Sony ‘Should be Worried’ About PS3, say Analysts! Whoever thinks sony is in trouble aren’t really paying attention to what’s going on in the industry.
November was an impressive month for the U.S. video game industry, especially in light of the overall economic recession, but it was Nintendo’s Wii and DS and Microsoft’s Xbox 360 that largely drove the industry. Sony’s platforms meanwhile saw year-over-year declines; the PS3 itself sold about 90,000 fewer units this November.
Sony had been hoping for games like LittleBigPlanet and Resistance 2 to boost sales, and for greater Blu-ray adoption to lead to more PS3 ownership, but it just hasn’t happened. The Wii phenomenon combined with Xbox 360’s surge following the Arcade SKU’s drop to $199 earlier in the fall has put Sony in a tough position. The video game industry may be highly recession resistant, but let’s face it – nobody wants to pay $399 for a console right now.
NPD’s industry analyst Anita Frazier told us that the PS3 “story is going to take a little longer to unfold this generation than in previous cycles,” but once it unfolds where will Sony be?
“The value proposition for the PS3/Xbox 360 is now out of whack in favor of the Xbox 360. I think there will be some very hard decisions to make after the New Year.”
We tapped both David Cole of DFC Intelligence and Jesse Divnich of Electronic Entertainment Design and Research (EEDAR) to get their respective takes on the PS3 business. Update: We caught up with Michael Pachter of Wedbush Morgan Securities as well (please see page three).
David Cole, DFC
Yes, Sony should be worried. I think of bigger concern is Europe. I haven’t seen the numbers yet, but from most sources I hear the Xbox 360 is doing much better this holiday on the continent and that could be a big issue. As we said, the Xbox 360 looked surprisingly strong this holiday with 1) price; 2) solid lineup, especially when compared with competition, and 3) a retooled online service with new features like Netflix.
The value proposition for the PS3/Xbox 360 is now out of whack in favor of the Xbox 360. I think there will be some very hard decisions to make after the New Year. They might not be able to afford a price cut, but on the other hand they might not be able to afford their current price. They are between a rock and a hard place. Like I said, my biggest concern for the PS3 is if they let the Xbox 360 gain big momentum in Europe.
Jesse Divnich, EEDAR
According to the NPD figures, the PS3 was down 19% compared to last November. The PS3 sales definitely represent an unfavorable scenario for Sony. With both the PS3 and the PSP being the highest priced platforms in their segment, it is no surprise that both were the only next-gen platforms to post a year-over-year decline. Note: according to the NPD results, the PSP was down 26% y/y. The economy probably played the biggest role in hindering sales, since as consumers, we tend to be more price sensitive when facing economic uncertainty. This is when, typically, differentiating features such as the PS3’s Blu-ray capability, tend to carry less weight in the consumer decision process. Consumers just want to play games right now; they are not really concerned about owning a high-end console, or a system with all the bells and whistles, which is why the strip-down Xbox 360 Arcade version has done so well.
“We are not even at the half-way point for this generation, there is still plenty of time left for Sony to catch up and I believe in the long-term, Sony will gain a significant amount of ground on the Xbox 360.”
While Blu-ray sales are up year-over-year, it certainly hasn’t penetrated the market as much as Sony hoped. While nothing can match the quality of Blu-ray movies, there are several other media devices that do offer cheaper and more convenient ways to watch movies/television, such as regular DVDs, digital distribution through cable boxes, and free services available online such as Hulu.com. Being the best isn’t always a good thing, especially when people can’t afford it.
In terms of cutting prices, currently, it wouldn’t be financially responsible or beneficial for them to cut the PS3’s price point; manufacturing costs are just too high. That being said, I do expect the PS3 to receive a price cut in early 2009. This is when Sony should reach a point of manufacturing efficiency that would financially warrant a price cut.
Ultimately, Sony was just unlucky. There was no way they could have forecasted this recession. If the economic tables were turned, and we were facing a period of solid economic growth, there is no doubt that sales would be stronger.
We are not even at the half-way point for this generation, there is still plenty of time left for Sony to catch up and I believe in the long-term, Sony will gain a significant amount of ground on the Xbox 360. It just might take longer than what Sony expected; except in the handheld market – I think we can all agree there is no hope for the PSP in North America at this point.
Michael Pachter, Wedbush Morgan
I think Sony is a greater victim of the recession, more because they are a consumer electronics company than a video game company; people aren’t buying HDTVs and that’s why Best Buy has been talking about their same store sales being down 5-15%. It’s really hard to get people to come in and spend on the super big ticket items. I think Sony is feeling the pain of that and I had expected that there would be a high attach rate this holiday of PS3s to HDTVs because Best Buy was pushing it… and that’s not happening.
So that’s the first problem. Secondly, you can’t buy a PS3 for less than $399, and the average of all Xbox 360 SKUs in November was $270. So the Xbox 360 average price is $129 less than the PS3, and that’s hurting [Sony]. The other factor is that the Wii is ridiculously cheaper. So Sony has all these things working against it, and then at the end of the day, their game lineup, which is very good, is still not sufficiently differentiated to induce people to say “I’ve just got to buy a PS3.”
