2007 Console Price Cuts: How much?

[Acert93]

We have had some nice polls (and guesses!) in the past about expected launch dates, prices, availability, etc for the consoles. Recently the issue of price cuts for the PS3 and Xbox 360 have been discussed frequently by posters, Bill Gates, and even the B3D Staff. The safe bet is all 3 major home consoles will experience a retail price cut in 2007.

The question is how much?

Wii: Currently sitting at $249 with demand gobbling up every Wii Nintendo can ship. IMO, the current majority opinion appears to put Wii manufacturing costs well below the $249 retail pricetag. In my guestimation, Nintendo's pricecuts will largely depend on how supply/demand continues throughout the year as well as the impact Microsoft Xbox 360 core price reductions have on the market, especially if the Core SKU comes in at $199. At this point I think Nintendo is a wild card. They could do a drop to $149, or they could remain at $249. Nothing would surprise me at this point.

Xbox 360: MS has a number of process node changes slated for 2007. The Xenon CPU will tranistion to 65nm in Q2, and 55nm eDRAM from NEC is projected to hit mass production in H2. ATI has a number of GPUs on tap for 65nm in 2007, so moving the Xenos over to 65nm in 2007 seems likely as well. 700MHz GDDR3 has also become mainstream and is included in GPUs, the PS3, and Wii. So how much money can MS cut from the Xbox 360 retail price? MS seems to be following the PS2 script, especially if they unleash a Spring 2007 price drop. Sony dropped from $299 to $199 after being in the NA market for 18 months. Could we see the Xbox 360 SKU drop to $199 as well? While I would like to see this, I get the feeling a pricepoint like $229 may be in the cards. I think this may be likely due to the number of games MS is releasing will, I am guessing, create strong demand for the console. Similarly there will be a large gap between the PS3 20GB SKU and the Xbox 360 Core SKU, so even a $100 pricecut by Sony (to $399) will still be significantly higher than a $229 base SKU. MS may bet that price conscious consumers looking for their GTAIV, Halo 3, and Madden 2008 fix that there will be a strong demand for the Core SKU, enough to offset the potential customers turned off by the jump from $199 to $229.

Although MS will most likely be the first company to initiate a price drop, MS will be mindful of the Wii's pricepoint. Another factor will be the Premium SKU. Currently MS adds a HDD, component cables, and a wireless (instead of wired) controller into Premium Xbox 360 packages ($399). It appears that MS makes more profit on the Premium SKU than on the Core SKU. MS will have a hard decision: do they keep the $100 buffer (and possibly include more free content with the Premium pack) or do they make the price gap a more appealing one, something like $199 vs. $259? My bet would be on a $299 Premium SKU with more extras.

PS3: One would expect RSX and Cell to both move to 65nm in early 2007 as well as significant price drops in diode costs for BluRay. GDDR3 should be more available, XDR should be ramping up, and EE+GS should be removed.

I shared my opinion on the Wii and Xbox 360, so now it is time to share your opinion What will the retail price be for PS3 20GB SKU at major retail outlets in NA at the end of 2007?

 

[Acert93]

I wish I had remembered to make the poll public :smile:

Anyhow, I voted for $349.

That may be pie in the sky, but here are my reasons for thinking Sony will/can be this aggressive.

1. From a business standpoint I don't think Sony can afford to be at $399 or above in 2007. This is a major year for the console market. The momentum will be toward consumers moving to next gen consoles, and with titles like Madden and GTAIV, and new IPs like Assassin's Creed, blowing away gamers Sony needs to be at a pricepoint that is reachable by a lot of gamers. $349 looks nice next to a $299 Xbox 360 Premium. Both have HDDs, but the PS3 has Bluray. Will a significant market of gamers play $399 or more for a PS3 to play GTAIV, or will a $199 or $299 360 win them over? If I am Sony, I don't even want to know!

2. Sony has a lot of fat to cut from the PS3. Yes, there are chip reductions coming, but they will also be simplifiying the PS3 as well. A big change will be the EE+GS which will be removed. That is a nice silicon, as well as motherboard design, savings right there. And with a move to 65nm for RSX and Cell yields per wafer should increase over 100%.

3. BluRay won't nearly be the problem it was in 2006. Two things have become clear from the PS3 launch: Production didn't really start in earnest until the launch was very close, and the other thing we learned was that the PS3 can be produced in large quantities. This indicates any RSX and BluRay troubles have past, for the most part. With BluRay being included in millions of players this year I expect diodes to ramp up and to drop in price significantly relative to what they cost in 2007 (when Sony saw forcasted PS3 losses jump from $900M in 2006 for 4M units to $1.7B in 2006 for 2M units).

I think Sony has a chance to be aggressive and make their claim for next gen, but I think if they wait until 2008 they will have allowed MS to muscle in on far too much marketshare in NA.

As for when we will see a price drop?

After the European launch and after MS announces their cuts. And at this rate, I don't expect MS to make a move until May or even later.

I know $349 sounds crazy, but if anyone can make the aggressive price cuts like this it is Sony. The question I don't know the answer to is how much is Sony really losing on PS3 units, and if it is more than I think (gulp) then they may not be able to make a big $100+ drop because it would put them in a position where they are still losing hundreds per unit. That is fine for a launch, but losing a couple hundred a year after the launch sounds really bad... almost Xbox1-esque!

 

[SugarCoat]

Depends on how much of a loss they want to accept. 349 is the lowest i think they could go, 399 is much more realistic. I actually think a 349 price would be a very bad sign that they've gone desperate and realize their launch was a total failure. It would be the most drastic price cut within a year of any console to date i believe, if it happened.

399-449 with a free game is also a pretty decent possability i think.

Dont forget Sony is already taking a larger loss in Japan than anywhere else in the world already with that last minute price cut. They have to be hurting.

Switching to a smaller fabrication process doesnt automatically turn into free money. It can easily take a year or more for the savings to start to show. Even if 65nm is the dominant process for the PS3s chips its not a good single reason to expect them to blitz a price cut. To be frank, any early price cut would quite simply be because their sales suck so any price it is at, will be directly related to that. If its terrible they may get desperate. How desperate? I dont rightly know, and i dont exactly care. Even at 399 its still way too expensive to explode in sales.

 

[nintenho]

If they could make the 20 GB $399 by holiday 2007 then the 60 GB would probably turn into a "Zephyr-like" system with more features like for DVR or something. I'm sure there'll be a price cut but I don't know if it'll be a $100 price cut.

 

[baten]

I dont see a reason Sony couldnt cut the price at a level dictated solely by competitive marketing. People tend to exagerate the costs of production of PS3 or downplay the willingness of Sony to take a significant loss in order to mantain thier status as the No1.
Let's remember PS2 was, at the time it went for sale, some of the most expensive parts on the market at that time - DVD players were still very expensive then, it had Rambus memory, two USB ports, firewire port, optical port (all three were expensive back then), EE/GS was as expensive as Cell/RSX is today, and , and it had 4 Mb of edram. Yet it went for 300$.
I presume PS3 could have started too at that price (or somewhere around 350$ - since there is a HDD inside).
Sony opted to sell it at a higher price on the basis that it's a better machine - just like MS starting point with Xbox1 was 100$ higher than the PS2, since it offered so many things above the PS2 (like HDD, four controllers, ethernet, better graphic chip, more memory). MS was forced by the market to adjust it's price to the PS2 level - Sony will soon be forced to do so with the PS3, since the sales dont seem to be what they expected. I think it will start in Europe - at launch - were the PS3 will be sold at 399/499Eur (that's actually a cut from present figures), and we will get another drop early summer.

By the end of 2007 I see the Wii at 159, 360core at 199$, 360 Premium at 249$ and the 20GPS3 at 299$, 60GPS3 at 349$.

 

[inefficient]

For the US $399 by the end of 2007 seems reasonable.

In Japan it could be lower than $350.

By that time there will be heavy hitting games like MGS4 and FF13 out. And even if they could drop it lower, I'm betting they won't need to.

 

[Rangers]

Wii: The least likely to cut. Because it's the least necessary. They are selling like hotcakes and perceived as "cheap". (Funny how $249, itself pretty expensive, is considered almost a impulse purchase).

360: Really hard to call. I'm sure microsoft will be at 199/299 by Christmas 07. I just dont know if it makes any real sense for them to drop before then. Sales are relatively paltry in spring and summer anyway. Dropping in that time wont stimulate sales that much. I hadn't considered a 229 point, but that sounds good to me. The thing is 199 for the core is almost too low for this time frame I think. It's hard to imagine the box costs being anywhere near that low. Yet a 249/299 split would make the core even less attractive relatively. I've read in the past that cuts less than $100 tend not to have much effect. However I think it might be interesting for MS to consider a cut to 249/349 in spring, then 229/299 in Fall. This could have the benefit of saving them some money in the interem, yet you still get the hype of a price cut. However, I'm not sure the first cut would actually have much real effect either. The default sku is the premium, and I think a cut from 399 to 349 might induce a yawn from the gaming populace.

PS3: Also no idea. The thing is Sony recently stated that they expect to break even on PS3 hardware by this holiday season. However, doesn't that almost rule out a price cut? Or perhaps they'll reach break even point then go right back into the red with a cut? Doesn't sound very appealing. In the end though, I'd expect a $100 cut on both SKU's in fall 07. I wouldn't expect earlier cuts though, except perhaps in Japan where the machine seems to be in real trouble. The good thing for PS3 is I think Blu-Ray costs will fall faster than the normal console curve. So in fact, Acert may be right. You may get something like, going to 65nm realizing $100 per box savings, and Blu-Ray decrease realizing another $100, for a $200 drop. Seems like a bit wishful thinking though...

 

[quest55720]

I see a 100 dollar price cut by MS which will have to matched by sony in full. Christmass 2007 is going to be great fun to watch. Can halo3 and a 199 core be enough to atleast match sony in sales during the holiday season. It does not matter how much sony is losing or how much costs drop they have to match any price cut by MS.

The Wii I have no clue since demands is still crazy insane people still camping the system a month after christmass. I will say the Wii will drop to 179 to get in just a hair cheaper than the 360 core.

 

[Tagrineth]

I think PS3 and X360 will both drop $100 this year, and Wii will probably drop to $180 or so to stay below the 360 Core - something that *will* most likely remain necessary for them, unless their current obscene momentum continues... if, in the next month or two, Wii simply doesn't stop its juggernaut rampage, I'd almost say Nintendo might not bother with a price drop, or do a token drop to wherever MS lowers the 360 Core System... "keeping up with the Joneses", so to speak.

 

[Arun]

I'm betting on $329 for the 20GB SKU before November, simply because Sony cannot afford to let inventory pile up too much. They literally are at their 1M/month capacity right now. They'll likely be even a bit higher before the end of the year. So assuming 15M consoles to be sold this year, there is no way in hell they are going to do that at anything near their current price point.

Another option for Sony is to change the SKUs over time, so as to make things look less like price cuts, yet address the different segments better. Personally, I think 3 SKUs at $499, $399 and $299 respectively would be the most interesting and logical scenario. At the kind of capacities Sony is thinking of, they can afford it. That doesn't mean they'll do it, but it's interesting to ponder, and doesn't really fit into the current poll!


Uttar

 

[baten]

Another option for Sony is to change the SKUs over time, so as to make things look less like price cuts, yet address the different segments better. Personally, I think 3 SKUs at $499, $399 and $299 respectively would be the most interesting and logical scenario. At the kind of capacities Sony is thinking of, they can afford it. That doesn't mean they'll do it, but it's interesting to ponder, and doesn't really fit into the current poll!


Uttar

It's an interesting point - what would the third SKU contain/leave out?

 

[Acert93]

Another option for Sony is to change the SKUs over time, so as to make things look less like price cuts, yet address the different segments better. Personally, I think 3 SKUs at $499, $399 and $299 respectively would be the most interesting and logical scenario. At the kind of capacities Sony is thinking of, they can afford it. That doesn't mean they'll do it, but it's interesting to ponder, and doesn't really fit into the current poll!

Well feel free to change the poll and make it an open poll at that

I was more aiming at the "base, cheapest" SKU, so whatever fits.

Btw, definately interested in your proposal. What could Sony cut from the 20GB version for the new, even cheaper SKU? BluRay has to stay unless they start marketing "DVD" versions of games. RSX, Cell, GDDR, and XDR are are all necessary as well. I guess you could cut out wireless controllers, toss in the cheapest memory storage solution you can find, and so forth.

But I am kind of lost, and ignorant, of how they could cut substantially more from the 20GB SKU without impacting their baseline of supported features. Any suggestions?

 

[Gubbi]

Well feel free to change the poll and make it an open poll at that

I was more aiming at the "base, cheapest" SKU, so whatever fits.

Btw, definately interested in your proposal. What could Sony cut from the 20GB version for the new, even cheaper SKU? BluRay has to stay unless they start marketing "DVD" versions of games. RSX, Cell, GDDR, and XDR are are all necessary as well. I guess you could cut out wireless controllers, toss in the cheapest memory storage solution you can find, and so forth.

Ditch the EE+GS like you said and completely remove backwards compatibility from the cheapest unit. That should remove $40ish from the BOM by itself

Cheers

 

[baten]

Ditch the EE+GS like you said and completely remove backwards compatibility from the cheapest unit. That should remove $40ish from the BOM by itself

Cheers

This can be done, with the promise that they will get backward comp. later on through software. Sony should have done this from the start probably.

It can also ship without HDD, with the mention that you will have to buy one at your choosing - this way you are not limited to 20 or 60 Gb. Or support an USB stick or whatever as a short term replacement for the disk.

 

[Corwin_B]

I dont see a reason Sony couldnt cut the price at a level dictated solely by competitive marketing. People tend to exagerate the costs of production of PS3 or downplay the willingness of Sony to take a significant loss in order to mantain thier status as the No1.

I remember reading the exact same reasoning hundreds of time before the E3 2K6 conference... And even after that, people were swearing Sony announced the 500/600 price tag only to make MS complacent, and that the real PS3 price would be announced at TGS.

I think Sony will follow MS price cuts on both SKUs, because they absolutely have to, but expecting anything more is, at this point of time, wishful thinking. I'd love to be proven wrong, though.

 

[baten]

I remember reading the exact same reasoning hundreds of time before the E3 2K6 conference... And even after that, people were swearing Sony announced the 500/600 price tag only to make MS complacent, and that the real PS3 price would be announced at TGS.

I think Sony will follow MS price cuts on both SKUs, because they absolutely have to, but expecting anything more is, at this point of time, wishful thinking. I'd love to be proven wrong, though.

Exactly! The reasoning is sound - the high price we ended up with is because Sony just saw a good opportunity to make a quick billion or two, since most probably, they took the extra money out of the eBayers.

Sony must follow MS in price just as MS had to follow Sony last time around. They will drop the price irrespective of the costs, but of course, it will cost them less and less to produce as time goes by. How much its actually costing them is anybody's guess.

 

[Farid]

I'd prefer to wait for the January and February NPD numbers first, to see how the US market is reacting to the PS3 SKUs' current prices.
But if I had to wager for a particular number right now, I'd say that a $399 SKU, by the end of year, is almost a given.

Unlike Uttar, I don't expect a third model of PS3 in the US this year. It would make more sense for them to stick with their current line up of two models and just lower the price of the entry-level model while they add more value to their $599 SKU, be it with a larger HDD or an included game.

In any case, what is important with the price model of a gaming machine -and that's being true for most product, really- is how high is the price entry. Actually, that price entry is $499 for the PS3, $299 for the X360 and $249 for the Wii. Sony can't count on the brand recognition factor only to sell these consoles.

 

[Arun]

There are savings to be done by redesigning the unit around 65nm parts. Cheaper PSU, cheaper cooling, etc. - and also removing the EE+GS chip and XDR. There are plenty of other small things you can think off to cut the costs of a new SKU - I'm not expecting that to be as high as a $100 saving though, but it might at least offset a good part of such a price cut.

With the advantage that, as I said, the public wouldn't consider it as a true price cut if it had some things less too, such as HDMI. I ponder about Bluetooth... I suppose they'd rather keep it, personally.


Uttar

 

[Corwin_B]

In any case, what is important with the price model of a gaming machine, and that's true for most product, really, is the price entry. Actually, that price entry is $499 for the PS3, $299 for the X360 and $249 for the Wii, Sony can't count on the brand recognition factor only to sell these consoles.

I think that in the case of PS3 and 360, the psychological price is that of the higher cost SKU. People "feel" the 360 is $400, and that the PS3 is $600. I've mostly seen the lower costs SKUs mentioned on Internet forums.

On the other hand, people tend to discount the price of accessories/games, even when adding those makes a significant part of the initial purchase. That's why I feel Sony was wrong with the deemphasis of proprietary standards from a business standpoint (from a consumer standpoint, it's another story, of course) : many people won't mind adding a $50 memory card to their $299 purchase, but would definitely think twice about buying a $349 console with 10 times the storage.

 

[Corwin_B]

With the advantage that, as I said, the public wouldn't consider it as a true price cut if it had some things less too, such as HDMI. I ponder about Bluetooth... I suppose they'd rather keep it, personally.
Uttar

You mean WiFi, right ? IIRC, Bluetooth is used for the PS3 controllers... So removing BT would mean going to wired controllers or to a demo booth playing non-interactive demos. Although I suppose I wouldn't notice the difference in MGS or FF for a couple of hours. Just kidding.