Video Game Industry Asks: Are price cuts coming?
Video game industry executives who had expected another volley in the price war over game consoles this spring are increasingly wondering if an uneasy truce has broken out instead.
That would be bad news for game software makers, many of whom are banking on the three game console manufacturers to cut their prices by $50 this May in a move expected to spur demand.
But cautious comments this week by the head of a major publisher have industry executives asking the question: what happens if game hardware does not get any cheaper?
Nearly every major game publisher, and most industry analysts, were on record before this week assuming that Sony Corp. 6758.T , Microsoft Corp. MSFT.O and Nintendo Co. Ltd. 7974.OS would cut the prices of the PlayStation 2, Xbox and GameCube, respectively, at the E3 industry trade show in May.
That's what happened last year, when in the space of less than a week before the show Sony and Microsoft went from $299 to $199 and Nintendo went from $199 to $149.
But Bobby Kotick, chief executive of Activision Inc. ATVI.O , one of the top three game publishers by revenue, fell out of step with his industry brethren on Tuesday when he said there was every indication Sony was not cutting price.
"All the indications that we have from the folks at Sony are that they don't feel the need," Kotick said at a Bear Stearns investment conference in Florida, referring to an event for partners and retailers that Sony held last week.
Sony essentially echoed that view. "We laid out a very top-line view of what our projections are this year," Molly Smith, a spokeswoman for Sony Computer Entertainment of America, told Reuters in reference to last week's Destination PlayStation partner event. "We stand at $199 right now and we haven't discussed or announced any plans to make any adjustments."
SONY IN DRIVER'S SEAT
Of the three console makers, Sony, which has a dominant position in the international marketplace, is the only one not offering some kind of discount now.
Microsoft is giving away two Sega Corp. 7964.T games with the Xbox, and Nintendo is giving away a free game with the GameCube and selling a separate discounted bundle that includes the game "Super Mario Sunshine."
"Price hasn't seemed to have been a terrible barrier to entry for our customer base," Sony's Smith said.
Sony led the way last year with its price cut, followed two days later by Microsoft and five days after that by Nintendo, though Microsoft later claimed its price cut had been long in the works and the Sony cut was in response to its plans.
"I think the price drops to $179 because I think the cost of production right now is $170," Wedbush Morgan analyst Michael Pachter told Reuters. "I think if the console doesn't move at that price and hit Sony's target the next move is to bundle software."
Nintendo is also on record as saying it sees no immediate need to cut the price of their console this year.
"We believe at $149 with a free game ... that selling GameCube hardware at $149 presents all the value the consumer needs," George Harrison, senior vice president of marketing for Nintendo of America, told Reuters recently.
For the time being, Microsoft is also firm on its Xbox pricing.
"We have not announced a price cut and we have no plans to do that," an Xbox spokeswoman told Reuters.
Kotick's comments about PS2 pricing came just hours after Warren Jenson, chief financial officer of industry leader Electronic Arts Inc. ERTS.O , said at the same conference that EA assumed price cuts were still coming in May.
On Wednesday, EA executives said they still expect Sony to sell 9 million to 10 million PS2s this year, with some of that pushed by sales of hit games but the rest from whatever methods Sony sees fit.
"Whether they do the rest with pricing, promotions, or great advertising is really their choice, but we're confident they can do it," EA President John Riccitiello said in a statement.
Brian Farrell, the chief executive of game publisher THQ Inc. THQI.O , told Reuters he still believes Sony will cut their price this year but also said that in the end it does not matter if sales stay strong.
"Any publisher should only care about the number of units Sony's going to sell," Farrell said. "We don't care if they sell their 10 million units at $199, $149 or $99 -- we're indifferent. The price point is not the issue, it's the 10 million units."
