Tuesday, July 08, 2008

Console Post of the Week: Reality, Line One

Here's something that we all can agree on: when games don't sell consoles, price needs to.

I don't think I can legitimately end a sentence with "to," but that's not my problem. Moving forward.

We've already discussed how the "big bang" from Grand Theft Auto IV in terms of console sales was no bang at all. In Japan, Metal Gear Solid 4 was supposed to wildly expand PS3 sales, which had been running only in the 10,000 per week range for months. Here are three weeks of sales following the game's release:

That's certainly a spike, particularly in the first week, but in absolute numbers, it's 82,000 consoles in total over the weekly rate. Over three weeks. Yes, Sony can say it's "over five times weekly sales"--or seven--but that's using the old trick of a percentage increase from an incredibly low base.

To put that into perspective, the Wii outsold the PS3 for those three weeks by over 20,000 units. Still.

Most likely, the PS3 will be below 15,000 units when next week's Media Create's numbers come out, and they will slink back down toward that 10,000 number with each passing week.

I think the same thing is going to happen in the U.S.--MGS4 will provide a small spike for the PS3, but there won't be any traction in subsequent months.

The message of all this, screamingly, is that none of these games are going to drive huge increases in console sales because everyone who wants a console at current prices already has one.

Sure, huge game releases will goose sales modestly. But the kind of massive market penetration that both Microsoft and Sony want just isn't going to happen.

I keep hearing analysts say that the market is fine, that when the consoles get to $199, sales are going to explode.

Here's the problem, though: when are they going to get to $199, exactly--two years after their replacement comes out?

The standard 360 unit ("Premium"), is still at $349, and when the strongly rumored price cut comes through, it will be $299. So roughly HALFWAY through what is most likely a five-year lifespan, it's still $100 over that magic $199 figure.

It's not unrealistic to think that it will take another 12-18 months to get to the $199 price for the Premium unit, which means near the end of year four, and by that time, Microsoft will already be promoting the Xbox 720 (or whatever it's called).

Sony? Hell, it took Sony a year just to GET to $399. They're looking at year four, too.

Ten-year lifespan? Um, no. Unless you're including several years as an obsolete, underpowered platform that is getting killed by newer hardware. The PS2 was incredibly successful, and it made it through 7+ years with remarkably strong sales, but it's a dinosaur in terms of horsepower, and software support this year has been considerably weaker.

There's also no reason to think that the PS3 is going to get the kind of support that the PS2 received. The Wii is going to get that kind of support this generation.

Here's what Microsoft should do: come out with a new console in the fall of 2012 that costs $299 and is significantly more powerful than the PS3. Moore's law and the intervening four years guarantee the opportunity, unless Microsoft deludes themselves (again) into thinking that $399 is the right price point.

In other words, if either one of these consoles want to make hay, they need to do it while the sun is still shining.

But wait--if the ideal price for mass market acceptance is $199, why is the Wii still selling out over eighteen months after launch?

Well, because it's different. It offers a different way to play games, and even though "hardcore" gamers still grit their teeth and get red in the face about it, there's no question that it's the kind of "different" that a stunning number of people wanted.

Even though the 360 and PS3 are incredibly powerful compared to the previous generation of systems, a huge percentage of consumers don't care. They don't care that the new games look great in HD (I do). They didn't want to play games the way that we played them in the last generation, so why would they want to play them now, when the only difference is better graphics?

Well, they don't. They wanted something different, and the Wii was the perfect fit, and there are still a ton of people who want a Wii in the U.S. who can't even find one to buy. It's been a stunning reversal of fortune for Nintendo in the console market, and good for them.

How strong is the Wii in the U.S. right now? In the last three months, the Wii has sold 721k, 714k, and 675k units. Excluding November and December (holiday sales months), do you know how many months the PS2 sold that many units in its 7+ year history?


The PS2 sold 690,000 units in June of 2002, one month after the $100 price cut.

In a word: wow.

There will be a ton of E3 announcements coming in the next ten days, so expect at least one console post plus a few supplementals.

[note: I originally wrote this post last night, thought about it overnight, and I realized why Microsoft's price-cutting strategy seems so inherently incorrect. Microsoft waits until everybody in the world knows that they have to cut the price before they do anything. In this generation, so has Sony.

Contrast that with the pricing history of the PS2. Nineteen months after launch, following four months in which they sold 350k, 420k, 350k, and 190k (inventory shortages), they dropped the price from $299 to $199--a stunning drop. This was a price cut made in strength, not weakness, and it was perceived in an entirely different light.

It's the difference between building momentum and stopping the bleeding.]

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