Console Post of the Week
This week, I had this entire post written--Wednesday night. Because I'm going in for surgery this morning, I was going to get everything organized the day before, and I figured hey, what could possibly get announced on Thursday?Seriously. That's what I thought.
Of course, what got announced were the biggest stories related to Microsoft and Sony for quite a while.
The single worst thing that can happen to a company with a gaming console is for people to stop talking about the games. Nothing else could be worse. And for the last several months, people have spent far more time talking about reliability (360) or price (PS3) than games.
In the console market, that's death.
So, on the same day, both Microsoft and Sony tried to stop the bleeding.
Yesterday, Microsoft announced that they were extending the warranty of 360's to three years for the "red ring of death" failure. That's all consoles--new, old, whatever. And if you paid for an out-of-warranty repair (me) because of the red ring of death, you get reimbursed. Full details are here.
Microsoft is also taking a 1.05-1.15 billion dollar charge to earnings.
Think about that for a moment. Essentially, Microsoft is reserving $100 for every console that's been sold since the system launched. I know--that's for future warranty extension as well--but it seems reasonable that Microsoft wouldn't be doing this unless they'd solved the problem. So the vast majority of the $1B charge is for existing consoles.
So that's 11 million consoles at $100 per=$1.1 billion.
The good news: that's a hell of a stand-up response by Microsoft. Unprecedented, really, although it's also entirely correct to say that the failure rates are also unprecedented.
The bad news: that $1.1 billion charge may well mean that there's not going to be a price drop.
Or does it?
Here's a quick analysis. iTrackr, until just a few weeks ago, showed a decent supply of the "Elite" units ($479) in retail inventory. Now, availability has plummeted to 9%.
We know that demand for the Elite hasn't been high, because it really hasn't boosted Microsoft's monthly NPD numbers to any degree. So there's not much demand for a product, but suddenly it isn't available.
In other words, Microsoft has apparently stopped shipping the Elite.
Why would they do that? Well, the best answer I can think of is because they're going to use it to replace the Premium unit and sell it for $399.
What happens to the Premium unit? I think it makes perfect sense for it to go away. Microsoft is selling tons and tons of crap via XBL Marketplace, and they want everyone to have as much space on their hard drives as possible. The Elite replacing the Premium and assuming the Premium's price point makes sense.
What about the Core unit? I have no idea. That unit never made sense to start with.
Let's wander back to reliability for a moment. Just how bad were the failure rates? No one knows for sure, but Daily Tech has an excellent article that alleges somewhere around thirty percent. Which is incredible, if true.
Here's a question: why haven't any of the hardware sites put thermal probes into a 360 and measured how hot it gets during operation? It would be particularly interesting if you could do that to a PS3 and Wii as well and compare the temperature differences during different operations (and durations). I'd also really like to see the temperature difference between putting the console in an enclosed stero cabinet or having it in the open.
And as soon as Microsoft starts using the 65nm CPU, a temperature comparsion between the new unit and the old one would be very helpful.
If you're wondering why that whole "thermal probe" line of reasoning is shoehorned in there, it's because I wrote it before Microsoft announced the warranty extensions yesterday. But I still like the idea, so I just jammed it in anyway.
Sony has finally responded, too, although it hasn't been officially confirmed yet. It was first reported in the DVD Talk forums that an upcoming Circuit City circular listed the PS3 at $499 (a $100 price drop).
"Speedy 1961" should get special mention, because, to the best of my knowledge, he was the first person to break the story. Well done.
A few hours later, GameDaily BIZ reported this:
...a merchandising manager (who wished to remain anonymous) at one of the world's biggest retailers has confirmed to GameDaily BIZ that the price drop is indeed retail-wide and it's scheduled to take place on July 12, although the first wave of ads to promote the PS3's new price won't kick in until Sunday, July 15.
Well, damn it. I said end of June and I missed it by 12 days. And if I had any common sense, I would have expected it at E3, not before. Good grief, that was pretty obvious.
We all knew this was coming, though. You can't make 900,000 units a month, sell 250,000, and make that math work anywhere but Crazy Town.
Here's Sony's problem: they needed to cut the price, and I assume they cut it as much as they could (financially speaking), but their backs are hard against the wall. The 360 has outsold the PS3 by a 2-1 margin the last two months, and with the killer game lineup Microsoft has this fall, does anyone expect this margin to narrow, even with the price cut?
Let's say that the price cut permanently ups their sales by 50% (I think that's unlikely, given that it's not even a 20% price cut, but let's be generous). 50% would be a HUGE permanent bump.
And what would a 50% sales increase in the U.S. do for them? It would take them up to 30,000 units a week.
Which is nowhere, relatively speaking.
Do you know what this price cut does for Sony? It makes them a closer last.
I'm not saying it's a bad move on their part. What I'm saying is that the initial bill-of-materials for the system was so incredibly expensive that it overwhelms every strategy Sony can devise. No matter how many monkeys Sony executives pull out of their ass in interviews, the cold, hard monthly sales numbers indicate a system that is tanking, and a $100 price cut isn't going to change that.
If the situation ever does change, Sony will start talking about monthly unit sales. Not revenue, not percentages, not comparisons between dissimilar situations. They won't need to do any of that, because the monthly unit sales will be the only numbers they need. When they start doing that on a regular basis, the landscape may be tilting in their favor.
Until then, it's safe to ignore anything they say about sales, because it's all meaningless.
The biggest risk for the PS3 right now is not a lack of consumer support, though--it's a potential lack of developer support.
Think I'm crazy? Consider this: software projects and development resources must be planned and allocated 12-18 months in advance--often, even longer. If you're a developer, you're looking at a worldwide installed base of a little over 3 million units--but at unknown number of those units aren't used to play games.
There's no way to quantify that number, and that's a problem. But if you look at monthly software sales in the U.S. and Japan, very few PS3 titles are even in the top 50.
Plus, the PS3 is selling the fewest units.
So it's the most expensive console, it has the smallest installed base, and it's selling the fewest units worldwide. Seriously, with those numbers, how stoned do you have to be to make PS3 development a priority?
What that means is that Sony can essentially forget about exclusives unless they're a Sony-developed title. And if any version of a game is going to get delayed, or cancelled, it's the PS3 version.
That's already happening--lost exclusives, delays, cancellations. And Sony's risk is that this trend is going to pick up speed, which would cripple them.
Let's quickly move on to Nintendo. Here's your summary: they are kicking the crap out of everyone.
I expect to have multiple E3 posts next week, even in my post-surgical state. Hell, writing on pain medication may be an improvement.
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