By Dan Gallagher
Pressure is growing on makers of video-game consoles to reduce
their prices before the upcoming holiday season, with sales still
struggling across the industry.
Analysts are widely expecting some movement on that front this
week, as the industry converges for a large conference in Europe.
Sony Corp. (SNE) is holding a press conference on Tuesday, at which
many expect the Japanese electronics giant to cut the price of its
PlayStation 3, which remains the most expensive of the
next-generation gaming consoles with a base price of $400.
Microsoft Corp. (MSFT) has scheduled a press briefing for the
following day, though it is unclear if the software giant is
contemplating a price reduction for its Xbox 360, which already
sits below $200 for its basic unit.
Nintendo Co. Ltd. (NTDOY) hasn't scheduled an event at the
conference, according to a company spokeswoman. Nintendo has
maintained the price of its popular Wii console at $250 since its
market launch in late 2006, but sales of the once-popular device
have slowed considerably this year, leading many to predict that
the company will need to reduce the price to meet its year-end
sales targets.
Video-game analyst Heath Terry of FBR Capital Markets said this
week "marks the first of a series of catalysts that should drive a
return to growth" for the industry.
"With Sony set to announce a $100 price cut on the PS3 on
Tuesday at Gamescom in Germany according to our retail checks, we
believe the other hardware manufacturers will respond with a
combination of price reductions and bundling strategies that should
drive significant acceleration in hardware sales," Terry wrote to
clients Friday.
Sales Slump
After racking up a record performance in 2008, sales in the
video-game industry have been on a downward trend for most of this
year.
In July, total industry sales for hardware and software in the
United States were down 29% from the same month the previous year,
according to data from the NPD Group. Year-to-date sales totaled
$8.16 billion by the end of July compared with $9.49 billion for
the same period last year.
The slowdown in sales is blamed in part on the economic
recession, and also on the fact that the industry faces tough
comparisons with last spring and summer, when several of the year's
top titles were released.
Analysts largely have trimmed their growth targets, and are now
expecting this year to be relatively flat compared with last. But
given the weakness over the summer, the industry will have to make
it up with a strong holiday performance to get to that level.
"The industry is in need of more aggressive hardware pricing,
better software titles and an improving consumer, all of which we
think is possible over next 12 months," Bank of America analyst
Justin Post wrote in a report last week.
Still, he said that "July sales results will continue to raise
concerns on strength of the industry into the holidays."
The sales slump has hurt the performance of third-party
publishers such as Electronic Arts Inc. (ERTS), Activision Blizzard
Inc. (ATVI), THQ Inc. (THQI), Take-Two Interactive Software Inc.
(TTWO) and Ubisoft Entertainment SA (UBI.FR).
It also has delivered a blow to game retailer GameStop Corp.
(GME), which reports its quarterly results on Thursday. For its
part, online-retail giant Amazon.com Inc. (AMZN) disclosed in its
most recent quarterly report that its performance was negatively
affected by a slowdown in video-game sales.
Strong Lineup
That said, many expect this year's holiday lineup to be strong.
Activision's "Call of Duty: Modern Warfare 2" is expected to be the
year's best-seller, while the company also has titles like "Tony
Hawk: Ride" and "DJ Hero" that have gotten strong buzz.
EA has the much anticipated "Beatles: Rock Band" coming out next
month, as well as its strong stable of sports titles. Ubisoft has
the much-anticipated sequel to "Assassins' Creed."
Sony is being closely watch this year, with exclusive titles
like "Uncharted 2" and the massive multiplayer title "MAG" coming
out this year, exclusive to the PS3.
But analysts say the console prices have to get lower to spur
mass adoption by consumers. FBR's Terry said that console prices
have risen about 80% on average over previous console cycles.
"Last cycle, the size of the install base more than doubled once
hardware prices dropped below $200," he wrote. "With the Wii at
$250, the basic PS3 at $400 and most popular version of the Xbox
still at $300, there is substantial pricing leverage for hardware
manufacturers."
-By Dan Gallagher, 415-439-6400; AskNewswires@dowjones.com
