Interesting Commentary on recent price cuts

[mike_intellivision]

 

End of the Land Grab Article

Article by Rob Fahey

The announcement of Sony's new PS3 Slim and consequent price-drop for the entire PS3 range ought to be a decisive and positive moment in the company's hardware strategy. Equally, Microsoft's recent demonstration of its ability to grow Xbox 360 hardware sales through a tough recession ought to give a positive glow to its own efforts. In short, this week both "core" console manufacturers ought to smell of roses.

That's not, however, how much of the commentary about the week's developments has gone. Perhaps the most striking words I've read in the past couple of days belong to EEDAR's director of analyst services, Jesse Divnich, who painted both Microsoft and Sony as "financially exhausted" - "like 12th round boxers", to be precise.

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Of course, the background to these problems is the enormous success enjoyed by Nintendo with both the Wii and the DS. It has stolen away a huge chunk of the more casual, occasional gamer market, providing an attractive upgrade path for the many households which bought into the PS2 fairly late in its lifespan. Sony and Microsoft had expected to fight tooth and nail over those upgrading consumers - the Wii has swept the rug from under their feet, and Nintendo's rudely healthy quarterly profits are merely an insult added to this injury.

The spectacle we're watching, then, is not just a battle to the death between two financially exhausted gladiators - it's a battle to the death in an arena whose walls are slowly closing in. Fuelled by a combination of determination and sheer hubris, Microsoft and Sony have spent enormous amounts of money on this generation of hardware, and are now desperate to claw it back, even at the cost of some market share. Yet the market they're competing for is in some senses smaller than it was before, hammered by everything from the Wii and the iPhone to casual games on Facebook or the success of World of Warcraft - each of which, in some way, pulls consumers away from the high-end next-gen consoles.

At this point in time, it's impossible to tell where this battle will go. Both sides are unlikely to try to compete on price - the financials simply don't stack up for that kind of land-grab. Similarly, both will find it hard to justify spending millions on securing exclusivity for key titles.

Differentiation through services and first-party games will, I suspect, be the order of the day - but until technologies like Natal and PS3's motion controller start to appear in 2010, it seems unlikely that any serious punches will be landed on either side. The financial realities of the situation rob both Microsoft and Sony of options - until those realities are addressed by rising game sales and falling manufacture costs, the market-share land grab strategies will have to wait.

 

Link to the full article: http://www.eurogamer.net/articles/end-of-the-land-grab-article?page=1

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Basically, it is saying that the two HD consoles can no longer compete on price. If you read the subtext though, it sounds like they are in a death struggle from which only one may survive.

But it also sounds like from this that the price has reached a floor on those two consoles, making additional cuts unlikely in the near future. The implication of this while not stated, means the consoles don't get down to the mass market price of $200 (unless you count a "slightly crippled lower end model (which is how the Arcade was described in the article).  It also means they have no room to react if Nintendo were to lower its price.

 

Mike from Morgantown