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i-Hollywood Summit: Low-Priced DVDs Stole Game Systems' Holiday Thunder

15 Jan, 2004 By: David Ward

While 8 percent annual growth would keep many industries quite happy, for the video game business 2003 was a bit of a disappointment. The i-Hollywood Forum's Digital Games Summit in Las Vegas on the eve of the Consumer Electronics Show Jan. 7 pointed to a surprising culprit -- the low cost of DVD hardware and movies compared with consoles and games.

Mike Wallace, managing director for Wall Street firm UBS Investment Research, said the biggest reason for the game industry's not reaching the projected 20 percent to 30 percent growth last year was Sony's decision not to lower its $179.99 price on the PlayStation 2 last year.

“It was a decent year, but it [won't be] close to what people we're expecting,” he said, adding that Sony ended up selling through about 7 million to 7.5 million game consoles instead of the 10 million the company had projected.

He and others noted DVDs seem to be stealing some of the dollars and leisure time consumers were expected to be spending on Nintendo's GameCube, Microsoft's Xbox and PS2. Wallace said retailers told him during the holidays that many consumers were bypassing game hardware and $50 games in favor of $40 DVD players and DVD movies as low as $10. He strongly predicted that Sony would cut the price of the PS2 to $129 in March or April, to be quickly followed by an identical price cut by Microsoft with the Xbox. But, he cautioned, “Lowering the price will help, but it won't solve the problem.”

PJ McNealy, analyst with American Technology, said Sony may be trying to stretch the lifecycle of the PS2, adding the next Sony game console might not be released until 2006. That would give PS2 a six-year lifecycle rather than the five-year cycle most had expected.

During his keynote speech at the summit, Robbie Bach, Microsoft's chief Xbox officer, said, “The big challenge for this industry in the next five to 10 years is, what are we doing to take our penetration from 40 percent to 60 percent or 70 percent?” The key to that, he said, is expanding beyond the core 15-to-35-year-old male audience.

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