The video game console makers need to cut their hardware prices if they want to turn around declining retail sales in the U.S., Wedbush analyst Michael Pachter said in a Monday research note.
"In order to sustain a rebound to sales growth, we think it is imperative that the console manufacturers cut price," he stated. "... We expect Microsoft to announce a price cut at this year's E3 Expo in June, and expect Sony and Nintendo to rapidly follow suit."
Currently, the core models for Sony's PlayStation 3 and Microsoft's Xbox 360 are $299, and the Nintendo Wii is $199 in the U.S. Pachter said he believes all three console makers are profitable on hardware sales currently, and are wary of incurring losses by cutting prices further.
"The current price structure has been in place for 18 months, and prices remain at historical highs this far into a console cycle," Pachter said.
If a price cut across all three major consoles doesn't happen in June, the analyst expects all three consoles to be "at least" $50 cheaper by holiday compared to current prices.
Pachter also said demand for the Wii "appears to us to be fading," and that a "price cut is long overdue." The Wii has new motion control competitors, but with the PlayStation Move off to a "very tepid start," it's Microsoft's Kinect, with 8 million shipped in its first three months, that has the advantage.
"We believe that Microsoft is in the driver's seat on pricing, and believe that the company may consider a price cut for the core console plus Kinect to under $300 in June, which could allow it to extend its monthly sales lead throughout 2011," Pachter said.
He added that console price cuts alone could add 5 percent to overall software sales levels. However, he adds, "overall U.S. packaged software sales declined 5 percent last year (including PC), and an incremental boost of 5 percent would take sales only to roughly flat."
Ahead of NPD Group's February U.S. video game console software sales data this week, Pachter also forecast monthly sales of $595 million, down 6 percent year-on-year. If the forecast is correct, February would be the third consecutive month of negative growth at U.S. video game software retail.
The analyst expects Xbox 360 to lead monthly home console sales with 385,000 units on strong demand for Kinect, and 310,000 for PS3 and 305,000 units for Wii. Top games will include new releases Marvel vs. Capcom 3: Fate of Two Worlds from Capcom and Killzone 3 from Sony, Pachter predicted.