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By Ben Berkowitz
LOS ANGELES (Reuters) - If video game publishers agree on one thing it is this: consumers need cheaper platforms in order to start buying more as the $30-billion industry heads toward its make-or-break holiday season.
Three of the largest video game publishers reported quarterly earnings this week, their first since a round of partial game console price cuts in May, and for the most part they said the same thing: not enough, cut more.
That pressure on the three console makers -- Sony Corp (NYSE:SNE - news) (news - web sites). , Microsoft Corp. and Nintendo (news - web sites) Co. Ltd. -- amounts to a challenge to accept deeper losses on game hardware in return for profits later as lucrative software sales rise.
That may be a risky strategy but the alternative looks even worse since the most recent data shows sales of the PlayStation 2 (news - web sites), Xbox (news - web sites) and GameCube down by more than a third compared with last year, a trend that if sustained could make Christmas bleak for hardware and software makers.
In May, most industry observers had expected Sony and Microsoft to cut the prices of their rival PlayStation 2 and Xbox consoles to $149 from $199, and Nintendo to cut the price of its trailing GameCube to $99 from $149, during the industry trade show E3.
Instead, Sony cut the price of the PS2 to $179 and introduced a new version with more features at the old $199 price. Microsoft responded with its own cut to $179. Nintendo stood firm at $149.
Since then, the three have given no indications that they intend to budge from the new prices, despite the calls from their partners in game publishing.
"We continue to anticipate a hardware price cut this fall in order for the console manufacturers to achieve their forecasted hardware sales," THQ Inc. Chief Executive Brian Farrell said on Thursday.
Executives of Activision Inc. said on Tuesday that a price cut was needed.
"In the event there's no price cut or there's no promotional equivalent by the holiday season, then we will have to revisit our hardware projections," President Ron Doornink said on a conference call.
Retailers said the cuts by Sony and Microsoft provided almost no boost to sales. That marked a contrast to a year earlier, when Sony and Microsoft took $100 price cuts and Nintendo took a $50 cut and hardware sales boomed.
Even Microsoft conceded last week that the $20 cut on the Xbox had had little effect.
SPECULATION GROWS
Retailers are starting to speculate that another cut may be in the offing.
"We hear that one, or possibly two manufacturers, are thinking about the price cuts for the fourth quarter. We think the cuts would be good for penetration of the software -- new and used," John Antioco, Blockbuster Inc.'s chairman and chief executive officer told Reuters.
Movie rental chain Blockbuster is one of the leading U.S. retailers of video game hardware and software.
But the game industry's leader, publisher Electronic Arts Inc., said it was not clear yet if console makers were considering a fall price cut or if they would instead choose a strategy, as Nintendo has done, of maintaining the hardware price and bundling in games for free.
"Those are the options available and so far they have not given us a clear indication of which way that's going to work," Chief Financial Officer Warren Jenson said on a call.
Financial analysts who follow the industry, for their part, think a cut by September to $149 for the Xbox and PS2 and $99 for Game Cube price was increasingly likely.
Those beliefs were reinforced after June sales data from market researchers NPDFunworld showed year-over-year declines in hardware sales of anywhere from 36 percent to 42 percent, due to the tough comparison to last June, when consumers were buying up consoles in a frenzy after the price cuts.
"We believe that the rate of sell-through suggests that a platform price cut this fall is increasingly likely as the hardware companies try to achieve targeted year-end installed bases," Harris Nesbitt Gerard analyst Edward Williams wrote in a note Monday.
By Ben Berkowitz
LOS ANGELES (Reuters) - If video game publishers agree on one thing it is this: consumers need cheaper platforms in order to start buying more as the $30-billion industry heads toward its make-or-break holiday season.
Three of the largest video game publishers reported quarterly earnings this week, their first since a round of partial game console price cuts in May, and for the most part they said the same thing: not enough, cut more.
That pressure on the three console makers -- Sony Corp (NYSE:SNE - news) (news - web sites). , Microsoft Corp. and Nintendo (news - web sites) Co. Ltd. -- amounts to a challenge to accept deeper losses on game hardware in return for profits later as lucrative software sales rise.
That may be a risky strategy but the alternative looks even worse since the most recent data shows sales of the PlayStation 2 (news - web sites), Xbox (news - web sites) and GameCube down by more than a third compared with last year, a trend that if sustained could make Christmas bleak for hardware and software makers.
In May, most industry observers had expected Sony and Microsoft to cut the prices of their rival PlayStation 2 and Xbox consoles to $149 from $199, and Nintendo to cut the price of its trailing GameCube to $99 from $149, during the industry trade show E3.
Instead, Sony cut the price of the PS2 to $179 and introduced a new version with more features at the old $199 price. Microsoft responded with its own cut to $179. Nintendo stood firm at $149.
Since then, the three have given no indications that they intend to budge from the new prices, despite the calls from their partners in game publishing.
"We continue to anticipate a hardware price cut this fall in order for the console manufacturers to achieve their forecasted hardware sales," THQ Inc. Chief Executive Brian Farrell said on Thursday.
Executives of Activision Inc. said on Tuesday that a price cut was needed.
"In the event there's no price cut or there's no promotional equivalent by the holiday season, then we will have to revisit our hardware projections," President Ron Doornink said on a conference call.
Retailers said the cuts by Sony and Microsoft provided almost no boost to sales. That marked a contrast to a year earlier, when Sony and Microsoft took $100 price cuts and Nintendo took a $50 cut and hardware sales boomed.
Even Microsoft conceded last week that the $20 cut on the Xbox had had little effect.
SPECULATION GROWS
Retailers are starting to speculate that another cut may be in the offing.
"We hear that one, or possibly two manufacturers, are thinking about the price cuts for the fourth quarter. We think the cuts would be good for penetration of the software -- new and used," John Antioco, Blockbuster Inc.'s chairman and chief executive officer told Reuters.
Movie rental chain Blockbuster is one of the leading U.S. retailers of video game hardware and software.
But the game industry's leader, publisher Electronic Arts Inc., said it was not clear yet if console makers were considering a fall price cut or if they would instead choose a strategy, as Nintendo has done, of maintaining the hardware price and bundling in games for free.
"Those are the options available and so far they have not given us a clear indication of which way that's going to work," Chief Financial Officer Warren Jenson said on a call.
Financial analysts who follow the industry, for their part, think a cut by September to $149 for the Xbox and PS2 and $99 for Game Cube price was increasingly likely.
Those beliefs were reinforced after June sales data from market researchers NPDFunworld showed year-over-year declines in hardware sales of anywhere from 36 percent to 42 percent, due to the tough comparison to last June, when consumers were buying up consoles in a frenzy after the price cuts.
"We believe that the rate of sell-through suggests that a platform price cut this fall is increasingly likely as the hardware companies try to achieve targeted year-end installed bases," Harris Nesbitt Gerard analyst Edward Williams wrote in a note Monday.
