Adam Creighton, Computer and Video Gaming: PS3 price drop and fallout ...

Other Blogs:
American McGee
Beautiful Pixels
Hideo Kojima
Hitachi Wasabe's Xbox 360

Xbox 360 Marketplace Updates: (MajorNelson.com)

Adam Creighton, Computer and Video Gaming (Subscribe)

Monday, July 09, 2007

PS3 price drop and fallout ...

There are no secrets anymore.

Sony announced yesterday they're dropping the price of the 60GB PS3 -- from $599 to $499 -- and introducing a new 80GB SKU at the old $599 price point. The 20GB model, which was at the $499 price point, was discontinued some time ago.

Everyone from Forbes to Business Week to Bloomberg Worldwide is carrying the story today, and while there's some interesting analysis, it's not real deep, and (from the mainstream press), not very historied.

All of these things had been out on the Net for a while, so this was no real surprise.

Discontinuing the 20GB model? Check.

The creation of the 80GB model? Check.

The $100 price drop? Check. Check. Check.

This last one ties into this post's opening statement -- There are no secrets anymore.

Rumors started sprouting up on this at least on July 5th, with leaks from Circuit City, Best Buy, and Target. There was confirmation that at least two Target stores broke the street date of the $100 price drop starting Friday.

The bigger deal is Sony was forced to announce the price drop yesterday (July 8th), rather than as part of their E3 press conference (scheduled for Wednesday, July 11th) -- That's a 3-4 day push. Power to the InterWeb Peeps. Or something.

(And not to overly badmouth Sony on this front; Microsoft's hand was similarly forced on the reveal of the Xbox 360 Elite.)

So, what does this mean, from a business perspective, and to gamers?

Sony thinks it'll mean they'll double their PS3 shipping estimates. Analysts (like Michael Pachter) think they'll at best increase them by 50%.

Me? I think the other consoles will benefit.

First off, at $250, I don't think Nintedo's Wii is impacted at all. If they become impacted, Nintendo has room to drop the console to $225 or $199. They're in a sweet spot -- if they could just keep up with demand.

Let's look at the PS3's new high-end SKU (hey, anyone else remember Sony saying "no" to multiple SKUs?). For $100 more you get 20GB more and a copy of MotorStorm. Not bad, but not a great deal, by any stretch.

For $20 less, you get the Xbox 360 Elite, which has 40GB more hard drive space than Sony's new high-end -- and HDMI output and everything else. I can't tell whether the Elite's been in demand or short-supplied (if so, why? To increase the perception of demand?), but starting last week, I saw in-stock Elite's at GameStops, Targets, and Wal-Marts. Something's up.

But what you do get for $20 more paid to Sony is Blu-ray DVD. That's a $200 external (HD DVD) add-on from Microsoft.

But let's just look at the console portion, since it looks like people aren't buying the PS3 for the Blu-ray.

What if Microsoft drops the price of the Xbox 360? Currently, there are 3 Xbox 360 SKUs:

Core -- $299, wired controller, and no hard drive (aka, "The useless SKU", IMHO)
Premium (or "Pro") -- $399, wireless controller, headset, and 20GB hard drive
Elite -- $479 -- $479, wireless controller, headset, 120GB hard drive, 120GB hard drive, and sexy black

If you go to Xbox.com, you'll see something pretty interesting. While the "Core" is stilled called "Core", the "Premium" is now simply listed as the "Xbox 360 System". This is huge, as it implies this is the mainstream SKU, and the Elite is the upper SKU.

Conceivably, this means "goodbye" to the Core (please), and a price drop on both the mid-range and Elite SKUs. Or, on the outside, reduction in product line to just the Elite, and a price drop.

Microsoft has said they're working to shrink their 90nm Xbox 360 CPU chipset down to the 65nm scale, which are (obviously) smaller components, but they also use less electricity, run cooler (a boon to 360 owners and the alleged 33-502% failure rate), and most importantly to the above argument, are cheaper to mass-produce. What hasn't seemed to make general news is they're also looking to do the same to the GPU chipset, further reducing cost.

Analyst projections have set an Xbox 360 price drop for this fall, but if Microsoft's chip roadmap is on track, they have room to do an early price drop, if the Sony announcement forces their hand.

Most likely though, in the face of their financials hit related to the "Red Ring of Death" 3-year warranty announcement, Microsoft may choose to tough it out until this fall, and announce a price drop at the Halo 3 launch, or (honestly) afterwards, if that game drives high console purchases at the current price points (why drop prices if people are buying your product at a higher margin?).

As an aside, people shouldn't badmouth Sony too much for dropping the price of the PS3 as being indicative of their backs being against the wall. As they'll tell you, they've moved more PS3s in the same time period than they did PS2s. Now, that's positive spin, as that's shipped units (not necessarily purchased); the PS2 was selling to a less game-available market; they didn't have the competition of a resurrected Nintendo they helped almost kill (or the lack of SEGA competition, which they did kill); and they didn't have to deal with the upstart Xbox (which wasn't even supposed to be a contender, and now dominates in some ways). And, percentage-wise, PS3 sales suck compared to the PS2 sales.

And keep in mind Sony dropped the price of the PS2 eight months after launch, and they're dropping the PS3 seven months after launch. Know you're history, kids.

Speaking of which, what about Sony's still market-dominating PS2? Did you miss that a slimmer, lighter (900 to 600 grams for the base unit, and 350 to 250 grams for the AC adapter) version is creeping into the marketplace? This smaller unit is cheaper to produce, so there could be a fall or holiday drop (from $139 to $99), should Sony want to further muddy the waters.

So what's the net-net?

Expect an interesting E3 this week, as Sony tries to sell how big their price drop and new SKU is, and the other console makers do (or don't) react to it.

More telling will be sales of all consoles in the next several weeks (the price drop for the 60GB PS3 is rumored to be effective July 12th, but the 80GB SKU won't be available until August, which may cause potential buyers to not act on the price drop, as they wait for the upper-end SKU's availability).

And what comes out of E3 this week will be telling. What's gamers' perception of the console of choice, based on games introduced at the show? For example, if Microsoft's biggest announcement is Gears of War on PC, that doesn't really help the 360, per se.

This fall and holiday will be even more interesting, as the Xbox 360 install base is re-assessed on the basis of Halo 3 sales and Sony competition; Sony reassess based on the price cut and new SKU, and Nintendo re-assess based on catching up to demand, and any impact to a possibly reduced PS2.

For analysts, a lot of fodder for ivory tower theories. For business folks, a lot of data and trends to assess, and and for gamers, just good times ahead as all of the console makers try to drive price down and increase the quality and content of service and product offerings to get you to buy their consoles.

Labels: announcements, console updates, Epic Games, Gears of War, Nintendo, PC, PlayStation3, SEGA, Unreal Engine 3, Xbox 360