Wednesday, July 29, 2009

Console Post Of The Week/Holiday Software Mash-Up: How Does This Work, Exactly?

Chris Kohler over at GameLife has a thorough analysis of what's happening this fall. Major games delayed until 2010, sagging console sales, general buzkill. Please read it.

Yes, he mentions one of my posts. This is not why I said it was thorough.

Chris went into what's happening (and what needs to happen) in detail, so I'd like to extend that analysis into why it's happening and how we'll know things are changing.

In short: publishers are afraid. Their financial results (with the exception of THQ) are generally going to suck this quarter, Wii and PS3 sales have plummeted in the last three months compared to last year, and consumers are spending less everywhere.

Six months ago, analysts were (incredibly) claiming that the videogame industry was "recession-proof." It was amusing.

Now, publishers are afraid to pack too many big budget games into the holiday calendar (a sea change from past years), because they're afraid of cannibalization. Everybody's blinking.

Well, except Activision. Activision is teabagging away. However, and I think this is a big however, they may take a grenade as they're gleefully swinging their testicles, because take a look at the fall schedule for music games (one of the teats they're milking at such a furious pace): September 1--Guitar Hero 5*
September 9--Beatles: Rock Band
October 27--DJ Hero*
November 2--Rock Band: LEGO
November 17--Band Hero*

Five major music games in ELEVEN weeks? Are you kidding me?

In theory, at least, only Guitar Hero 5 and Beatles: Rock Band are targeting the same main audiences (and that's oversimplification, really). DJ Hero (I'm a little baffled here: people who want to pretend they're scratching real records on turntables? I am so damn old), Rock Band: LEGO (kids), and Band Hero (pop music fans and people who appear in Mitsubishi Eclipse commercials, based on the trailer) all allegedly target different demographics.

In truth, though, I think there's a ton of crossover here, and I think music games have gone past the point of fatigue and entered exhaustion. Plenty of people will buy these games, but I think the number of little plastic instruments sold is going to plummet, and that's where the real money gets made.

If that's true, then DJ Hero is the most vulnerable, because there's no way to play it without buying the $120 bundle with the plastic turntable. And there's zero crossover--it's not like you can use the turntable in any other game.

If I'm right, then this game is probably dead before it even gets out the gate. Not because it's a bad idea, and not because it can't be good, but because there's zero plastic cross-pollenization.

Moving on.

I've mentioned multiple times in the past that Sony has to cut the PS3 price this year unless they want to fail their fiscal year target miserably. I've also mentioned that the longer they wait, the more likely it is that we get a $100 cut.

How, though, would this happen? What do we need to see first to demonstrate that the rumors have some meat on their bones this time?

First, Sony has to increase their orders for components. Jesse Leimkuehler sent me a link from Digitimes earlier this week that indicates Sony has done just that.
Taiwan OEMs recently have placed significant orders for key Sony PS3 components from IC distributors, with average monthly volume enough for making one million units of the games console in the third quarter, double the average in the second quarter, according to sources with IC distributors.

In some ways, though, this report raises more questions than it answers. Sony has to AVERAGE over a million units a month to hit their fiscal year target (13 million units). So if they're making a million units a month in July-September (third quarter), are those the units that will supply retail stores in October-December? If so, we're looking at an epic miss financially--they won't even reach the ten million unit total they reached last year, let alone thirteen million. They probably need to sell two million units a month in October-December because demand the rest of the year is so much lower.

Sony could sell a million units a month in September-October worldwide without a price cut, just due to holiday demand. So is this an unusual component due to a price cut, or just a regular demand spike in anticipation of the holiday season?

For the time being, I'm going with the latter theory.

Now it's possible that we're getting a $50 price cut, but if Sony's only making a million units a month after a $50 price cut, they're in the ditch.

Okay, if that's not a harbinger of a price cut, what does have to happen before we see one? Two things, usually. First, if the price cut really is going to be tied to the new "slim" model (which is still an urban legend right now), then the retail inventory swamp will get drained as deeply as possible beforehand. New models are always introduced primarily because their cost is lower, and manufacturers want the benefit of that cost reduction as early as possible, so they won't be making older units any longer than is absolutely necessary. So if the PS3 starts uniformly becoming more difficult to find, that's a very good hint.

Jesse mentioned the other tip-off to me, and that's retail advertising, which gets printed well in advance. When we're about a month away from a price cut, future retail advertising is going to leak. It's guaranteed. Everyone has a camera phone now, and someone will take a photo.

For now, neither of those things are happening, as far as I can tell. So we wait.

Sony announces first quarter earnings tomorrow, and I'll post an update.

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