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Analysts, Reports Speculate on Game System Price Plans

19 Aug, 2006 By: John Gaudiosi

The Xbox 360 HD DVD add-on is expected to debut at $200 later this year.

Price jockeying in the video game business will hit a new pitch this fourth quarter, according to analysts and reports.

The new round of next-generation consoles are starting at high price points. Sony will release two PlayStation 3 options Nov. 17. One will sell for $600, the other for $500. This follows the same model, though at a higher price, that Microsoft has with its $300 core Xbox 360 and its $400 premium Xbox 360.

Rumors out of Taiwan say Microsoft's add-on HD DVD drive for Xbox 360 will sell for $200.

“I think a relatively low price such as $199 would be a good move, given that seeding the market with HD DVD players is a corporate initiative for Microsoft, not just an Xbox initiative,” said video game analyst PJ McNealy of American Technology Research. “I don't think buying an external HD DVD drive will, however, change someone's mind to not buying a PS3.”

Michael Pachter, video game analyst for Wedbush Morgan Securities, said the HD DVD drive is a novelty for all but the current Xbox 360-installed base. He noted that a $200 HD DVD drive puts the combined cost of an Xbox 360 at $100 more than the comparable PS3.

“The price won't have much of an impact if someone buys a PS3,” Pachter said. “They won't want both drives.”

PS3 ships with a Blu-ray Disc drive as its main drive. The console will play high-definition discs as well as DVDs and will be backward-compatible with PlayStation and PS2 games. Xbox 360 features a DVD-9 drive, and the HD DVD drive to play high-definition movies can only be purchased separately beginning this fall.

Nintendo's Wii, which ships this fall, is expected to retail for $250 or less, according to Nintendo. That will make the new console the most affordable of the three next-generation offerings.

Price plays a key role in the video game industry. Sony kept its original PlayStation alive years after PS2 came out because of its regular price drops. Analysts don't expect Sony to drop the $130 price of PS2 until 2007. The next drop will likely be to $100, but the PS2 still is selling at a solid pace.

Microsoft isn't expected to reduce the price of Xbox 360 this fall due in large part to the higher price of PS3. But it is expected to offer more value at the current price. Canadian retailer Futureshop already is taking preorders for an Xbox 360 bundle that includes the premium Xbox 360, Project Gotham Racing 3, a three-month Xbox Live subscription and 1,250 points on Xbox Live to purchase content online. This package, which retails for $500 Canadian, is expected to come to the United States this fall for $400.

Another price drop is stirring up online chatter. McNealy told CNNMoney.com that Sony will drop the price of PlayStation Portable to $150 and may include a game or two in the new system. Sony has shipped 20 million PSPs worldwide, with 8 million pegged for the United States. The system already has dropped from $250 to $200 earlier this year, but that price drop included the end of bundled content that offset the lower price. This $50 price drop, which is expected soon, would be a true hardware price cut.

“Retailers generally think Sony needs to drop the price to $150, the next natural price point,” said John Taylor, video game analyst for Arcadia Research. “On top of that, there is a feeling that Sony has failed to explain to consumers exactly what the PSP is about. Is it a game machine, a movie player or a music player? A one-two punch of price and promotion is what most would like to see.”

Nintendo has shipped more than 21 million Nintendo DS portables globally. The new Nintendo DS Lite is selling out across U.S. retailers, and hit games such as Brain Age and New Super Mario Bros. are moving hardware. Sony has had a lull in big games, although NCAA Football '07 and Madden NFL '07 recently hit shelves.

Billy Pidgeon, program manager of consumer markets for Gaming IDC, believes that reducing the price of the PSP will help Sony gain some needed momentum in the handheld market. However, if the PSP is sold at $150, the DS Lite remains cheaper at $130. Even if the two handheld systems were to be priced equally, the DS Lite's form factor, touchscreen interface and its broadly appealing library remain competitive with the PSP.

“Beyond a price cut, the PSP needs more signature titles, system-selling games that take advantage of the hardware,” Pidgeon said. “There are plans for PSP add-ons such as GPS, cameras and enhanced communications (voice, etc.), but third-party publishers are unlikely to support peripherals, as these splinter the hardware base. A new version of the PSP may also help, as long as Sony follows Nintendo's model of system enhancements that are compatible with existing software.”

Pachter doesn't believe Nintendo DS Lite and PSP compete. He said any price cut would be more a matter of pride and Sony hitting its targets.

“I think that Sony is on track, but I also believe that they will cut prices as soon as their manufacturing cost structure permits,” Pachter said. “It is logical that costs on the PSP have come down with LCD prices, so my guess is that they could cut to $150 any time. The real question is whether they do so in front of the PS3 launch. I truly don't know.”

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