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Analyze This: Which Console Will Win 2007? (...And Other Humble Guesses for the Year)
On Nintendo and the Wii... "The Wii will appear to be the winner of the next generation battle in 2007. By "appear," I mean that I fully expect the Wii to outsell the PS3 and the Xbox 360 during 2007. However, appearances can be misleading. In my view, the Wii will sell better primarily because of price. At $249, there are more people who can afford a Wii than there are potential purchasers of the Xbox 360 and the PS3. Other factors that will drive higher sales in 2007 are novelty and availability -- there are no PS3s in Europe yet. Most households who will ultimately buy two consoles will end up choosing a Wii and one of the other two. I also believe that most of those two-console households will buy the Wii first, since it's cheaper and more readily available. Therefore, at least through 2007, I expect the Wii to end up "winning" the next generation console battle. Over time, I think that Wii sales will moderate back to the same level as the 360, maybe 10 million per year. It's tough to say that this will happen in 2008, as it truly depends upon content for the Wii and upon pricing for the other two consoles. More likely, the Wii will "reign supreme" -- your words -- through 2008, with the three consoles selling in parity in 2009." On Microsoft and the Xbox 360... "Microsoft will probably sell another 10 million consoles this year, and it will likely take a price cut to get there. I think that Microsoft will not be the first to cut price. A price cut will only come once Sony decides to cut the price of the PS3. Microsoft has been losing money in its game business since 2001, and now has a chance to be profitable, so I think that the company will think long and hard before cutting price. They will do so if forced to by Sony, but I expect a cut to no lower than $349, and do not expect the cut until late in the year. I think that they are doing everything right, that they should keep obtaining exclusive content (like Fable) where appropriate, and should continue to build out the Xbox Live service to differentiate from Sony. They have a huge lead online, and should exploit that lead. It's clear that Sony intends to compete online. So Microsoft should expect its first mover advantage to erode over time, but I don't think that Sony will make meaningful progress in 2007." On Sony and the PlayStation 3... "Sony cares very much about video games, but it also cares about its other businesses, and it has chosen a strategy that involves these other businesses. The high-definition DVD war is quite important, and Sony is determined to be the only man standing when the dust settles. That business is at least as profitable as its video game business, so I think Sony is looking to grow its overall profits dramatically with this strategy. If I'm right, Sony will end up winning the high-definition format war, and once there are millions of Blu-ray enabled PS3s floating around, I think we will see sharper graphics on PS3 games compared to Xbox 360 games.
It's difficult to assess how long this will take, but it's probably not going to happen in 2007. My best guess is that Sony emerges as the winner of the movie format war in late 2008, and games start looking noticeably better in 2009. That's when Sony starts looking like the winner of the next generation battle. All of this is pretty far out, and a lot can happen with pricing to change things. For example, if Sony gets down the cost curve for Blu-ray and Cell processors, [the PS3] may be below $300 shortly thereafter. It's hard to say that this will happen before 2009, but it could. That would change everything. In summary, I think that this cycle will be misleading from start to finish: Nintendo will look like the winner for a while, then they will lose a bit of steam. Microsoft will chug along doing a great job, and Sony will lag badly. My guess is that during early 2009, people will be calling Microsoft the winner. Later that year, sentiment will probably shift again, and people will start calling Sony the winner." Got a business-related question concerning the games industry that you would like to suggest for discussion in Analyze This? Are you a professional analyst who covers the market and would like to take part in this column? Feel free to send an email to howardhwen@gmail.com. |
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