Monday, November 26, 2007

Console Post of the Week

Here's what I think is the most compelling story of the week: Wii prices on eBay.

A year after launch, in a twelve-month period when Nintendo averaged over 425,000 units a month in the US, the Wii is still selling for $249.

On eBay, the average closing price of ten consecutive auctions tonight was $380. No extra controllers, no extra games, just auctions for the base package of Wii+controller+Wii Sports.

The Wii is still selling at a premium of over 50%.

That's beyond staggering, particularly when you consider that Nintendo may well sell one million Wiis in the U.S. in November.

Nintendo said recently that they're now manufacturing 1.8 million Wiis a month. Incredibly, that's not enough to satisfy demand, at least not during the holiday season.

On to Sony, which had another strong week in Japan, selling over 39,000 units and outselling the Wii for the second straight week. It's still a bit early to call it a trend, but if this continues, it certainly looks like in Japan, at least, Sony has pulled themselves out of the ditch.

How much is Sony losing on the hardware at the $399 price point (and lower in Japan)? No one knows, but they were a boat anchor before, so it doesn't really matter. They had to cut the price dramatically, and they would have lost even more money if they waited.

Look at it this way. If Sony is losing a ton of money on the hardware (they are), but in exchange they can sell a ton of units and lots of software, then everyone else can be healthy, and that health, over time, can have the collateral effect of making Sony well. It's a contained problem.

On the other hand, if Sony had refused to lower the price so that they could lose less money on the hardware, then a miserable number of units would have sold, software sales would be low, and everyone would be sick. That's an uncontained problem, and that kind of problem kills consoles.

Plus, it wasn't just software developers in the gaming industry--it was anyone who was publishing movies with the Blu-Ray format as well.

So Sony made the right decision--I just don't know if they made it soon enough.

Microsoft is selling a ton of consoles in the U.S., having (by far) the most successful months, in video gaming terms, in their history, but there's one question that no one has answered yet: is the failure rate for repaired consoles using the new heatsink design significantly lower than the failure rate prior to that engineering change?

That's the number we need, really. It's safe to assume that the new consoles incorporating the revised heatsink have failure rates in line with industry expectations, but that doesn't help people who bought one before the new heatsink was used.

Since it's highly unlikely that Microsoft is going to tell us, where could we find out? I'm guessing that their quarterly earnings reports might tip us off. They anounced in July that they were taking a $1.05 billion to $1.15 billion charge for their expansion of the 360s warranty. If that number continues to be adjusted upwards in subsequent quarters--particularly the fourth quarter, when the charge is going to be "assessed" for revisions--then it will be an indication that there is further trouble.

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