Innovation & Design

PS3 Price Cut Too Little Too Late


Dropping the price of the PS3 won't ease Sony's woes, says BoA analyst

According to Bank of America's Michael L. Savner, a price drop on the PlayStation 3 later this summer or fall would likely not be enough to stimulate sales of Sony's console significantly. Moreover, he believes that the weak PS3 sales and continued shift towards Nintendo's Wii could have "adverse implications" for publishers.

"Despite growing anticipation that a $100 price cut for the PS3 is imminent this summer or early fall, we do not believe such a move would meaningfully improve stagnant PS3 sales and we are growing more concerned that a share shift away from Sony and Microsoft to Nintendo's Wii platform is incrementally negative of all 3rd-party publishers," Savner said.

He continued, "Based on our analysis, we conclude that a $100 price cut for the PS3 (we have dismissed a potential $50 cut as meaningless) would still leave the 'all-in' cost for a PS3 console and basic accoutrements 20-25% higher than the comparable Xbox 360, and does not even reflect the possibility that Microsoft could also lower its hardware prices. Further, an important driver of Sony hardware last cycle was exclusive games, such as Grand Theft Auto. Unfortunately, Sony does not have a similar advantage this cycle. Halo 3, a highly anticipated game release this year is a Microsoft-published game only for the Xbox, and Grand Theft Auto IV, by Take-Two's Rockstar unit, is being released on both the Sony and Xbox platforms."

Savner noted that Sony made a number of mistakes. Consumers are far more price sensitive than they anticipated; consumers are wary/indifferent to Blu-ray (a main driver of the PS3 cost); and Sony didn't have enough compelling exclusives at launch. To make up more ground, he thinks Sony would actually need a $200 price cut, but doesn't see that happening.

"While Sony could cut the price by $150 - $200, we view that as less likely given that it is already losing approximately $200 per console at $599, based on our estimates," Savner said. "Offsetting a potential price cut are decreasing production costs, which should improve significantly this year. We estimate that the loss per console could decline to about $50, assuming Sony does not cut its wholesale prices. Bottom line, we don't expect Sony to make up meaningful ground against the Wii this year."

On top of that, the Wii's success is obviously great for Nintendo, but as publishers look more and more to Wii instead of PS3 it could hurt the industry.

"So why are weak PS3 sales so bad for the U.S. game publishers? Independently, the implications over the short run are not necessarily significant. However, viewed at a macro level, the share shift currently taking place where the Wii, and even the PS2, are the share takers, our concern is that if software sales also begin to skew along those lines that publishers will be trading higher wholesale revenue (PS3 and Xbox 360) for lower wholesale revenue (Wii and PS2). Moreover, this is coming at a time when publishers are continuing to increase R&D spending for the more expensive platforms," he explained. "Lastly, while certain 3rd party publishers like Ubisoft, EA and Activision have shown some success on the Wii, Nintendo remains the dominant publisher on its platform."

Provided by GameDAILY—Your daily dose of gaming

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