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Wedbush Analysts Predict Industry Rebound Fueled by New Hardware
Wedbush Analysts Predict Industry Rebound Fueled by New Hardware
June 18, 2010 | By Danny Cowan

June 18, 2010 | By Danny Cowan
More: Console/PC

Wedbush analysts Michael Pachter and Edward Woo believe that 2010's new hardware introductions "have great potential to reinvigorate the video game market," if manufacturers can surmount major pricing hurdles.

Pachter and Woo, having observed the capabilities of Nintendo's 3DS, Microsoft's Kinect, and Sony's Move at the recently concluded Electronic Entertainment Expo, note that consumer interest in all three devices could spur industry growth, ending a recent slump.

The pair was most impressed with Nintendo's 3DS, describing it as "truly impressive" and a device that "appears to us to be the 'must have' consumer electronics product over the next few years."

The new technology will not come cheap; the analysts predict that the 3DS will cost upwards of $250. Regardless of price, however, Pachter and Woo are confident that Nintendo "will sell many millions of them in the first full year of production."

Cost may be more of a factor with Microsoft's Kinect and the PlayStation Move peripheral. Wedbush describes a scenario in which Microsoft in particular is "struggling with a pricing strategy."

"We think that if Microsoft prices Kinect close to cost (which we estimate to be around $70), it will see a very high attach rate, with the potential to drive $200 – 400 in lifetime value from each Kinect household," the pair states. "On the other hand, it is equally logical to charge a very high price for the device, especially if it is expected to be supply-constrained."

Pachter and Woo continue: "We are not yet convinced that the hard core Xbox 360 user, who typically 'controls' decisions about his/her console, will find the game lineup for Kinect sufficiently compelling to purchase the device at a price point over $100, and think that pricing at the higher point would severely limit sales."

PlayStation Move purchasers face a similar dilemma, with Pachter and Woo noting that Sony's pricing "has the potential to confuse consumers."

The analysts explain: "Some games can be played with the PlayStation Eye camera and a Move controller, some with the Eye and two Move controllers, and some with the Eye, a Move controller and a Navigation controller. In order to be safe, consumers wishing to participate in the Move experience will have to purchase the Eye ($29.99), two Move controllers ($49.99 each) and the Navigation controller ($29.99), plus a game.

"If purchased as part of a bundle, the all-in cost to play with Move will approach $180, which we think is beyond the reach of the typical household. We think that Sony's Move is truly impressive, but remain concerned that initial sales could disappoint."

In regards to software, Pachter and Woo believe that this year's E3 lineup "was perhaps the most impressive in years." The pair describes MTV's Dance Central as the Kinect's "killer app," and predicts that Activision's Call of Duty: Black Ops will be this year's top overall seller.

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Merc Hoffner
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Where do they come up with these numbers?

"(which we estimate to be around $70)"


It uses the first consumer grade high resolution time of flight sensor. You can't get those off the shelf (though I've heard Ol' faithful Patcher refer to it as webcam tech plenty of times before, when guestimating a $50 pricetag). The only equivalent pricing for the tech can only come from the scientific instruments these devices are normally seen in - and those cost $1000's a piece. Not to mention these devices may not be manufactured on standard processor, or even CCD fabs. Add to that a set of actuators, a transformer, a high power high grade LED, a high power ultra precise timing control component, a 'regular' high resolution camera, an ultra high speed buffer, obligatory casing and mounting, licensing, assembly, PCBs, packaging, shipping costs, retailer's take (considerable on an add on) and, oh yeah, whatever pre-processing chips you might need to solve some of the hardest problems in computer vision. Yeah, $70 dollars easy, right Patcher? So with a $150 tag they'll be rolling in it. After all, Microsoft's always been in the video game biz for the money? Amiright? And lord knows it's the casuals who like to spill the big dollars on the bleeding edge ultra high tech products.

mr threeup
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Many people come up with big estimates for the total 360+kinect+game package, but 360 arcades are $150 with bundles and gift cards at Walmart and Target. There will be a bundle with the kinect I'm sure. I don't think it will be more than 300 for the total package. A Wii is at 200, and wiimotes with wiimotionplus are 40-50. The sums don't see too different to me, whereas dancing with bone-by-bone feedback makes dancing without it look silly.

I think the major downfall is that a family might not want to buy another "dance" or "exercise" system even if it is significantly better.

Kevin Jones
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@ Homer Simpson

"I doubt Kinect and Move will. They might spike sales at first from buy anything new and shiny crowd, but not after that "

Utter hogwash!

Kinect shot straight to # 1 on Amazon in preorders already. And is at # 5 at Gamestop.

And Kinect doesn't even luanch for another 6 months.

Kinect is currenty outselling Wii Fit Plus, Wii Sports Resort, Mario Kart and every single Wii game plus the Wii console iteslf at both Amazon and Gamestop.

Homer Simpson huh?

You may want to stick to staying in TV cartoon series.

Your prognosis on the future of the vodeo game industry has little to do with reality.

Kevin Jones
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@ Homer Simpson:

"IT's $200 for a Wii and $30 for Just Dance. It's $200 for an Arcade, $150 for Kinect and $60 for the 360 dance game from what I've read. $230 vs $410."

You just gotta keep repeating this crap, dont ya?

First of all, if you have 4 people playing the Wii, you will need to buy 4 Wiimotes at $50 each, plus another 4 Nunchuks at $20 each, giving you a total of $280. Plus $200 for the Wii, giving you a total of $480.

By contrast, you can buy a Arcade 360 today from Walmart for $150, plus a $50 gift card, meaning you only pay $100 for your Arcade 360. Add in Kinect at $150, gives you $250, plus the Kinect game at $60, giving you $310. The 360 plus Kinect works out cheaper.

Merc Hoffner
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@ Kevin Jones

I'd quickly like to ask if we actually saw any 4 player Kinect games at E3? I'm sure they're probably coming, but as far as I've seen it's been 2 players or less until now. Moreover, the Wii is packaged with a Wiimote, motion plus and nunchuck, so even in your 4 player scenario, controllers would only cost $210, for a total setup of $410. As for the $100 Xbox, well, yes, it's true, but you are talking about an extremely limited time offer on a superseded and discontinued SKU. Once that minimal stockpile is sold out, the cheapest Xbox 360 variant will nominally cost $200 (Microsoft have recently confirmed this replacement for the arcade level package, though no details on what it contains). Barring a discount on a Kinect bundle on this SKU, and assuming the cited $150 pricetag, $200 + $150 + $60 = $410 funnily enough. This of course is also assuming Nintendo doesn't price cut, which is quite possible.

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Kevin Jones
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@ Merc Hoffner :

"I'd quickly like to ask if we actually saw any 4 player Kinect games at E3? "

Its irrelevant whether I saw a 4 player game at E3 or not. Kinect is exactly the kind of party/family game platform that is going to have penty of 4 player games. Thing is, you don't have to keep buying more controllers for every member of your familly that wants to join you in playing Kinect party/family games. With the Wii, you gotta buy new controllers for everyone that wants to join you in playing a Wii family/party game. It all adds up.

" Once that minimal stockpile is sold out, the cheapest Xbox 360 variant will nominally cost $200 (Microsoft have recently confirmed this replacement for the arcade level package, though no details on what it contains)."

There is a pretty good chance that the 360 Arcade and Elite will get price cuts before the end of the year. Neither the Arcade nor the Elite have had real price cuts for close to 2 years. Last year, the Arcade never had a price cut, and the 60 GB 360 Pro was merely replaced with the 120B Elite at the same $300 price.

In addition, we are inevitably going to get some 360/Kinect/Kinect game bundles for the holidays this year, which are going to be competitively priced to sell.

Merc Hoffner
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Hi Kevin

Well, it's relevant if they can't do it. It's also relevant that Kinect doesn't work when you're sitting down. While they're no doubt working on it, until these problems are solved, they remain worryingly unsolved. And it's no good to say, 'Microsoft are smart, they'll make it work', when generations of their products say that prospect is iffy at best.

As for your second point I'm not sure I understand. First you say the Elite hasn't been price cut in two years, then you say it was price cut less than a year ago to $300. Huh?

Taking into account:

1. $200 is actually nicely competitive

2. New 'upgraded models' have been introduced in the last 5 minutes to replace the old

3. The new $200 model doesn't even have a date yet

4. They feel so confident in the new slim model that they're positioning it directly against the newly discounted $50 dollar cheaper parant console

5. The newer consoles incorporate $100s worth of their upgrades (their USB wifi dongle price)

6. The new $200 model must add in a hard drive over the old model thanks to the loss of memory card slots.

7. They need to make some (a lot of) money

, price cutting again in the next 6 months seems unreasonable, and I'm sure Microsoft have totally justified maintaining the current pricing to themselves. Again, don't forget however easy it may seem for Microsoft to discount the $200 model, it's far easier still for Nintendo to discount the Wii.

Kinect bundle discounts are certainly possible as you suggest, and would make a laughing stock out of Sony's $400 PS3 + Move bundle, but I wouldn't exactly count on it. Kinect is such an advanced and esoteric set of technologies (read my post above - I forgot to mention a second internal transformer and capacitor bank for charging the LED, and the promised multi-sensor array microphone) that it can't possibly come really cheap, and after such an expensive R&D phase they'd rather not continue huge loss leading.

Alan Rimkeit
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One thing most people are not mentioning is that the PlayStation Move all ready has a virtual built in game selection at launch. All devs and pubs have to do is port any and all Wii games on over to the PS3 with Move support. It is that easy. This WILL happen very quickly too. Sony has all the games it has announced plus every game that any dev or pub bothers to port on over from the Wii to make more sales on the PS3.

Chan Chun Phang
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@Alan Rimkeit

Of course excluding those developed by Nintendo directly or indirectly, and those which uses the button configuration of the Wii controller, and those which involves the controller being held sideways (I think having to hold the ball portion of the controller would cause some interference, unless peripherals are used).

Merc Hoffner
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Which leaves the shovelware I guess.

Victor Boone
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The only game titles that interested me for the Kinect was Dance Central, and the fitness games, all the others...meh. I am more interested in the interface control capabilities. That alone may be enough to sway me, especially if there's a bundle (there will be) to go with the new shiny 360 in November. I'll wait for that.

Jonathan Pynn
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I think the motion stuff is still pretty gimmicky. Wii has some short term fun factor to it and I think all these fitness applications are the thigh master of this decade.

In terms of fiscal sucess these devices will need to have something exclusive and compelling since attach rates for wii are pretty high, and why is a consumer going to fork over another $100 plus for something incrementally better than wii. The 3ds will sell like crack in the 80s in the technology holds out