Analysts: Sony In a Difficult Situation

[Borys]

With E3 wrapping up, the big guns are starting to weigh in on what's next. GameSpot sat down (http://www.gamespot.com/news/2005/05/20/news_6126197.html) with Yankee Group senior analyst Mike Goodman to chat about this event. They concetrated on the advantage of launching first for Microsoft and what it could mean for Sony.

"If Microsoft sets (the Xbox 360 price) at $299 like I expect them to, that puts an awful lot of pressure on Sony in terms of how they price their console," Goodman said. "Remember, by the time Sony comes out, at least by its first holiday season, Microsoft will have been out for about a year. It would not be entirely unexpected if they really wanted to put the squeeze on Sony to drop their price to $249."

Goodman expects a $399 asking price for the PS3, but said that still could lead to a "nightmare scenario" for Sony.

"Let's say they launch in August (2006), and let's say they come in at $399," Goodman begins. "Microsoft turns around in September, drops the price to $249 and launches Halo 3. Now that's a nice little double whammy. You've got $150 gap between the two and you've got Halo 3 coming out and you've got probably close to 100 titles in your library at that point and a couple of good solid franchises to help build...If you're Sony, it's a very difficult decision and there are market forces out there that come into play as well, 'market forces' being Microsoft in this instance."


360 for $249 or PS3 for $399? Sounds like a no-brainer to me.

[Krull]

Sony better come up with an answer quick or we could be seeing a total reverse of this generation market shares.

[chechenepiphany]

heh, thats going to hurt. not that the ps3 wont sell or anything, i just cant see them releasing it at a higher price and expecting it to sell as well. so i guess theyll have to drop the price or flaunt the specs.

[Reanimated]

Dropping the price would hurt Sony big time. They're already in a financial crunch and really can't afford to be taking big losses on hardware. The decision to put Blu Ray into the PS3 could kill them.

[[HATE]MyLife]

heh, thats going to hurt. not that the ps3 wont sell or anything, i just cant see them releasing it at a higher price and expecting it to sell as well. so i guess theyll have to drop the price or flaunt the specs.

Wait, so Sony's choice is going to be either "Come up with a solution" or "Bullshit the masses with marketing crap"?

I know, I know, they're gonna cut supposed features, price it well beyond what the market will bear and then "Bullshit the masses with marketing crap."

Anyone else remember the PSX (http://en.wikipedia.org/wiki/PSX) debacle and see similarities?

[DiBiddilyBop]

Sure seems reasonable to me. Of course it also seems like he's throwing up purely hypothetical numbers and saying Sony is in trouble. So yes, I suppose if Sony's marketing department is a group of morons who don't understand that a $150 price difference will destroy their market share, then I suppose he's right.

Also... why is he making the assumption the 360 will release at $299 and the PS3 at $399? Oh yeah, pure speculation again. How about the more likely scenario that Sony enters the market at $299 and Microsoft drops the 360 down to $249 at that time. Doesn't seem so drastic anymore, does it?

[Rommel]

On one hand, this is the exact scenario MS walked into with the XBox. They were obviously not able to overcome the dominance of the PS2.

On the other hand, this is the same scenario Sony walked into with the PS2. They were obviously able to overcome the Dreamcast.

What was the difference? The success level of the first console. If the XBox 360 does really well, then the PS3 is going to have trouble. If it only does Dreamcast business, and people are waiting for their next playstation update, they will be fine.

Time will tell.

[TrackZero]

On one hand, this is the exact scenario MS walked into with the XBox. They were obviously not able to overcome the dominance of the PS2.

On the other hand, this is the same scenario Sony walked into with the PS2. They were obviously able to overcome the Dreamcast.

What was the difference? The success level of the first console. If the XBox 360 does really well, then the PS3 is going to have trouble. If it only does Dreamcast business, and people are waiting for their next playstation update, they will be fine.

Time will tell.

What was the difference? Oh, I don't know. Maybe that the Dreamcast was a new console and had bad marketing outside of the hardcore gamers, while the PS2 targetted more of the mainstream and had backwards compatibility with an already huge market....it's fairly obvious what happened. This situation is completely different. Both will have backwards compatibility and existing markets.

[dr_qwandry]

It also depends on wether or not Bungie decides to give into pressure and release Halo 3 early so that Microsoft will have the advantage (this is pertaining to the hypothetical that Goodman raised)

[Ernst_Jager]

I think times are much different now than at the beginning of the last generation of consoles. The Dreamcast while a great system, just didn't have the money and the power behind it like Microsoft has.

I really think Sony is going to push the PS3 off as being 4x more powerful than the 360 until right before release. The way things are now, I really think they are getting themselves in trouble. The PS3 is going to either cost more than the average person wants to play or Sony is going to have to sell it at a major loss.

This generation (which sadly might totally exclude Nintendo as a major console power) is really going to be a close race to first place. I think LIVE will play a very major part along with exclusive titles.

[bapenguin]

What was the difference? Oh, I don't know. Maybe that the Dreamcast was a new console and had bad marketing outside of the hardcore gamers, while the PS2 targetted more of the mainstream and had backwards compatibility with an already huge market....it's fairly obvious what happened. This situation is completely different. Both will have backwards compatibility and existing markets.

The Dreamcast's problems can be described with 2 letters: EA

[Goronmon]

You can't discount the fact that the PS3 will be a Blu-Ray disk player. Assuming that when the stand-alone players come out they aren't much cheaper than a Playstation 3, you may have a ton of people who will buy the PS3 for the same reason they bought a PS2, its a inexpensive media player that let's you play games too.

[KNOTE]

I see sony's problem being not in the manufacture cost of each ps3, though that will be considerable. I see the problem being that they spent so much money developing the Cell, (over 1 billion if memory serves) that it really has to live up to their expectations in performance, scalabilty, and sales to make it worth while. The blu-ray drive manufacture won't cost them any more than a DvD drive because they have developed the technology. But the development cost a considerable amount, you can be sure. It will hurt them if Blu-ray doesn't become the standard for HD media because the only way they can recoup the investment is in ps3.

I don't have any doubt that the Ps3 will sell lots of units. I do have doubts that Sony will turn large profits off of it in the future. And that my friends is exactly why MS didn't mind losing billions on the original Xbox.

So no matter where your allegiances lie there will be 3 consoles for at least 1 more generation and they will all have their own awesome exclusives. I also believe this Gen will last 7 years. After that, I think they will all compromise on a hardware standard. A-la 3do. It will run an MS operating system, be built by Sony and play Nintendo games.

[Borys]

You can't discount the fact that the PS3 will be a Blu-Ray disk player. Assuming that when the stand-alone players come out they aren't much cheaper than a Playstation 3, you may have a ton of people who will buy the PS3 for the same reason they bought a PS2, its a inexpensive media player that let's you play games too.

There will be lots of people (call them casuals if you will) that will be perfectly happy with their 360 bought few months ago. With a very solid (tens of titles) library of games available, knowledge that almost (if not all) EA games (sports) are multiplatform it would take some major Sony magic to convince them that PS3 is worth picking up as the second system. Note that those people probably had only one system earlier (ie. PS2) and because PS2 had all the games they didn't pick up an Xbox ever.

With multiplatform titles (EA, Ubi etc.) looking almost the same on the 2 consoles (almost as in PS2/ Xbox kind of difference, maybe larger) there is really a problem for Sony marketing.

Sony will have to either push Blu-Ray *really* hard, underhype the 360 as the second Dreamcast or bring some really important exclusives to the table (like GTA plus some PC/ Xbox1 franchises).

[H.M._Murdock]

Microsoft has probably lost more money on the Xbox than the entire net-worth of Sega. So the DC comparison is not exactly solid. Although... they are almost the same color. o_0

[bobbler]

This is sort of dumb, as if Sony and Microsoft and Nintendo don't have far better equipped (in information) about the market they are selling to, they know price points better than the silly analysts paid to spew stuff to the media. Its not going to be $400 when its released, thats silly to even think it -- especially when the competition is most likely to be at ~$300. If anything, PS3 will be ~$50 more than Xbox2 when it comes out.

Some of you act as if Sony (and MS/Nintendo for that matter) is blind to pricing and the impact it has on sales. Chances are if you think it will do this or that ("this will hurt sales", etc), they know for sure and have spent millions figuring it out.

Its garbage, this isn't news -- this is speculation from an uninformed third party. They may claim to be analysts, but an analyst is often still very uninformed about the entire situation -- knowing no more than the average well informed consumer about a given topic. The information they have, you can have to.





Anyone else remember the PSX debacle and see similarities?

This is not even in the same realm, the PSX wasn't really a general consumer product -- it was not expected to sell like crazy, it was testing the market. PS3, much like PS2, is a general consumer product -- pricing will matter.

[Mephistopheles]

The Dreamcast's problems can be described with 2 letters: EA

I don't know about EA, but 3 letters that definitely hurt the Dreamcast: DVD.

PS2 had it, Dreamcast didn't.

It will be interesting to see if Blu-Ray has a similar impact.

[kickmybum]

The only thing that will save Sony is if their system is good enough to be considered the "next" "next" gen system. As in... Xbox 360 has been out for a year, everyone's seen what it can do and Sony goes above and beyond and people would rather have that instead. If Sony just releases a comparable console to the XBox, then Sony's lost the generation.

[zorper]

Weren't these guys predicting a $300+ PSP?

[Phades]

Many early adopters of the PS2 (myself included) bought it because of the DVD player (it certainly wasn't because of the launch games). The Blu-Ray player in the PS3 isn't going to have as much impact as the DVD player in the PS2 had. For one, most people now have DVD players and don't have a high-end enough TV to really be able to tell the difference in video quality seen by going to Blu-Ray. Because of this, most people will be perfectly happy with DVD and won't really see the Blu-Ray in the PS3 as a big deal or a major selling point.

I think the DVD player was a major part of Sony's dominance this generation. The PS2 came out at the perfect time, right as DVD was becoming popular. That helped jump-start sales and propel them into a huge lead.

This generation none of the consoles will really have that edge. Microsoft is coming out first, but they don't have that one feature that really pushes the average consumer to buy it immediately. The console wars this generation are likely to be much, much closer. I seriously doubt we're going to see a price gap of more than $50 between the PS3 and Xbox 360.

[Chandler]

well mgs4 is enough to pay up $150 and no halo3 for me

[StGeorge]

Microsoft is a follower, not a trend-setter. What is more likely to happen is that Xbox 360 comes out at $360 (cute pricing), and when PS3 arrives at $399, Microsoft will then *raise* the price to match Sony. What really sucks is that Steve Ballmer doesn't understand the concept of market fragmentation and by adding on HD-DVD at a later date, it will become as useless as a PS2 hard drive: 0 developer support. Who wants to gladly reduce their potential market from 100% to 5% for a fringe add-on piece of hardware?

[wichenroder]

Is it because Microsoft's an American company that you suck their chode?

[jadkins555]

Is Blu-Ray really the next big thing? Should I expect myself to be purchasing Blu-Ray movies in a couple of years and putting my DVD players away for good?

That's not hypothetical; I honestly want to know.

[B_Money]

You can't discount the fact that the PS3 will be a Blu-Ray disk player. Assuming that when the stand-alone players come out they aren't much cheaper than a Playstation 3, you may have a ton of people who will buy the PS3 for the same reason they bought a PS2, its a inexpensive media player that let's you play games too.

I don't really get this argument. When the PS2 came out, a lot of people, myself included, bought it because it was a DVD player that could also play games. Back then the DVD format was a huge improvement over VHS, so it was a logical step. Now we have the new Blu-Ray format, but i don't see what it provides me that I really need. Right now there's no content available in the format, and I don't see anything changing in the next 18 months to rectify that. Unless other movie houses start releasing thier libraries on blu-ray, it's a chicken or the egg problem. You can use blue-ray to push the PS3, or the PS3 to push blu-ray, but not both. And let's not forget Sony's track record with media formats.

[[HATE]MyLife]

Is Blu-Ray really the next big thing? Should I expect myself to be purchasing Blu-Ray movies in a couple of years and putting my DVD players away for good?

That's not hypothetical; I honestly want to know.

The whole Blu-Ray / HD-DVD / HVD situation is far from settled. I think you'll be waiting for at least a couple of years before any of the High-Def movie formats are sold in any quantities. And consider, just because Sony puts a Blu-Ray player in the PS3, doesn't mean that the majority of movie studios will support it.

[askheaves]

I think the smartest thing MS can do right now is throw the HD-DVD drive in there at launch time. It plays regular DVDs too, right? It's marginally more expensive, and they'll have a lot more room for content in their games. Instead of a wait-and-see attitude, Microsoft actually has the power to influence the Blue-Ray vs. HD-DVD decision by just going for it and having nearly a full year of a consumer priced HD-DVD player being on the market before Blue-Ray can make an impact.

Sony is then stuck with a format that is waning in popularity, losing studio support, and the box loses a major feature: playing the next generation of movie discs. Hell, at that point, they may as well just only load UMDs and call it good.

[jadkins555]

MyLife']The whole Blu-Ray / HD-DVD / HVD situation is far from settled. I think you'll be waiting for at least a couple of years before any of the High-Def movie formats are sold in any quantities. And consider, just because Sony puts a Blu-Ray player in the PS3, doesn't mean that the majority of movie studios will support it.

Not to go too off topic, but does Blu-Ray or any of the other next generation formats offer a better experience to someone that does not have an HD television? I'm still in a rut here with a standard projection. :-(

[bobbler]

Standard TV gets capped by normal DVDs (which are 480p I think). Normal TVs are 480i.

[DiBiddilyBop]

I think the smartest thing MS can do right now is throw the HD-DVD drive in there at launch time. It plays regular DVDs too, right? It's marginally more expensive, and they'll have a lot more room for content in their games. Instead of a wait-and-see attitude, Microsoft actually has the power to influence the Blue-Ray vs. HD-DVD decision by just going for it and having nearly a full year of a consumer priced HD-DVD player being on the market before Blue-Ray can make an impact.

Sony is then stuck with a format that is waning in popularity, losing studio support, and the box loses a major feature: playing the next generation of movie discs. Hell, at that point, they may as well just only load UMDs and call it good.

Unless Blu-Ray takes off and then Microsoft is stuck with a format that is waning in popularity, losing studio support, and the box loses a major feature: playing the next generation of movie discs.

The inclusion of Blu-Ray is quite ingenious on Sony's part. They are including a Blu-Ray player into a system that has guaranteed market penetration. Since no one out there is producing Blu-Ray or HD-DVD players, Sony will have the ONLY next generation media player on the market. Studios are going to look at that and go with Blu-Ray rather than HD-DVD simply because there will already be however many hundreds of thousands and eventually millions of players out there for people to play their movies on. Toshiba and Sony have been trying to come to a truce for a while... well, Sony just stacked the deck in their favor. Even more incentive for Toshiba to seek a truce.

Were Microsoft to include HD-DVD, my guess is that would balance the market rather than tip it in Microsoft's (and Toshiba's) favor. I doubt most studios would sway heavy support either way when you take into consideration the current generation's numbers and how many PS2's are in homes rather than XBox's.

[Kentor]

...(over 1 billion if memory serves)...
Actually more along the lines of 1.79 billion USD so far.

[Last of the Red Hot Mamas]

The inclusion of Blu-Ray is quite ingenious on Sony's part. They are including a Blu-Ray player into a system that has guaranteed market penetration. Since no one out there is producing Blu-Ray or HD-DVD players, Sony will have the ONLY next generation media player on the market. Studios are going to look at that and go with Blu-Ray rather than HD-DVD simply because there will already be however many hundreds of thousands and eventually millions of players out there for people to play their movies on. Toshiba and Sony have been trying to come to a truce for a while... well, Sony just stacked the deck in their favor. Even more incentive for Toshiba to seek a truce.

Actually I think a truce could end up hurting the PS3 -- any truce between Sony and Toshiba would probably end up producing a hybrid format combining aspects of both Blu-Ray and HD-DVD without maintaining backwards compatibility with either format (it's been rumored that the most likely hybrid would combine the Blu-Ray physical disc format with the HD-DVD application layer). If that happens, then Sony is either going to have to switch the PS3 to this new format -- which it may be too late to do, depending on when a truce is reached -- or they'll end up releasing a system that offers one advantage of Blu-Ray (increased space for developers) but won't be able to play HD movies, which will only be available on this new hybrid format. Sony doesn't stand much to lose from including Blu-Ray with the PS3, but if it can't play the new HD movie discs, they won't really be gaining much either.

[mister_slim]

Actually, depending on the speed of the Blu-Ray drive used, the PS3 could have a significant access speed advantage. Another advantage for Sony is that they can leverage manufacturing costs more effectively than MS. Pricepoint speculation is pretty meaningless at this point, and if it was that important the GC would have won last gen.

[Redline]

-So far- it sounds like Nintendo is targetting it's niche. You know how the video card market (on PCs people) is segmented into various price related segments? Maybe Nintendo is trying to create a value segment for consoles ;)

[/crazy idea for the day]

[Orphiuchus]

I will NEVER pay 400 bucks for a console.


its funny, since I have payed that much for a video card... wait a second, I payed how much for a fucking video card? Shit, I need to think out my spending habits.

[Furious Wang]

Microsoft is a follower, not a trend-setter. What is more likely to happen is that Xbox 360 comes out at $360 (cute pricing), and when PS3 arrives at $399, Microsoft will then *raise* the price to match Sony. What really sucks is that Steve Ballmer doesn't understand the concept of market fragmentation and by adding on HD-DVD at a later date, it will become as useless as a PS2 hard drive: 0 developer support. Who wants to gladly reduce their potential market from 100% to 5% for a fringe add-on piece of hardware?


You've lost your mind. Raising the price to 399? That's so far beyond feasible you should be slapped. And developers don't need to use the HD-DVD drive, if the video format becomes popular, then people will want it to watch movies on. It will be far from useless just because developers don't utilize it.

[dmi]

i'm still sorta shocked that everyone isn't willing to spend $399 or more for the ps3 or next gen consoles. sometime it makes me think if any one out there has bought a pc. or when the dvd player first came out, buy any of that. oh.. wasn't the ipod around $300 or so when it first came out? well i'm already set to spend around $1000 (canadian) so umm $600 american on the next gen console. i mean, for one they will have better graphics than any vid cards u can buy for like $300 or 400 bux at that time. also, if it watches hd videos and does all the other multimedia features they both claim to be capable of, i see no reason why the average family won't be buying it. it'll for sure sell to the same people who bought the ps2 at launch and the same ppl spending $249 on the psp at launch. i can seriously see more people picking up a ps3 during christmas time than an xbox 360 for their family. i mean which family wouldn't want to have the latest technology offerings. to be able to try out blu-ray or to try buying yet anotherrrrr console that can play dvds. i think christmas 2006 will be the deciding factor of which ps3 or xbox360 will come up on top.

[BenSkywalker]

The XB360 isn't going to launch until fall of '07 and will retail for $599- so what's wrong with Sony launching in August of '06 for $399?

Obviously tongue in cheek- but I have to assume this analysts ramblings were also. Sony stated they would launch in Spring '06- within six months of the XB360s launch, and they have yet to set a price for the US release(nor has MS). He is speculating that MS is going to do everything they have said they would and then some, and assuming that Sony will fail to hit its target and then ratchet up the price. Based on what.

In all honesty though- neither Sony nor MS would have a problem moving the first million to two million units in the US at $500 a piece. I would pay it for either of them, and I wouldn't have too much of an issue with it either(particularly not for the PS3 as Blu-Ray makes it a no brainer- would be the same for MS if they didn't pull a Nintendo and focus on last gen tech).

PS- Dreamcast failed for three main reasons as I see it btw- SegaCD, 32X and Saturn. How many times do you think consumers want to get @ss raped before they get sick of it? Sega had proven they were a 'we don't get huge sales we will screw over our installed base in an instant' kind of company.

[thatlukeguy]

Hmm. Why not just wait a year and a half before buying the new system. I bought my Xbox a year after it came out and never regretted it. Got lots of good gameplay out of the 'box, still gaming strong now. Definitely not getting either system until after they are out and about with people posting experiences instead of just theories. Might even rent each system from Blockbuster like I did with the Xbox and PS2...

[Mrbunchypants]

Do you really think Microsoft will stick with the $299 price tag?
PS3 nots going to be out for a year not point in trying to entice people with the low price tag. I think you will see them up it and then drop it whenthe PS3 comes out.
Remember that they don't make money onthe console for like the first year.

Ok, let’s stop this right now. There is some serious wrong information floating around, so I need to clear this up. I grabbed my favorite PR dudes, and they are saying what I was telling a few of you in email:

“We’re not sure where this came from, and it's incorrect. At launch, Xbox 360 will be backward compatible with the top Xbox games. Our goal is to have every Xbox game work on Xbox 360. You will NOT need to purchase a new ‘version’ — your original games will work on Xbox 360.”

Case closed.



Top only? thats not good.

[Roman]

Top only? thats not good.
Oh shit, I can't play Metal Dungeon? You just lost a customer, Micro$haft!!!!! :p

[Mason]

Anyone who's panties are in a wad over baseless analyst speculation should probably just calm down. I'm sure the bean counters at both companies are familiar with supply-demand curves and the pricing implications therein.

Sony likely does have to recoup a bigger investment in R&D, but we have little reason to believe that their production process is much more expensive (I don't think either company has released enough technical info to let us know the total transistor count of either machine). But then as Sony is no doubt aware, cutting profits a bit on each console and selling a ton more development licenses and 1st-party titles is likely in their economic benefit.

And frankly, MS dropping prices too far below Sony's can very easily play into the Sony-story of XBox360 really being XBox1.5, while the PS3 is the only true next-gen console. Whether or not people will believe this depends on how nice the XBox launch titles look. I think that we'll definitely see MS undercut Sony, but by less than $100 at the time of PS3's launch.

The only wildcard here is the fact that Sony has already cut back to 7 SPEs due to yield issues. If Sony continues having problems getting a decent yield once production ramps up, they could be in the unenviable position of having to decide between selling their console and making any money.

[mister_slim]

Do you really think Microsoft will stick with the $299 price tag?
PS3 nots going to be out for a year not point in trying to entice people with the low price tag. I think you will see them up it and then drop it whenthe PS3 comes out.
Remember that they don't make money on the console for like the first year.
Actually, the Xbox hardware is still sold at a loss.