Tuesday, August 16, 2011

Console Post of the Week: Sony Price Cut

Sony, in a surprise announcement today, lowered the price of the PS3 to $249, effective immediately.

Why would they do that now? Let's take a look. Oh, and please note that this wouldn't have been a surprise if I had been paying better attention, because they dropped the PS3 to $299 on August 18, 2009.

In fiscal year 2010, Sony sold 14.3 million PS3s--a 10% increase. For fiscal year 2011, which began April 1, Sony projected roughly a 5% increase to 15 million units.

First-quarter results, though, indicated a problem.

Sony sold 600,000 fewer PS3s (1.8 million) than they did in the same quarter last year. Even worse, the PS3 only sold 400,000 more units worldwide than the PS2 did.

To put that into perspective, Sony forecast sales of 15 million PS3s in FY2011. They forecast sales of 4 million PS2s.

Last year, the PS2 sold 1.6 million units in the first quarter, and 6.4 million units for the year. Yes, the PS3 has a holiday ramp and the PS2 doesn't anymore, but without a price cut, the PS3 was seemingly looking at a 12 million unit year, which would have fallen short of their forecast by 3 million units.

Making it worse, July sales (first month of second fiscal quarter) in the U.S. (143,000) were down 33% over last year.

Price cut time.

Since we haven't looked at these graphs in a while, let's take a look at the rolling 12-month sales totals for each console in the US:

To the best of my knowledge, the 360 graph represents a phenomenon that has never been duplicated in the history of consoles: rising 12-month rolling sales for its full lifetime, which will be hitting six years soon. It's particularly amazing when you think back to what absolute shit the 360 was, in a reliability sense, for the first 2+ years of its lifespan.

Now, for some historical context, let's include the PS2 (please note the graphs are using a longer timescale in the same space, which is why the lines from the previous graph look a little "squished", to use a fancy technical term).

That flat line at the start of the PS2 represents the post-launch period when NPD did not publicly release monthly sales data.

Here's what surprised me: even with the relative collapse in Wii sales in the last year, it's STILL selling better in the U.S. (on a 12-month basis) than the PS2 was at the same point in its lifespan. I think it also shows that a significant decline in sales was, historically, common for consoles at this point in their lifespan. That's why five years was generally the planted flag representing a console's useful sales life.

Nintendo is following this path again, with the release of Wii U next year, but Microsoft and Sony have plotted a different course.

What I think will be very interesting is to see if the $50 PS3 price drop produces the same kind of sales bounce that could be expected in the past. In July of 2009, before the price cut to $299, the PS3 sold a dismal 121,000 units in the U.S. In August (and remember, the price cut was only in effect for roughly half the month), the PS3 sold 210,000 units. Doing the math (always a challenge for me), if this price cut has a similar effect, then the PS3 sales for August in the U.S. should be about 247,000 units.

This time, though, I really don't expect that to happen. For one, the 2009 price cut was $100, not $50 (25% versus 16%). And there's nothing else to get people excited about the PS3. As a result, I'm expecting August sales to be in the 200,000 range.

We'll revisit this next month.

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