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Video Game Hardware Pricing Heading South

1 Jul, 2009 By: Erik Gruenwedel

Recessionary reality has apparently hit the video game industry with several component manufacturers set to substantially cut system prices by the fourth quarter, analysts say.

Expect Sony to cut $100 from the $399.99 retail price for the PlayStation 3 console prior to the Aug. 18 rollout of perennial football video game favorite Madden NFL 2010 from Electronic Arts, among others.

Sony Computer Entertainment of America denies a price cut is forthcoming.

Such a move, however, would likely force Microsoft to issue additional price reductions to the Xbox 360, while Nintendo would also drop the retail price of its popular Wii system, analysts said.

Eric Handler, senior analyst with MKM Partners LLC, said a $50 price cut to the Xbox 360 — the second reduction in the past 12 months — would not be considered a sign of weakness within the game industry.

“If Sony is going to have the 160GB PS3 at $399, which is the same price as the Xbox 360 Elite with 120GB, I think a $50 price cut makes sense,” Handler wrote in a note.

Arvind Bhatia, media analyst with Sterne Agee in Dallas, said the PS3, which includes a Blu-ray drive, is key to Sony’s previously stated goal to increase console business by 30% in 2009.

“That’s not going to happen unless they lower the price significantly,” Bhatia said. “It’s widely known that a price cut is going to happen; it’s a question of when and how much.”

Sony in April cut the price of its top-selling PlayStation 2 game console from $129.99 to $99.99. Introduced in 2000, the PS2 has sold 136 million units worldwide, easily the all-time top console seller. The PS2 is widely credited with helping the DVD boom because it included a DVD player.

Sony has been phasing out the system in favor of its high-def PlayStation 3 model, but the PS2 was still the most played console of 2008, according to Nielsen, accounting for 31.7% of gamers’ time.

Sony Corp. in March reported its first annual net loss ($98.9 million) in 14 years, including an 18% sales decline in its games unit.

Hardware price reductions would segue well with a compelling second-half 2009 game release slate spearheaded by titles such as The Beatles: Rock Band and Modern Warfare 2, among others.

Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, said Nintendo would be pressured to initiate the first price cut of the Wii to $199.99 (from $249.50) if it did not ship 26 million units by March 31, 2010.

The CEO of top game retailer GameStop, in financial calls, has urged hardware price cuts.

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