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Analyst: Price Cuts May Not 'Rescue' Lagging Industry Sales

Analyst: Price Cuts May Not 'Rescue' Lagging Industry Sales

August 13, 2009 | By Leigh Alexander

August 13, 2009 | By Leigh Alexander
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When the NPD Group releases July's numbers later today, analysts are expecting to see the industry down in the low 20 percent range -- marking the fifth straight month of double-digit declines, with August expecting to show only minimal improvement. Now, one analyst says anticipated price cuts might not save Christmas after all.

Tough year over year comparisons, declining Wii hardware growth and a cash-strapped consumer all combine to put pricing pressure on console makers ahead of the key Fall-holiday season, PlayStation 3 and Wii in particular.

But Cowen Group's Doug Creutz isn't certain that hardware price reductions will "rescue" the games biz from its current growth struggles, as it's become clear in recent weeks that the continued slump in monthly NPD results may be more than tough year-over-year comparisons as analysts initially believed.

"We are concerned that, given pressures on the consumer, price cuts may not have the stimulative impact to hardware and software sales that they have had in the past," says Creutz.

The price cuts are not far off, the analyst believes. "We expect hardware price cuts on all platforms by September, with announcements possibly as early as next week's Gamescon in Leipzig," he says.

Investors are hoping for a $100 cut on the PS3, a $50 cut on the Wii, and a new $300 price point for the Xbox 360 Elite SKU. Regarding the Elite, consumer sites like weblog Kotaku have spotted catalogs already advertising the Elite at $299 as of August 30, supporting the likelihood of an announcement from Microsoft during GamesCom.

Analysts largely agree that without price cuts, the industry will be challenged to even post flat growth for 2009 over 2008, even if NPD numbers are back to their positive trend for the holiday. Some analysts even expect a decline, like Kaufman Bros.' Todd Mitchell modeling for 2009 to come in 2 percent down over 2008.


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