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Analysis: Sony's Game Hardware Conundrum
by Matt Matthews [PC, Console/PC]
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May 18, 2009
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[With Sony's combined PlayStation hardware sales significantly down year-on-year, Gamasutra's Matt Matthews examines where the firm goes next, suggesting PS3 price cuts and PSP digital moves are in the firm's near-term future.]
In 2007 and sometimes in 2008, Sony would refer to sales of the PlayStation hardware family grouping the PlayStation 3 together with the PlayStation 2 and PlayStation Portable (PSP) to draw attention away from faltering sales of the nascent PlayStation 3.
Not even that artifice would have reduced the discomfort of Sony's paltry hardware sales in April, sales which reached a mere 415,000 systems across the three platforms.
While PlayStation 2 sales were bolstered significantly by a price drop to $100, the PSP and PS3 both looked extremely weak.
Also, PlayStation 2 software did not see a corresponding increase, and in fact software sales for the aging platform were down 47% from the same time last year, according to Wedbush Morgan's Michael Pachter.
At 127,000 systems for the month (31,750 systems per week), the PlayStation 3 had its worst showing since October 2007, right before the introduction of the 40GB system at a lower $400 price.
Moreover, since Sony has made no moves on price in May, it is quite likely that when results for this month are reported in mid-June, the figures will be even lower:
PlayStation Family Hardware Sales
To understand just how attractive the $400 model is relative to the $500 model, the average sale price for the PlayStation 3 hardware suggests that the cheaper model is outselling the more expensive one by a ratio of about 9-to-1.
Consequently, Sony faces a PS3 hardware price cut. Publishers and retailers alike have been asking for it, and Sony's Dille made what could be construed as a veiled reference to a near-term price drop in a recent interview. (Such expectations, regrettably, could depress May sales even further.)
The key questions about the PlayStation 3 price drop are When? and How much?.
According to Sony's latest financial results, it believes it can sell 13 million PlayStation 3 systems globally from April 2009 through March 2010.
That's up from the 10 million systems it sold in the previous fiscal year, and the 30% increase in PS3 sales will happen in a tougher economic environment (with higher unemployment, at least in the United States if not globally, and reduced consumer spending).
Yet we already know that United States PS3 sales will be significantly down for at least two months of this new fiscal year (April and May). Even if sales in May are equal to those of April, the PlayStation 3 would be down almost 50% for the first two months of Sony's current fiscal year.
For this reason to make up for lost sales then increase them year-on-year in adverse economic conditions we believe Sony will announce a $100 price cut at E3 2009. The longer Sony delays, and the smaller the cut, the harder it will be to make the fiscal year hardware sales target.
We note that others believe the cut could come later, and that it could be only $50. If recent reports are true and Sony still loses $40 on each $400 PS3 unit, a smaller price cut would certainly be gentler on Sony's bottom line.
PSP's Digital-Only Possibilities
On the PSP, it is hard to tell what Sony has planned. The recent download-only release of Patapon 2, along with increasing rumors of a hardware revision that nixes the UMD drive, suggest that Sony will drop its current retail-focused model and consider using its PlayStation Store as a primary software outlet.
Even the PSP hardware bundles that had previously been so attractive to consumers have lost their appeal, with three core systems at a price of $170 sold for every two $200 bundles (estimated from average sale price figures provided by the NPD Group). A shift to core-only models and online software distribution might make sense.
Consider that the top 10 software titles on the PSP in April 2009 showed only two games released in March 2009 (and first-party games at that), three from 2008, three from 2007, one from 2006, and one from 2005.
Given the anemic sales of new PSP software releases, what would Sony and third-parties lose on a relaunched system and an online store? No one appears to be making much money on the PSP as it is, and removing retailers from the chain of software sales might make the system more attractive to publishers.
[This editorial was excerpted from Gamasutra's in-depth NPD U.S. game industry sales analysis for April 2009.]
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Too bad this is only a dream.
Microsoft is clearly ahead of Sony right now. If you talk to game developers they will tell you 360 is their #1 priority.
I feel that the PS3 has yet to reach its potential. Hopefully Sony will make the needed changes to help the lackluster hardware sales. Until then I'll just have to enjoy my awesome Xbox 360.
With? Sony is steadily selling 3 consoles at the current price, so a price cut on any of those consoles will boost its sales...
Despite Sony's ridiculous arrogance and seemingly incredulous attitude towards their consumers, the PS3 is a great piece of hardware. But it's priced out of the market, especially considering the relatively recent economic conditions.
Take a larger loss if you need to, but get the damn boxes out there.
And for god's sake, stop with all the mudslinging and "greater than thou" against your competitors and instead spend that time fixing problems like Home and your unacceptable lack of DLM (in comparison to say, the 360).
Which one of you owns a movie studio?
When the PS3 Launched it was the cheapest Blu-Ray Player and it was future proof.
But Blu-Ray Drives are becoming affordable at a great rate.
Sony really needs to price the PS3 competitively. Especially since the 360 is down to 200-250.
Japan =/= the world - not hardly
Outselling the Wii in Japan for 2 1/2 months doesn't really mean anything. The Wii has sucked in Japan this year with no key releases prior to Monster Hunter G. The PS3 did very well thanks to a slew of key releases and bundles during that same period. But Matt's analysis is a WORLDWIDE analysis. PS3 being up "288%" in such a relatively small Japanese market doesn't put a dent in the worldwide numbers decline in any way. So the point stands, Sony needs the drop the price, but I don't think they can afford to. But their financial report pretty much confirms a price cut. It'll be interesting to see how it all plays out.
I don't disagree with the thought that the PS3 would sell better with a price cut, that is clear.
However, it is not clear if a price cut would be a good thing for the company. The question comes down to having money and being able to make it. Sony is losing money on every unit they sell. Cutting the price drastically would make them lose a lot more in the short run. They don't Microsoft's cash reserves to help cover the losses it would create in the hopes that they'll make it back through software, their online service, and potential future sales.
If Sony really does believe the PS3 will be around for a long time, a smaller price cut ($50) and a good E3 showing might be the best approach.
I think you're absolutely right. By replacing the Xbox as early as they did, Microsoft put pressure on Sony to release their console sooner or risk losing both the core gamer market they needed to start the console off properly and the support of publishers who may not have felt that the PS3 would be competitive. I do think the PS3 was released before it was "complete", though honestly I think MS would still have given Sony a good run for their money because of how much more thought was invested on the online presence of the 360. That's an off-topic opinion, however.
Honestly, I think it serves Sony right that they're losing so badly with the PS3. Sony was pretending that they were the only horse in the race. I don't just mean their lousy PR, because to me it seems obvious that Sony's ambitions were to build the most expensive entertainment console in history and force feed it down consumers throats with Blu-ray.
Now it looks a lot as if Sony has painted themselves into a corner. I don't think they can afford to maintain the price of the PS3. At the same time, I don't know whether they can afford to drop the price of the PS3, either. I think rumors of a $100 cut at E3 are optimistic, but agree that $50 doesn't seem like enough, especially if they wait until closer to the holidays.
FYI, the PS3 was slotted for Holiday 2005 from the start but slipped back due to problems with the the cell processor which ironically did not show up in the Xenon.
Sony made a lot of mistakes with the PS3. It would be nice to have a $100 dollar price cut. But it is just as likely that Sony is going to write off the PS3 as product that will never be competitive on price and focus all efforts on the PS4 instead.
This is providing they're smart, of course. They might actually believe in the ten year plan, in which case, well...