Console competition lowers opening price points - Video & DVD - video games, Microsoft Corp., Sony Corp., Nintendo Company Ltd - Brief Article - Statistical Data Included

DSN Retailing Today, March 25, 2002

Competition among the video game industry's big three manufacturers is expected to spark a price war in the coming months that will lower the cost of at least two consoles. Nintendo made the first move in February when it slashed the price of its Game Boy Advance handheld console from $99 to $79 just eight months after it debuted in June 2001. But the real battle is expected to develop later this year when Microsoft and Sony go head-to-head in a price war with X-Box and Playstation 2, both of which are currently priced at $299, but are expected to drop dramatically.

"I think it's feasible that we'll see prices on both units trend toward $249 within the next six months," said Michael Goodman, an analyst with The Yankee Group in Boston. "And I'd expect Playstation 2 to lower their price first since they've been around longer and are less expensive to make than the X-Box."

While the companies would rather keep the consoles at their current prices--both are reportedly losing money on the sale of each- system, but making it back-on software sales--competitive pressures are -likely to force the issue. Unlike Nintendo, which has priced its GameCube at $199 and caters to younger garners, both - Microsoft and Sony are after the same audience of teens and older-gamers.

"Sony has already lowered the price of PS2 in Europe, but they're very hesitant to lower their price in the United States," said Brian O'Rourke, a senior analyst with Cahners' In-Stat Group-in Scottsdale, Ariz. "But that would change if they see X-Box starting to cut into their market share."

O'Rourke said first quarter sales -results could be the catalyst for a price reduction. "That's when we'll see where X-Box stands," said O'Rourke, adding that it's likely both Microsoft and Sony will lower their prices before the holiday season.

The prospect of lower hardware prices is good news for game manufacturers, who would benefit from increased console sales. Yves Blehaut, senior vp for game publisher Infogrames, said he wouldn't be surprised to see lower prices unveiled in May during the game industry's annual E3 trade show in Los Angeles, an event that manufacturers commonly use as a venue for major announcements.

"I would expect them to lower the price to $249 to start and eventually bring it down to $199, which is the critical mass-market price," said Blehaut, whose company makes games for all-three consoles. "That's how the business model works in this industry. It's all about catching the competition and being aggressive."