Industry Report Says Xbox, PS2 Game Console Prices Need to Drop Even More30 Aug, 2004 By: John Gaudiosi
International Data Group (IDG) Entertainment's 12th annual 2004 Industry White Paper, which includes in-depth interviews with more than 50 executives from game publishers, developers, retailers, market analysts and investment bankers, shed some light on several major issues confronting the game industry.
Despite the price cuts of first Xbox and then PlayStation 2 (PS2) to $149 before E3 in May, many executives in the new report said that both Sony and Microsoft need to cut prices again to bring their consoles closer to the true mass market price of Nintendo's $99 GameCube. After a relatively flat year in 2003, and despite one of the biggest fall release slates in the short history of the games industry, price reductions are seen as key to jump-start the game industry as it continues to penetrate the mass market audience.
In the report, David Perry, president of Shiny Entertainment, which is developing new games based on “The Matrix” franchise, said that “$149 is OK. $129 is OK. But $99 is where it's at. That's the American public right there.”
According to analysts, 70 percent of all consoles in the last life cycle were sold after hardware prices dropped below $130. When you factor in the large installed base that the three current consoles have been able to establish at higher price points, the industry is poised for record growth, once prices drop.
Eric Johnson, president of Ignited Minds, said in the report that when you drop a console price to $129 or $99, it becomes a toy purchase and opens the market up to a broader audience beyond the “mature” gamer, which many game companies are chasing.
The report also discusses lower software prices. Many first-party PS2 games already retail for $39.99, and more catalog titles that have been repriced to $19.99 for multiple systems. But while the industry experiments with higher price points and collector's editions on games, there's room for lower price points for games to the masses. Sega has had great success with its $19.99 ESPN video games. According to Perry, $39.99 is likely the price point more game companies will adopt.
The report noted too many games ship in too small a window every holiday season.
Another issue for 2004 is the unprecedented news coverage on the next generation of game consoles, none of which have been shown in public yet. The report said that many consumers, especially the hardcore gamers, are focusing more attention on Xbox Next (expected to launch in fall 2005), PlayStation 3 and Nintendo Revolution (both expected to ship in fall 2006) than they are on big games hitting PlayStation 2, Xbox and GameCube this year or next.
Rob Dyer, president of Eidos Interactive, said in the report that he's worried that too many people may be concerned about what's next versus what's happening now.
Hollywood game licenses have come a long way, according to Jill Hamburger, VP, movies and video games, Best Buy. She said in the report that game publishers like Electronic Arts, THQ and Activision have been very active in choosing properties that make sense for games. This fall will see a large number of big Hollywood games hitting store shelves (The Polar Express, Shark Tale, The Incredibles).
The selling of used games has become an issue to many game publishers, according to the report. The emergence of used game sales at retail has cut the window for full-priced $49 games, which has angered many game company executives (whose companies don't recoup money from used game sales). At the same time that the window for new full-priced games has become shorter and shelf space continues to be limited, game publishers are faced with larger production costs for current games (and next-gen games will push that envelope higher). But there are those who believe that selling used games opens the door to games to a larger audience, which may help the game industry in the long run.
The report is available for $250 at www.idgentertainment.com.