Saturday, May 26, 2007

Xbox 360: Price Cuts Coming?

Microsoft may be the first to start a price war by the end of the summer. Nollenberger Capital Partners analyst Todd Greenwald tells GameDaily BIZ that he thinks MS will slash the 360's price (all versions) by US$50. PS3, PS2 and PSP price cuts are likely to follow. More after the jump...

Price cuts – it's the topic everyone seems to be speculating about, especially with regards to the $600 PS3. Nollenberger Capital Partners analyst Todd Greenwald has thrown his two cents in, predicting not only a price cut on PS3 this year, but also Xbox 360, PS2, and PSP. Nintendo hardware was not mentioned, but considering the rate at which the DS and Wii are both selling Mario and crew certainly don't need to slash the price on those platforms.

Greenwald expects that Microsoft will actually make the first move by the end of the summer. He believes that a $50 price cut on the 360 is on the way (across all SKUs), making the Xbox 360 Core SKU the exact same price as the Wii and the Pro SKU only $100 more than the Wii – potentially a more compelling value. "I don't think it would impact profitability much, as the component costs must have come down quite a bit by now (been in production for 18 months)," Greenwald commented to GameDaily BIZ. "Plus, they will make a lot of money off of Halo 3, obviously, and more and more software royalties as the installed base keeps growing."

Feeling the pressure from Microsoft's price drop during the summer and the continued success of the Wii, Sony is expected to "give in" around October and lower the PS3's price by $100. Greenwald also notes that this is perfect timing right in advance of the highly anticipated Grand Theft Auto IV, which launches October 16. Greenwald said that leading publisher Electronic Arts stands to gain the most from a PS3 price drop this fall.

He also believes that another price cut on the PS2, bringing it down to that magic $99 price tag, is likely to happen this holiday season. The oft rumored PSP hardware redesign should also accompany a price cut, Greenwald said. Recently, video game retailer GameStop noted that sales of the PSP had doubled at its stores since Sony lowered the price on the portable.

Ultimately, the health of the industry requires price drops for the 360 and PS3, Greenwald explained: "With the PS3 retailing for $599, and the Xbox 360 for $399, consoles are more expensive than in past cycles. While the early-adopter gamers haven't flinched at purchasing the consoles, the industry will need mainstream users to buy the systems to get past the 5-10 million unit mark. If mainstream users are unwilling to pay $599 for a PS3, next-generation software sales could suffer."

Like many, Greenwald is also astounded by Nintendo's recent success. "We find it incredible that Nintendo has been so successful despite the fact that it is still all but impossible for the average person to walk into a store and buy a Wii," he remarked. "How much stronger will Wii software sales be once the console is readily available? We think there is still a lot of upside for publishers on the Wii as the supply/demand imbalance improves."


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