PlayStation 3's Difficult Situation

Interestingly, Sony's PlayStation 3 did not suffer a drop in sales during September as some had expected. The weekly sales rate was, in fact, flat from August, at just over 46,000 systems per week.

For the moment, Sony can feel hopeful, but the headlines in the coming months should put tremendous pressure on them to cut the prices of the PlayStation 3.

Sony's quandary is this: it appears to have cut PlayStation 3 costs and prices as far as it can while maintaining its promise to reach profitability for the fiscal year (which won't end until 31 March 2009). Gone are the numerous memory card slots and the PlayStation 2 compatibility and extra USB ports, saving a few dollars per system.

Last year's free Blu-Ray voucher program would not benefit the PlayStation 3 as much this year, given the competition from the new generation of less expensive Blu-Ray players. The holiday bundle will be a PS3 with a copy of the adventure game, Uncharted.

While Uncharted is a wonderful game, and a great example of the PS3's power, it lacks the market recognition to do more than appear as a generic pack-in game to most consumers.

Even with an ASP far closer to $400 than just a few months ago, the PS3 will be exposed on price like never before, especially since its primary competitor has increased the average price gap between the systems to $125.

Ultimately, Sony must decide if it believes its own slogans. If they really intend the PlayStation 3 to have a decade-long lifecycle, then working through another tough Christmas should not be as important as fiscal health. But it has enjoyed being in second place in year-to-date sales and is likely to get clobbered, and the press will surely not be gentle.

Wii Supply Issues, Xbox 360 Eroding PS2?

The Nintendo Wii, too, may have another rough Christmas season, although for a different reason: demand may once again outstrip supply. However, Nintendo seems to be preparing for the coming frenzy and providing Wii hardware to retailers at a more rapid pace.

After a modest dip in August, sales were back over 137,000 units per week in September, even higher than sales from October of last year.

If supply has been throttled and is now being released by Nintendo, and demand continues through the end of the year, then we should expect Nintendo to sell in excess of 3 million systems through the end of 2008, achieving an installed base of 16 million systems in just over two years.

Incidentally, if the increased sales of the Xbox 360 did not erode either Wii sales or PS3 sales, then where did those consumers come from? Here's one suggestion: potential PlayStation 2 owners.

Undoubtedly, the PS2 continues to be a tremendous value, even at a slightly high $130. However, the new price of the Xbox 360 Arcade not only puts it $50 below the Wii, but only $70 above the PS2.

With a robust used game market providing a pool of inexpensive back catalog software, the Xbox 360 Arcade may well be attracting consumers shopping for a cheap system and cheaper software.

Handheld Hardware Trends Exposed

On the handheld front, the usual story continues to play itself out: the Nintendo DS outsells Sony's PSP two-to-one. As it nears the end of its fourth year, the success of the Nintendo DS is difficult to understate: year-to-date sales are up 20% over the same time last year.

And it is only against the backdrop of the Nintendo DS that the PSP looks like it is struggling. Sony's handheld is successful by any other measure, and sales are up 14% from the first nine months of 2007 even as its software market continues to struggle.

Sony has introduced a new model, the PSP-3000 (also known as the PSP Brite for its improved LCD screen), and bundle sales of this model have already begun. Those sales will be counted when October figures are reported. A standalone version of the PSP-3000 will reportedly appear later, possibly in November.

Given the same pricing structure, general consumer affinity for PSP bundles, and the lack of any compelling PSP software releases in the near future, the new PSP hardware will likely not affect sales noticeably in the near term.

(Nintendo has also announced a new model of the Nintendo DS, known as the Nintendo DSi, which will not appear in North America until sometime in 2009.)