Summary
Just a few days after Sony announced a lower-priced Playstation 3, Microsoft responded with a price cut on models of the XBox 360. Just like in previous hardware cycles, price cuts to consoles will increase the installed base of units, creating a bigger market for software publishers. Expect positive impact on the sales of hit games.
Analysis
Recently, Sony announced not only a redesigned Playstation 3, but a lower price point of $300.00, down from $399.00. This was a poorly-kept rumor for months but it's great to see it finally become official. And the announcement has been greeted with positive responses from several major video game publishers. The CEO of Electronic Arts was particularly complimentary, calling the price cut "perfect" due to its timing before the holiday rush.
Yesterday, Microsoft countered with lower prices for its models, $200.00 and $300.00.
The immediate result of Sony's price cut was a run on Amazon - Amazon announced a policy of "one system per household" as a way of managing supply.
It's been clear that while a lot of consumers have wanted to upgrade, they were waiting for price cuts to give them the incentive to do so. These cuts should result in a lot more systems being sold; and historically, people always buy the most software for their new system right after they first get it. (This applies not just to video games, but to computers, cell phones, smartphones...anything you can buy software for.)
So I'd expect a nice improvement in sales of the top titles in the coming months. Look for better sales figures from titles such as Madden Football (Electronic Arts), Call of Duty (Activision), Grand Theft Auto (Take Two), and other marquee titles with high visibility.
What is unclear is if a larger installed base will help the smaller titles and publishers; the market for console titles has started to narrow to a small "Top Ten" list. And similar to the way the top movies take most of the box office, we're starting to see the top games take even more of the sales than they did in the past.
The last thing to keep an eye out for is Nintendo. The Wii currently sells for $249.00. Will Nintendo feel the need to cut their retail price in order to compete? Wii sales have slowed recently, due to the recession. Does Nintendo, who is clearly in first place in the console race, feel that they have enough of a lead to keep the price where it is? If they respond, I'd expect it within the next month.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
