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Analyst: Sony From First to Worst?

8 Jul, 2006 By: John Gaudiosi

PlayStation 3's $600 price tag could pull Sony down from its first-place position with PlayStation 2 to third place, according to video game research firm DFC Intelligence.

David Cole, president of DFC Intelligence, said this precipitous drop is a worst-case scenario for Sony. Still, multiple factors are lining up against Sony keeping its reign over Xbox 360 and Wii in the console battle.

One of the most important factors is how quickly Sony can drop the price of PS3, which costs double the introductory price of PS2 when it launched in 2000.

“Sony's clear strength is brand strength and current market position,” Cole said. “The glaring weakness of the PlayStation 3 is price, especially when compared to the competition. However, it is more than just an issue of whether the PlayStation brand strength can justify a premium price. Of course, Sony would like to point to the hardware horsepower and extra features like Blu-ray. The problem is that is only one factor in our forecasting matrix.”

Cole explores different factors to forecast game sales: the brand; current and future games for PS3, Xbox 360 and Wii; the prices of PS3, Xbox 360 and Wii; and the future price of PS3, Xbox 360 and Wii.

Because Xbox 360 has Xbox Live and Xbox Marketplace and Wii has the unique motion-sensor controllers, Cole doesn't believe PS3 has much of an advantage in the elusive “wow factor.”

“Sony has done very little to justify why the system is worth a premium price for consumers who don't care about raw hardware performance and are not hardcore audio/visual consumers,” Cole said. “Unfortunately, we believe that represents more than 90% of the consumers in the marketplace.”

Cole believes the success of PS2 was not based on exclusives such as Grand Theft Auto: San Andreas (he estimates that only 20% of the 100 million PS2 owners bought a GTA game), but the diversity of games that were released by Sony and third-party publishers.

“It now appears all that wasn't good enough for Sony,” Cole said. “With PS3, the company is going after the high-end power user. Of course, there is a market for high-end products, but it is a very different consumer type and not nearly as big as the blue-collar mass market.”

According to Cole, Sony's price won't be an issue for the core group of gamers who want to be the first to own any new technology. In essence, Sony is milking these early adopters with the $500 and $600 price tags. Because of the initial high price, Cole believes the majority of consumers won't transition to next-generation consoles until Christmas 2007 or later.

“Our concern is that Sony's hands may be tied in regard to price cuts, and Sony drastically underestimated the competition,” Cole said. He added that the price of PS3 does not exist in a vacuum. “Right now, both the Xbox 360 and Wii are looking like much better alternatives than they did a year ago. Core PlayStation franchises such as ‘Grand Theft Auto,' ‘Final Fantasy' and ‘Dragon Quest' are starting to appear on other systems. In short, we have seen absolutely nothing that would justify a $200 price difference.”

The $600 price tag won't fly for holiday 2007, according to Cole, who believes Sony will need to make drastic price cuts next year to catch up to the competition. He believes there is going to be a shakeup in the video game industry, and even if Sony executes perfectly, there could be a new market leader in two years.

DFC Intelligence also took a look at Sony's PlayStation Portable, which has shipped more than 17 million units worldwide through the end of March. This was on par with Nintendo DS shipments, although that dual-screen portable costs roughly half the price ($130 to $250) of PSP (PSP has been reduced to $200 this year).

“Underneath the surface, the PSP seems more about style than substance,” Cole said. He said PSP truly excels at none of its functions, which include playing games, movies and music. “Meanwhile, the Nintendo DS seems to be really expanding the market where the PlayStation brand had been dominant. Titles such as Nintendogs and Brain Age add the type of product diversity that drove more than 100 million consumers to buy each of the first two PlayStation systems.”

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