Now is the right time for Microsoft and Sony to lower the prices on both hardware and software for their respective home games consoles, a new report from analyst firm Baird Equity Research suggests.
Baird's Colin Sebastian notes that core console gamers are already anticipating the next generation of hardware platforms, hence price cuts for the Xbox 360 and PlayStation 3 would prove an effective way to retain focus on the current generation for a while longer.
Microsoft's upcoming $99 Xbox 360 subscription offering signifies "a nice start to bring hardware into the value end of the consumer market," Sebastian says -- however, he believes that a straight price cut to the console would be more effective.
In terms of software, the analyst says that Microsoft and Sony should consider cutting the royalty rates that they each take from developers and publishers for game releases, which he believes would help bring prices of new releases down.
"For most software releases, we believe a $49 launch price now makes sense, given the late stage of the current console cycle," he notes.
This train of thought comes as the NPD is expected to report later this week that retail game sales in the U.S. declined year-over-year in April. Sebastian agrees with the earlier report from analyst firm PiperJaffray, stating that Baird expects April software sales to be down 25-30 percent compared to last year.
When you look at this from an initial cost point of view, it's obvious the target is people who cannot afford or are unwilling to pay for the normal cost of a console. The problem with this is that a lot of these customers are probably not huge into gaming, and so from a consumer standpoint it doesn't make any sense. Why not just buy a Roku or Apple TV and get a lot of the same media features without additional subscription fees?
Of course, for those that want the gaming functionality, you have to ask, why are you purchasing a game console you can't afford? Payment plans are part of the reason people are excessively in debt. They are looking for ways to buy entertainment that they can't afford, period. This isn't behavior that should be encouraged, it ultimately screws the consumer, and devalues products as we begin to perceive that $99 value as making sense, despite the long term costs still being relatively high.
There are probably some people out there that will get something out of this, so I suppose I'm not totally opposed, but it doesn't feel like a good idea to start making the video game console market reflective of the smartphone market.
With Microsoft and Sony loosing money on each sold console the idea of price cuts is ridiculous and the idea of a lower price point for software even more. Developent costs haven't come down, worldwide software sales aren't rising, why should shoftware prices come down?
The analyst's point is that it's getting close enough to the next batch of next-gen consoles that gamers will be less likely to invest in a system that will soon be significantly out-classed.
That would indeed be reason enough to drop prices, only his timing is way too early, IMO. He might have a case for Nintendo home console software, but Sony and Microsoft next-gen consoles are at least a year and a half away.
No next console generation in sight, apart from Nintendo nothing is announced and nothing will be announced at the e3, Sony is broke and it's hard to imagine that MS can convince publishers to develop games that are even more expensive then current generations games for an almost non existing user base.
"No next console generation in sight" was essentially what I meant by "at least a year and a half away." Microsoft seems closer to it than Sony, but it would be holiday 2013 at the soonest. That's too far away to follow the analyst's advice based on his reasoning. Additionally, as you say, development costs aren't any cheaper -- just another reason to keep prices up.
Your point of software sales not rising, though, I would think would be a factor in favor of dropping prices. If something is selling well, you keep the price up; if you're not shifting enough product, you drop the price.
That would be the most compelling reason to drop prices, but I don't think it outweighs the other factors. In short, I think it's too early to think about shifting the MSRP for games from $60 to $50 just yet, especially since I'm not convinced it would drive a significant amount of extra sales. On hardware, too, I tend to think there aren't enough compelling reasons yet to drop those prices.
I agree with you, cheaper software prices won't drive sales, just because people right now aren't shying away from buying games, because of their price (at least, if we talk about $40 vs. $60).
On the next console generation, I can't imagine, that Sony has the ressources to develop a next gen console at the moment. It's not unlikely, that they have to face a major desaster with the Vita, which will be very expensive and which might be the deathblow to their console business, because it kills the Playstation brand.
If their current financial situation isn't getting better (and I don't know how), I don't see them competing in the console race any more.
This leaves the next gen to Microsoft (the Wii-U seems, at least, from what we know yet more like a current gen console with an unique feature), Microsoft's consoles are traditionally weak in europe and almost non existant in Japan, both markets combined outweigh the US market, which is the reason, why I think publishers will be cautious, if it comes to a new XBox in the end of 2013.
If I end up paying just a bit over the normal console price, but get the online goodies -- count me in :)
Sounds like something that can save the next gen consoles
Why are some people worse off? Because they enter all these receive now/ pay later deals that cost them more in the long run.
Of course, for those that want the gaming functionality, you have to ask, why are you purchasing a game console you can't afford? Payment plans are part of the reason people are excessively in debt. They are looking for ways to buy entertainment that they can't afford, period. This isn't behavior that should be encouraged, it ultimately screws the consumer, and devalues products as we begin to perceive that $99 value as making sense, despite the long term costs still being relatively high.
There are probably some people out there that will get something out of this, so I suppose I'm not totally opposed, but it doesn't feel like a good idea to start making the video game console market reflective of the smartphone market.
That would indeed be reason enough to drop prices, only his timing is way too early, IMO. He might have a case for Nintendo home console software, but Sony and Microsoft next-gen consoles are at least a year and a half away.
Your point of software sales not rising, though, I would think would be a factor in favor of dropping prices. If something is selling well, you keep the price up; if you're not shifting enough product, you drop the price.
That would be the most compelling reason to drop prices, but I don't think it outweighs the other factors. In short, I think it's too early to think about shifting the MSRP for games from $60 to $50 just yet, especially since I'm not convinced it would drive a significant amount of extra sales. On hardware, too, I tend to think there aren't enough compelling reasons yet to drop those prices.
On the next console generation, I can't imagine, that Sony has the ressources to develop a next gen console at the moment. It's not unlikely, that they have to face a major desaster with the Vita, which will be very expensive and which might be the deathblow to their console business, because it kills the Playstation brand.
If their current financial situation isn't getting better (and I don't know how), I don't see them competing in the console race any more.
This leaves the next gen to Microsoft (the Wii-U seems, at least, from what we know yet more like a current gen console with an unique feature), Microsoft's consoles are traditionally weak in europe and almost non existant in Japan, both markets combined outweigh the US market, which is the reason, why I think publishers will be cautious, if it comes to a new XBox in the end of 2013.