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Video Game Fire Sale

26 Jan, 2006 By: John Gaudiosi

The cyclical nature of the video game industry guarantees that about every five years the introduction of new game systems brings price reductions in the old.

While Sony has held off on any further reduction of the $150 price of its PlayStation 2, the $50 premium price for PS2, Xbox and GameCube games has become a thing of the past in the United States.

“I think that the last $50 game will probably be Madden NFL 07 in August,” said Michael Pachter, a video game analyst with Wedbush Morgan Securities. “It will be tough to hold that price point at holiday 2006.”

Electronic Arts, the world's largest video game publisher, recently reduced the price of 48 current-generation games by as much as $10 to $20.

Madden NFL 06, the No. 1 selling game of 2005, now retails for $30. Games such as Harry Potter and the Goblet of Fire, FIFA 06, NASCAR 06 and NBA Live 06 also now retail for $30 after the $10 cut. Need for Speed: Most Wanted dropped from $50 to $40, while Medal of Honor: European Assault fell from $40 to $20.

Back in mid-November 2005, EA reduced a collection of games, including NBA Live 06, Tiger Woods PGA Golf 06 and NASCAR 06 from $50 to $40. Marvel Nemesis: Rise of the Imperfects and SSX on Tour were slashed from $40 to $30.

This past holiday season saw a large number of new games selling at retail for as little as $30 to $35.

Publishers Activision and Ubisoft gave retailers back-end rebates — credits that allowed stores to sell new premium games for discounted prices without losing money during the holidays, according to John Taylor, video game analyst for Arcadia Research. EA did not do much of this, opting to reduce some prices last fall. THQ did not need to reduce its prices.

Moving forward with current-generation consoles, Taylor believes kids' titles will sell for $30 and premium games such as the next “Tony Hawk” will sell for $40. The market is expected to see more value-priced games at $20 throughout this year and beyond.

P.J. McNealy, video game analyst with American Technology Research, believes another wave of price cuts is coming from Microsoft. With the current-generation Xbox essentially a dead system, McNealy believes Microsoft soon will introduce a Super Platinum Hits program that will sell Xbox games for $10. There are 800 Xbox games available, and approximately 10 percent of them are Platinum Hits, which retail for $20.

“In order to qualify for the Platinum Hits program, games have to hit a certain sales level, which we believe is likely around 400,000 to 500,000 unit sales,” McNealy said. “While Microsoft's current Xbox hardware sales are expected to strongly decline this calendar year, the Super Platinum Hits program could provide an off-set to declining current Xbox sales.”

Hardware prices also will come down. Taylor expects Sony to make two big hardware reductions this year, one in time for Easter and a second in May around E3. The PSP is expected to drop from $250 to $200, while the PS2 is expected to drop from $150 to $130.

“There's currently a debate as to which will drop first, but it's too early to tell which system will have more momentum heading into Easter,” Taylor said.

Microsoft's Xbox is an obsolete system, so no price drop is expected. Nintendo's GameCube has been selling for $100 for quite some time already.

While current-generation pricing is falling, next-gen prices will remain high.

Xbox 360 third-party game prices remain at $60, while Microsoft-published games are $50. Analysts expect third-party games for Sony's PlayStation 3 to hold at $60, at least through 2006.

Nintendo's next-generation Revolution console is expected to keep the price ceiling at $50, just as the hardware is expected to be less expensive than Microsoft's and Sony's consoles.

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