NPD March 2007

[Carl B]

you know i really thought that MS had a price drop planned for this month after releasing the Elite but now I'm thinking that with PS3 not putting a scare into them that they will just sit tight and take their 200-250k at full price for as long as they can.

With GTA4 and Halo3 and a host of other titles on the horizon (Forza, Mass Effect etc), they may just enjoy the profits for as long as possible.

That's what I've been saying - why lower the price for console sales alone? MS can expect to sell much hardware later this year simply on the back of top-tier software offerings. I also don't know what a price drop by this holiday season would have to happen - more natural in their present situation would be after the holiday season.

360 took an appreciable dip in March, but I think that's just reflective of the season - overall I think MS considers themselves as doing well against their segment competition (Sony), and just wants to get to profitability as soon as possible... no need to rush the drops.

As for Sony, well not the greatest numbers, that's for sure. Good that PS2 and PS2 software sales remain strong to act as a loss buffer; I think whatever happened to 360 happened to PS3 as well, only they weren't in a stronger position to begin with. In terms of Motorstorm selling systems, I wonder how many software units they ended up moving.

 

[Tap In]

... In terms of Motorstorm selling systems, I wonder how many software units they ended up moving.

I thought I'd read 130k for MS?

as for Holiday 360 price drop, you might be right.

they sold ~2 million last Nov/Dec at full price and with the heavy software on the shelf, they may be inclined to ride the wave again, dropping in the slow time after the holiday.

I do think that Ms never expected to be in this position in NA (or even WW) compared to Sony at this point in time. I'm certain that they would have been MUCH more aggressive had this first 6mos of direct competition played out as they expected. (PS3 outselling them in NA)

 

[Cheezdoodles]

edit: never mind this post

 

[scooby_dooby]

That's what I've been saying - why lower the price for console sales alone?

You can't be serious. Install base ensures developer support, increased userbase and vastly increased royalties down the road. Also, add in the fact the Xbox brand name still pales in comparison to the PS worldwide.

I can understand why MS's is waiting now, as PS3 sales are ssssllllooww, but at same time, this is their opportunity to take a nearly insurmountable lead, especially in NA, and they seem to be squandering it...

My crystal ball feels a pricedrop coming before July though

 

[Carl B]

You can't be serious. Install base ensures developer support, increased userbase and vastly increased royalties down the road. Also, add in the fact the Xbox brand name still pales in comparison to the PS worldwide.

I can understand why MS's is waiting now, as PS3 sales are ssssllllooww, but at same time, this is their opportunity to take a nearly insurmountable lead, especially in NA, and they seem to be squandering it...

My crystal ball feels a pricedrop coming before July though

Oh I'm serious alright - if MS wanted to drop a price, no better opportunity could have presented itself than the introduction of a new SKU. But... they didn't. Right?

Why doesn't Sony lower their PS3 pricing then? Hell I think that gets asked around here everyday. There are answers to these questions... and they lead to profit/loss.

There's more to business than marketshare.

I agree that MS has/had an opportunity here, but the fact is if HQ has their hands tied with profitability targets... personal job security > abstract notions of 'success' in the gaming biz. Marketshare != success from a business standpoint.

I see what you're saying though Scooby, and I don't disagree. It's just that so often in life you have two paths you can walk down, and for MS right now, I think they're just opting for the conservative approach - things have been going well for them lately, but there's pressure to make money in the wake of Vista and Zune.

 

[Tap In]

You can't be serious. Install base ensures developer support, increased userbase and vastly increased royalties down the road. Also, add in the fact the Xbox brand name still pales in comparison to the PS worldwide.

I can understand why MS's is waiting now, as PS3 sales are ssssllllooww, but at same time, this is their opportunity to take a nearly insurmountable lead, especially in NA, and they seem to be squandering it...

My crystal ball feels a pricedrop coming before July though

I agree that they could step on Sony's throat with a price drop soon in NA. they really need a drop in Europe though because that is where they can lose the most ground as well as have the most to gain IMO.

Again, as Carl said, I think profitability targets are sitting there staring them in the face with no compelling reason to drop (looking at PS3 numbers and price).

they obviously still see Wii as a completely other market ATM. My guess is they have pretty good dev support now with most of the big the 3rd party titles secure and software is making money as well as arcade and MP media downloads. They now appear to me to be targeting a surge in increasing user base (which in turn will drive online profits and game sales) and competing directly with Wii, NEXT year with the Core, after riding the Halo3/GTA wave.

 

[scooby_dooby]

Well, MS has made many bad business decisions this generation, this is probably just another example. Just because they didn't drop the price, doesn't mean it was the right move.

In the console market, install base really does equal success, unless you're selling at massive losses which we know MS is not doing. Install base creates a gigantic royalty base, and a long tail that can stretch for 10+ years.

Obviously they are 'under orders' to become profitable, so the fault lies with the people being so shortsighted. Obviously, the 360 is poised to be a huge cash cow this generation, that;s a no brainer, so I don't understand the fixation on the short term profits.

 

[Tap In]

Well, MS has made many bad business decisions this generation, this is probably just another example. Just because they didn't drop the price, doesn't mean it was the right move.

In the console market, install base really does equal success, unless you're selling at massive losses which we know MS is not doing. Install base creates a gigantic royalty base, and a long tail that can stretch for 10+ years.

Obviously they are 'under orders' to become profitable, so the fault lies with the people being so shortsighted. Obviously, the 360 is poised to be a huge cash cow this generation, that;s a no brainer, so I don't understand the fixation on the short term profits.

you might be right but I think it's not a point lost on them. If you think that they have not factored your equation into the mix, I'd say you were crazy.

of course they understand that. I think it's more of timing and just holding out until the last minute (maybe waiting for Sony to make the first move?). Is it a risk? sure, but again, they are a little distance from the razor's edge right now from it going bad for them so they have time to make their moves. If I'm sitting in their offices I can certainly see myself weighing both options and choosing to not leave money on the table at the moment.

I'm sure MS sees this as a marathon with plenty of time to corral all of those $249 and lower price people.

CORE.

 

[Carl B]

Well, MS has made many bad business decisions this generation, this is probably just another example. Just because they didn't drop the price, doesn't mean it was the right move.

In the console market, install base really does equal success, unless you're selling at massive losses which we know MS is not doing. Install base creates a gigantic royalty base, and a long tail that can stretch for 10+ years.

Well, GameCube was profitable for Nintendo, and MS had the larger install base and lost billions... so I don't think it's black and white. Two years ago something I would have expected to be reading would be "Nintendo should pull out of home consoles...," and the few tmes I would deign to respond, the answer would usually be: why? Or those that felt Apple should stop making computers pre-iPod. Hey, if you're making money you're making money - install base be damned. There are a lot of similarities between those two businesses in fact, and this is something I would mention even back then; both benefit from a strong software association tied exclusively to their own hardware.

I don't think there are any givens or guarantees in the game biz, and previous patterns don't accurately predict future ones. I think for Nintendo, Microsoft, and Sony all... this gen is turning out differently than they had predicted, and I think everyone is just sort of trying to get their heads around it at this point.

Obviously they are 'under orders' to become profitable, so the fault lies with the people being so shortsighted. Obviously, the 360 is poised to be a huge cash cow this generation, that;s a no brainer, so I don't understand the fixation on the short term profits.

Well, it's a no brainer to you and maybe myself, but when your company's under pressure from the investment community, Ballmer et al may be tired of hearing about 'tomorrows profits.'

 

[StefanS]

Well, MS has made many bad business decisions this generation, this is probably just another example. Just because they didn't drop the price, doesn't mean it was the right move.

In the console market, install base really does equal success, unless you're selling at massive losses which we know MS is not doing. Install base creates a gigantic royalty base, and a long tail that can stretch for 10+ years.

Obviously they are 'under orders' to become profitable, so the fault lies with the people being so shortsighted. Obviously, the 360 is poised to be a huge cash cow this generation, that;s a no brainer, so I don't understand the fixation on the short term profits.

I agree with scooby here. MS can be satisfied with slightly increasing the gap in NA while losing ground abroad. They need to open the gap as wide as they possibly can, especially now that the PS3 still has little compelling software, i.e. must-haves and is still expensive. I'd have said that selling the elite package for 480 USD was the biggest mistake MS ever made, because it made Sony look comparably cheap. But then Sony dropped the 20 GB SKU and now it's not that bad. Still MS should drop the price right now, every unit they sell more now counts double for the next-gen battle and initial developer support then.

 

[fearsomepirate]

IMO, Sony PR instead should of focused more on the PS2 & God of War 2 sales and stayed quiet on the PS3.

I'm actually pretty surprised they're not taking this line. They should be saying something like:

"PS2 is a really brilliant product, and it's still selling well. Unlike other companies, we didn't need to jump the gun on next-gen, because our current product wasn't and isn't failing. PS3's just not mainstream yet; it's more targeted at the discerning consumer with extra cash to spend on a high-end product that isn't known for breaking down and being replaced three or four times. When the current gen is finally winding down, expect to see a more mainstream price for the PS3."

Or they could say,

"Well, we have a more diverse product lineup. Notice we sold a total of 410,000 home consoles last month. If the PS2 were an unwanted, money-losing product that we had to send to an early grave, PS3 sales would undoubtedly be higher. But as it is, there's still a huge market for the current-gen, and we're not going to throw it away just because some other company's game division is desperate to stop losing a billion dollars every year."

They could totally spin this to their advantage and be clever about it. In fact, as well as PS2 is selling, they could have easily let the PS3 wait another year for RAM and fab prices to drop, so that they could seriously outpower the 360.

 

[RobertR1]

If MS doesn't have a decent price drop by mid summer, they'd be making quite a long term mistake. The ripple effects of a price down, now that Sony is down, would allow them to gain temendously in the NA and EU markets.

 

[Tap In]

If MS doesn't have a decent price drop by mid summer, they'd be making quite a long term mistake. The ripple effects of a price down, now that Sony is down, would allow them to gain temendously in the NA and EU markets.

I agree that I would go for the jugular with GTA4 and Halo3, (price drop fall) but as Carl said H/W profits may compel some decision makers to try and capitalize on those IPs at the biggest price possible.


oh and FYI... evidently the elite is now available at some retail locations as well as the peripherals.

 

[PatrickL]

Maybe they would want to drop the price but I guess they need to have 360 v2 (65nm) ready and reliable before ?

 

[Carl B]

I agree that I would go for the jugular with GTA4 and Halo3, (price drop fall) but as Carl said H/W profits may compel some decision makers to try and capitalize on those IPs at the biggest price possible.

Exactly, I think the software sells systems, and not the other way around. Let the big titles move consoles at a higher rpice, and then later when demand for those IPs at those prices dies down, lower the price of the console and enjoy a residual sales spike all over again; it's about maximizing your margins.

 

[scooby_dooby]

Well, GameCube was profitable for Nintendo, and MS had the larger install base and lost billions... so I don't think it's black and white. Two years ago something I would have expected to be reading would be "Nintendo should pull out of home consoles...," and the few tmes I would deign to respond, the answer would usually be: why? Or those that felt Apple should stop making computers pre-iPod. Hey, if you're making money you're making money - install base be damned. There are a lot of similarities between those two businesses in fact, and this is something I would mention even back then; both benefit from a strong software association tied exclusively to their own hardware.

I don't think there are any givens or guarantees in the game biz, and previous patterns don't accurately predict future ones. I think for Nintendo, Microsoft, and Sony all... this gen is turning out differently than they had predicted, and I think everyone is just sort of trying to get their heads around it at this point.

My argument is that they will eventually make less money if they are overly conservative. I know what they're doing, the question I'm asking is whether it's the right move...

I'm pretty surprised you would make a comparison to Xbox, the two situations could not be more different, 360 is built to cost reduce and enjoy the advantages of a larger install base, it has an established brand name, ubiquitous developer support, and most important is the WW leader currently. Xbox1 had none of those things, not too mention a major investment in software services like XBLive that have now become major profit generators.

There is no valid comparison there, as Stefen S points out, every console they can sell now counts for double down the road in developer support, and they are certainly in the position to benefit from a 10 year cycle.

I'm not sure what your final point was, that people will stop buy $99-150 consoles? I'd like to hear your rationale on that. That's a fairly longstanding pattern to be broken now...

 

[scooby_dooby]

Exactly, I think the software sells systems, and not the other way around. Let the big titles move consoles at a higher rpice,

To a degree, but there's a built in threshold that people have for a video game system, it varies from person to person, but certainly the majority lies in the $150-$250 range. If you're above that, it doesn't matter what games you have, most people will sit on the fence.

I'd bet MS would net an extra 2-3million users WW by the end of the year, with a pricedrop this spring and GTA and Halo coming in the fall.

 

[mrcorbo]

Maybe they would want to drop the price but I guess they need to have 360 v2 (65nm) ready and reliable before ?

I think this, too. They are taking a bath on having to repair or replace consoles, in some cases multiple times. And it is a black eye for the 360's and even MS's reputation. In this light, there is actually an advantage to minimizing the total number of consoles they sell until they can fix what appear at this point to be design flaws instead of just manufacturing defects. And they can get away with it as long as Sony continues to sell at this anemic pace. TBH I don't think they see the Wii as competition.

Ultimately this may be a huge mistake not taking full advantage of the opportunity they have right now to jump out to a commanding lead, but if they can actually get away with it it would seem to help them tremendously in the long run.

This assuming, of course, that the above is the reasoning behind their holding back. If it's just purely profit driven, then that sort of short-sightedness deserves to be rewarded with failure.

 

[Tap In]

...
I'd bet MS would net an extra 2-3million users WW by the end of the year, with a pricedrop this spring and GTA and Halo coming in the fall.

possibly, but I'm now thinking they want to get the ~2 million users who will buy H3 GTA4 regardless with a system at $299- $479 and THEN, a few months later, get the other 2-3 million who waited for the price drop.

 

[scooby_dooby]

True, Takahashi has mentioned the 65nm production is behind schedule, so maybe MS's hand has been forced a little in this regard, and Sony isn't exactly pushing them right now.