DFC Report: "Clear possibility that PS3 could end upthird in market share"

[Hardknock]

http://www.dfcint.com/game_article/june06article.html

Finally most of the cards are on the table and we can start making some more definitive statements about where we think the video game market is going. DFC Intelligence is always adjusting its forecasting model based on changes in the marketplace. Suffice to say events of the past six months have forced us to overhaul our models like never before. It now appears clear that this new generation of console systems is going to result in a big shake-up in the game industry power structure. While it has always been clear that Sony’s dominant market share was destined to decline, there now appears to be the distinct possibility the PlayStation 3 could end up third in market share behind both the Xbox 360 and Nintendo Wii.

...

In looking at all these elements, Sony’s clear strength is the first factor: brand strength and current market position. The glaring weakness of the PlayStation 3 is price, especially when compared to the competition. However, it is more than just an issue of whether the PlayStation brand strength can justify a premium price. Of course, Sony would like to point to the hardware horsepower and extra features like Blu-ray. The problem is that is only one factor in our forecasting matrix. Furthermore, with the competition having features like Xbox Live and the Nintendo Wii controller, the PS3 may not have that much of an advantage in the elusive “Wow Factor.â€￾ That gets to the heart of the biggest concern with the PlayStation 3. Sony has done very little to justify why the system is worth a premium price for consumers that don’t care about raw hardware performance and are not hard-core audio/visual consumers. Unfortunately we believe that represents over 90% of the consumers in the marketplace.

...

Our concern is that 1) Sony’s hands may be tied in regard to price cuts and 2) Sony drastically underestimated the competition. The price of the PlayStation 3 does not exist in a vacuum and consumers will clearly look at the competitive alternatives. Right now both the Xbox 360 and Nintendo Wii are looking like much better alternatives than they did a year ago. Core PlayStation franchises like Grand Theft Auto, Final Fantasy, Dragon Quest and others are starting to appear on other systems. In short, we have seen absolutely nothing that would justify a $200 price difference.

Can Sony afford to lose its position in the video game marketplace for a generation of game systems? That is becoming a crucial question. If Sony took a $200 loss on every system to become more price competitive and maintain market share that works out to $2 billion for every 10 million units. Will Sony investors swallow that type of loss?

In forecasting the market we can say this with confidence: a $600 price point is okay for launch but it will not fly in holiday 2007. If Sony wants to drive unit volume 2007 needs to be not only the year of price cuts, but the year of drastic price cuts. There is going to be a shakeup in the video game industry and even if Sony executes perfectly there could be a new market leader in two years. Stay tuned, next month we will formally unveil some of the actual numbers in our forecasts. This month we will just say that yes, Sony could easily go from first to worst in the video game market.

 

[Powderkeg]

I don't know about the total doom and gloom predictions going on there, but this...

Sony has done very little to justify why the system is worth a premium price for consumers that don’t care about raw hardware performance and are not hard-core audio/visual consumers. Unfortunately we believe that represents over 90% of the consumers in the marketplace.

I 100% agree with. Most people don't know what a Gigabyte actually is, nor do they realize that the DVD they are watching on their HDTV is still in the same old 480i SDTV format that they've been watching for decades. To them, the PS3 is nothing but a really damned expensive game console.

 

[sonyps35]

I don't know about the total doom and gloom predictions going on there, but this...



I 100% agree with. Most people don't know what a Gigabyte actually is, nor do they realize that the DVD they are watching on their HDTV is still in the same old 480i SDTV format that they've been watching for decades. To them, the PS3 is nothing but a really damned expensive game console.

People need to stop casting people as total tech idiots. If that was true the whole move to HDTV would never happen. The whole move to flat screen, then flat panel, displays would never happen. The whole move to CD's, then Ipod would never happen.

People do like cool stuff, and they do know what the most powerful system is. This is ESPECIALLY the case in the target demographic of videogames.

 

[TheChefO]

I don't know if that's really doom and gloom. Hypothetical. Lets say things got really crazy this gen and ms and Sony completely swapped places. Would ps3 not still be considered a successful console in its own right? They would have flooded the market in five years with 24 million bluray/games players and probably half of them online and at a very expensive (relative) pricepoint.

Sure when you compare those numbers to what ps2 did it is "doom and gloom" but if it makes Sony money, then it is a success.

 

[Titanio]

People need to stop casting people as total tech idiots. If that was true the whole move to HDTV would never happen. The whole move to flat screen, then flat panel, displays would never happen. The whole move to CD's, then Ipod would never happen.

People do like cool stuff, and they do know what the most powerful system is. This is ESPECIALLY the case in the target demographic of videogames.

I'm not going to say it's a non-factor, but in and of itself, power is not a primary motivator - for most people.

Something like Blu-ray could be, but the benefit needs to be communicated. More generally the value is there (circumstances-dependent, at least) but I do agree that Sony needs to clearly relay that to the market. That's what the next 5 months and beyond are for, I guess.

TheChef0 - I'm sure Sony are gunning to make more money on top than simply make (less) money with less of an audience. One could say they should be happy as long as they're making money, but I think you're always going to be happy making more money.

 

[Powderkeg]

People need to stop casting people as total tech idiots. If that was true the whole move to HDTV would never happen. The whole move to flat screen, then flat panel, displays would never happen. The whole move to CD's, then Ipod would never happen.

Bull.

Surveys have shown that over 50% of the people who buy HDTV's aren't even aware that you need special equipment to receive HDTV broadcasts. Most think the simple fact that it's widescreen makes it HDTV.

And flat screen/flat panel TV's aren't about tech, it's about convenience. It's a smaller TV with a larger picture. Even a complete moron can find that appealing.

As for CD's, go to your average music store and start asking people how much data is on the disk. I would be willing to bet fewer than 1 in 10 can give you the right answer. They like CD's for the same reason they like DVD. They don't wear out and degrade with use like tapes do, which is again a very low-tech reason for them wanting it.

People do like cool stuff, and they do know what the most powerful system is. This is ESPECIALLY the case in the target demographic of videogames.

Really?

So you are saying it's unlikely that I would find any PS2 owners who think their system is more powerful than a Gamecube, right? And the Xbox outsold the PS2 because people know which has the better tech, and make their console choices based on which has better tech inside, right?

People do like "cool" stuff, but "cool" stuff isn't necessarily any good. Case in point, Britney Spears was once the most popular and "cool" singer in this country.

 

[sonyps35]

I'm not going to say it's a non-factor, but in and of itself, power is not a primary motivator - for most people.

I believe that it is. How else do you explain the relative success of Xbox (against expectations, which a lot of people forget were truly nil) and the Halo phenomenon? People KNEW Xbox was the most powerful system. Most laygamers knew it too.

I even think that's a big problem with PS3. If it is markedly more powerful that will be a HUGE advantage. The huge PROBLEM for Sony right now is it doesn't SEEM so far too, in fact, BE markedly more powerful than 360.

 

[Titanio]

I believe that it is. How else do you explain the relative success of Xbox (against expectations, which a lot of people forget were truly nil) and the Halo phenomenon? People KNEW Xbox was the most powerful system. Most laygamers knew it too.

Most "laygamers" chose PS2. Power was not a primary motivator for most people. Again, I'm not saying it's a non-factor, or not a major or primary factor for some people. But other factors can (and did, last gen) quite readily override it, for most people.

 

[Powderkeg]

I believe that it is. How else do you explain the relative success of Xbox (against expectations, which a lot of people forget were truly nil) and the Halo phenomenon? People KNEW Xbox was the most powerful system. Most laygamers knew it too.

How do I explain their success?

A larger game library than the Gamecube, and better on-screen graphics than the PS2. But even then they got outsold by the technically inferior PS2 by a ratio of nearly 5 to 1.



If power is so important how do you explain Sony dominating with the least powerful console last-gen?

 

[SPM]

I do kind of agree with the poster. At the price PS3 is being sold at, it will have to be sold as a media center (movie and music player, media/Internet computer, games console, and maybe a Tivo style program recorder) rather than a games console - it just won't sell enough as a plain games console.

The Xbox 360 is also overpriced in my opinion for a plain games console.

The Wii is priced just right for a games console.

 

[sonyps35]

But even then they got outsold by the technically inferior PS2 by a ratio of nearly 5 to 1.

5 to 1 is a big misnomer imo. Other factors:

PS2 had claimed 103 million shipped worldwide last I knew, vs some 24 million for Xbox. That's about 4-1 not 5-1.

Then you have the fact Xbox sells nothing in almost 1/3 of the market, Japan, so it's not even a fair comparison in that sense.

Then you have the further fact Xbox sales could have been more but Microsoft really killed it fast over the past year and a half, which equates to what, 1/3 of it's life?

I would say in competitive territories over the competitive three years or so, you're probably looking at a 2-1 PS2 advantage over Xbox, tops. And probably even less in software sales. Which is impressive enough, fine. But it's not as big a blowout as 5 or 4-1 world shipped numbers make it seem like.

In USA NPD's to date it's like, 33.5m PS2, 14.25m Xbox. That's counting an extra year for PS2, and a year and a half of little MS support for Xbox. Also 10.9m Gamecube's.

 

[sonyps35]

Anyways it's fun to argue about this stuff, but I kinda am wondering if all three systems wont be succesful. It certainly is that way so far.

 

[Laa-Yosh]

People need to stop casting people as total tech idiots. If that was true the whole move to HDTV would never happen. The whole move to flat screen, then flat panel, displays would never happen. The whole move to CD's, then Ipod would never happen.

There are issues beyond quality in play here as well.

A CD is lighter and less error prone than a walkman or a tape player. You don't have to use rewind, you can skip to any track whenever you want to.
An iPod is even smaller and allows you to take many hours' worth of music with you (don't forget that Apple used this fact in their marketing).

A flat panel TV takes up less place, consumes less power and emits less heat. LCD, plasma, whatever - all their screens are usually bigger than CRT sets and have noticeable better quality for DVD playback than a large CRT or SD projection TV. They look better, too... and you can hardly get a large CRT nowadays anyway.

So there are plenty of reasons even for tech idiots to switch to these new kinds of home entertainment devices.

 

[Laa-Yosh]

The Xbox 360 is also overpriced in my opinion for a plain games console.

I'm starting to think that this is why X360 sales still haven't really picked up. It is simply too expensive.

 

[RobertR1]

I'm starting to think that this is why X360 sales still haven't really picked up. It is simply too expensive.

Exactly. Out of the 25-30 people that I know how have a PS2, only 7 bought a 360.
Reason: Not gonna spend $400 to play games. Maybe later when it's cheap. Keep in mind these are high income folks with decent budgets but not hardcore gamers, just casual gamers. They're all in around their mid-late 20's also.

When asked about the PS3: Isn't it like $600!? "yeah..." haha! f' that.

Just do little tests like that around you and you'll have a decent idea of people's feeling on prices.

 

[McHuj]

I'm starting to think that this is why X360 sales still haven't really picked up. It is simply too expensive.

1. Does anyone have numbers on PS2 units sold and shipped at each price level? I'm curious to see how well it sold at each price point. At least where can you find that kind of information? At what point do sales really take off?


2. I agree with this article. To date, Sony has not shown one GAME that justifies the $599 price over the 399 Xbox. The BR, bigger hd, bluetooth is fine and dandy, but it's the games that sell the system. If the majority of games will be multiplatform, there will be an even lesser incentive to buy PS3 over X360. As a gamer, if the premium system doesn't offer an advantage why should I pay extra?

 

[wco81]

A flat panel TV takes up less place, consumes less power and emits less heat. LCD, plasma, whatever - all their screens are usually bigger than CRT sets and have noticeable better quality for DVD playback than a large CRT or SD projection TV. They look better, too... and you can hardly get a large CRT nowadays anyway.

Not so sure that all flat panels look better than CRTs. Especially not the case with LCD.

It's just that the form factor trumps PQ considerations.

Maybe people think the pictures on the flat panel looks better because it's mounted on a wall instead of being in a box like a CRT.

People are willing to trade sound quality for convenience, navigation features of MP3 players.

 

[Titanio]

I agree with this article. To date, Sony has not shown one GAME that justifies the $599 price over the 399 Xbox.

Do you think such a game could ever exist? I don't know anyone who buys any system at any price for one game. One game in particular might tip a person over, but usually someone buys a system in order to get access to a multitude of content, and expected content over the next x years. I find it quite funny when people use this reasoning about some mythical $600 (or $500) game.

If the majority of games will be multiplatform, there will be an even lesser incentive to buy PS3 over X360.

Content and content access probably is the first discriminator for most people. It seems many have been perpetuating the perception that most games will be multiplatform, but I don't know how true that is at all. Someone did out a list of all known PS3 games to date a month or two ago, and about half the list was exclusive in some form or another (using a conservative count to boot - announced but untitled games that are very likely exclusive were not counted, for example). The libraries are very different overall than I think some people appreciate. I honestly don't see a whole lot that has changed to date compared to PS2 and Xbox on this end - the majority of third party western games were multiplatform on those consoles, and PS2 enjoyed a majority of exclusive support from the East. That doesn't look so different than the situation sofar with PS3 and 360. If there's at least one thing DFC is right about in their analysis, it's this:

The secret to the PS2’s success was more in the wide range of product offerings: all kinds of sports games, racing games, RPGs, action titles, big name licenses, kid friendly products, RPGs with Disney characters, etc. Japan had Final Fantasy and Dragon Quest, Europe had EyeToy and SingStar.

PS3 does not seem to be bucking that trend at all.

 

[pc999]

I'm starting to think that this is why X360 sales still haven't really picked up. It is simply too expensive.

I agree.

sonyps35

Try something like showing one last gen (last gen SW too) and one next gen videos to someone how arent used to play games and at the end ask him which look better, and you will see how hard it will be for them to answer.

When you go to casual gamers that get a bit better but in many cases it isnt much better, out side the more hardcore (like the forecast say ~90%) much just dont care beying good last gen (special last gen SW) PS2.

Most people just dont care with tech as long as they feel it is a good value.

 

[pc999]

BTW

http://www.gamasutra.com/php-bin/news_index.php?story=9893

Good read, which go against PS3 price for a real mass market aproache.