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Analysis: do the major video game consoles need a price cut?

David Hughes's picture

Video game and entertainment industry analyst Michael Pachter recently reiterated his long-running call for the big three game companies to cut the retail prices of their console systems, claiming now they will come in June - led by Microsoft cutting the Xbox 360's price - but HULIQ takes a critical look at this prediction.

Will June see the next round of console price cuts? By Christmas 2011, will the Wii, Xbox 360, and Playstation 3 all be selling for "at least" $50 less than their current price points? Wedbush Securities analyst Michael Pachter thinks so, though he's been advocating a cut in console prices for longer than HULIQ News has been offering regular coverage of the game industry (most recently here).

In a research note quoted by Gamasutra he writes "In order to sustain a rebound to sales growth, we think it is imperative that the console manufacturers cut price" and "we expect Microsoft to announce a price cut at this year's E3 Expo in June, and expect Sony and Nintendo to rapidly follow suit." A price cut is probably in the cards, but it's difficult to say whether Microsoft has gotten enough distance from its expensive redesign of the 360 console and the very heavy marketing spend on the Kinect launch to then sustain a price cut on its hardware. In fact, while price cuts may indeed come, I would be surprised to see Microsoft in the lead. Sales of the console and Kinect have flagged in February according to HULIQ's data, but Microsoft has the newest hardware of the three console makers, which would stand to make them the last ones to cut pricing.

With Sony's strong first-party lineup in 2011, a price cut is also not likely on their end except for the price cuts to the PSP already in effect to make way for the NGP. Instead, look for de facto price cuts in the form of game+console bundles like the current bundle for Killzone 3. In HULIQ's upcoming sales chart for tomorrow, this bundle is performing quite well for Sony - and the draw of the game's multiplayer suite makes it a logical choice to keep in circulation for at least the first half of 2011. A holiday bundle with Uncharted 3 and perhaps even a console with a unique case (something last done for the launch of Metal Gear Solid 4) are likely in order for the latter part of 2011.

Instead, with the 3DS launch in the U.S. on March 27th, the likeliest candidate for a price cut would be the Wii. Amazon recently saw Wii sales increase significantly when it lowered the Wii a mere $20 to $179, perhaps as a trial balloon for a much larger price cut. The price has since returned to the now-current MSRP of $199 but Nintendo surely saw the percentage sales increase from United States' largest online retailer. Then again, Amazon just tweeted a new deal on the 160GB Playstation 3 console ($50 credit with purchase), so they could be trying to drive video game hardware sales period.

In the same note, Mr. Pachter also releases his forecast of what the NPD Group's report will show for console sales in February 2011. Interestingly, despite his claim that Microsoft will be the first to cut prices, he expects them to sell by far the most systems in February. His prediction is that the Xbox 360 sold 385,000 units, the Playstation 3 sold 310,000 units, and the Wii sold 305,000 units. This differs considerably from HULIQ's own prediction which places the PS3 well ahead of the other systems.

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