Begun... the price wars have... or not?

[Dodece]

I do not think Microsoft has been in a reactionary mode to the Sony price drops. They seemed well aware they were coming. They were talking earlier this year about Sony dropping the price in the summer. They were right as we all saw. They were also the ones that told us about the supposed 40GB model of the PS3. Which looks like it is going to happen, and they said it would be around four hundred dollars which seems to be the likely result now. They seem to be following their own strategy. Their price cut after all was far more comprehensive then what Sony even offered. Further more their price reduction was set perfectly at the beginning of the fall season when it would have its maximum impact.

Microsoft seems to be the one that is being proactive. That being said there are three logical scenarios from my point of view. Microsoft intends to focus on packed in games to increase the value. They only launched half of their price cut earlier. They intend to save the revenue and focus it on the software war.

The packed in option seems to be the most likely candidate at this point, but by far not conclusive. Chains like Bestbuy often have their own promotional offers. A erroneous listing is out of the question this speculation might be based on a bundle offer they intend to provide. That would increase the value of each sale, but there is a valid question in that are these games true justifications to get the system. The rumor is Forza and Ultimate Alliance. While both solid games do they really have mass appeal. Had it been any other titles I might have greater faith.

A second price reduction has real benefits. They would enter the larger consumer market now gaining severe momentum. This seems very plausible if they want to finish the fight this holiday season. They would still keep the PS3 the more expensive system, and they are in a good position to eat the loss. With their holiday lineup they should easily generate far more capital to offset the loss on units. The cheaper the systems are the more games they sell. The only downside is that they might lose more profit then Sony. After all Sony is actually supply constrained. They might only be able to put out half the units of Microsoft this holiday season. Sony could very well be running a sale knowing full well that they could sell out, and not have to eat any more losses.

I have to say I like the notion of Microsoft seizing the initiative to go with a software war over a price war with Sony. Microsoft using the money they saved to buy exclusives out from under Sony could be a critical blow, and one that could pay dividends later on. Not only against Sony, but against Nintendo as well. Were Microsoft instead of announcing a price cut to announce they bought exclusive Final Fantasy rights among others. Would seriously curb demand for the PS3.

Personally I think Microsoft will opt to go with a combination of two options which would pay out better dividends. I also think that if the rumors are true this new PS3 unit will actually flop. So they might feel no need to price war it. Further more they might still come out much better. I think they will opt for the cheaper pack in model, and then use the remainder to purchase some strong exclusives out from under Sony.

The two titles mentioned in rumor are games on their last legs sales wise. Marvel has been out for almost a year at this point. Would Forza fair well against PGR 4? Both titles guaranteed to have marginal sales this season regardless. Further more that being said the majority of the profit in these titles has been exhausted so in reality they might actually have a real worth of twenty dollars. The remaining money which would probably be thirty dollars for a real price cut could supply the funds to buy many serious games for Microsoft.

I know people might not like to here this, but what would happen to Sony if Microsoft paid out huge sums to secure exclusivity of Metal Gear, Final Fantasy, Resident Evil 5, and a few other marginal titles. With the money Microsoft would save compared to Sony. They could seriously buy up the exclusivity on such titles. How many developers can turn down a thirty million dollar exclusivity contract?

Sony cannot fight them on every front. So while Sony tends to the price which is driving away consumers. Microsoft might take advantage and buy up the games that would motivate consumers to buy the console in the first place. Thats just sound logic.

I think Microsoft is going to do a combination of things really. There is less risk involved, and much less in the way of loses.