. But if they want to "own" the living room then price elasticity of demand dictates having the lowest possible price point.
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Paul Jace Merchandiser 9 years ago
I've been saying for quite some time that the subsidized model was Microsoft's ace in the hole for next gen. It will be their lowest sku of how ever many they decide to launch with. Like Makeda said, it works extremely well with cell phones so continuing using the model for XB1(after testing it with the 360) is a no brainer.

I also agree with Pachter that Sony will most likely not launch with a subsidized model. However, I think that Sony will follow suit the same way they did this gen with achievements. Once they see how successful Microsoft's contract XB1's sell they will jump on the band wagon but really have the resources to make their deal just as compelling once they add PSN+ to the mix.

As for the price points, it would be nice if neither console priced above $399. Thats doable, especially when you consider both are most likely to have a cheaper sku. But like most I'm going to wait for E3 for the official confirmation. As long as neither makes a price point of $500 or $600 I think we'll all be ok.
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Nicholas Pantazis Senior Editor, VGChartz Ltd9 years ago
I'll go ahead and say that I think Pachter is outright wrong, and neither platform will retail for under $400. I suspect $450 and $500, but certainly no cheaper than $400. His production cost analysis is based on limited information, and they have been very wrong in the past (as with the Wii U which he claimed was marked up considerably when Nintendo was selling it at cost).
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Christopher Bowen Editor in Chief, Gaming Bus9 years ago
I love the idea of the subsidation model, because it's worked *so well* at Rent-a-Center and Aaron's.

(for those unaware or living in the UK, those are rent-to-own businesses in America that, frankly, are abusing the lower income brackets with their subsidized schemes. People who go to those places end up paying $450 for a couch that could normally cost $200)
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Adam Campbell Product Manager, Azoomee9 years ago
Its possible, consoles have retailed lower. But expectations should be managed with the pricing, will be cheaper but how by how much is unknown due to a number of factors.
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David Reeves Consultant 9 years ago
Actual COGS (Bill of materials) is one thing but recouping Hardware Dev costs have to be included as well. Software turn will not cover this over even a 10 year cycle and a 10 to 1 tie ratio. One thing often missed is that VAT in Europe is between 16% and 25%, RRP's in the USA exclude Sales Tax so $ to or Euro RRP comparisons on Hardware are meaningless. All Hardware in the first 6 months will be bought very quickly, whatever the price, it's how quickly manufacturing economies and cost reductions can be made (hence a price drop later) that will determine the prevailing, ongoing price point.
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Greg Wilcox Creator, Destroy All Fanboys! 9 years ago
@Chris Bowen: And don't even ask what a base model PS3 or Xbox 360 costs at those places. By the time it's paid off, a slim or 4GB 3go costs about as much as both consoles did at launch. But hey - for what, $25 a month or whatever, some people in those areas THINK it's a bargain...

I'm gathering the big reveal will also have Microsoft subsidizing broadband service in some of these areas across the US so they can grab new users in with an even bigger hook. That's the only way some of these folks will be able to use an almost always online console...
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Axel Cushing Freelance Writer 9 years ago
I generally take anything Pachter says with massive doses of salt. (I'd take it with massive doses of tequila to chase the salt, but I quit drinking)

Materials costs are likely going to be priced on volume. Joe Bob buys a few grams of doped silicon, it's probably going to be a lot more expensive on a per gram basis than AMD buying up a few thousand tons of the stuff. Same for the plastic, aluminum, solder, etc. The per unit cost is probably going to be considerably lower for the fabricator than the distributor. The fab marks up to Microsoft/Sony, Microsoft/Sony marks up to the retailers, and the retailers mark up to the consumer. My guess is that Sony, at least, will be shooting for a sub-$300 price point. Microsoft might try for $400, but I think that they may be forced to drop down to the $350 range if the ill will they've built up causes slow sales.

All that said, prices are probably going to drop faster on the Xbone than the PS4, if only because the price point won't justify the agony. Microsoft will probably be taking a bath on the first wave of units. Sony will experience a price drop further out, say about two years. By that time, production efficiencies will have set in, further reducing the cost.
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