Sub $200 pricepoint - When will next-gen get there?

[TheChefO]

As most, I expect Wii will launch for either $200 or at most $250 as Nintendo has stated publicly. But the other two Major players are significantly above this historical sweetspot of console sales. When do you think this price piont will be met by MS/Sony and how will they get there?

ie:
What die process would be necessary?
Will features be cut/reduced?
Will features be increased? (standard hdd/hd-dvd on 360?)
etc.

 

[pc999]

There had been a rumor a few months ago (they talked about the camera and such too) that the core version of the XB360 is to be 220$ and the Premium at 300$ in October (probably without many things to cut costs but great if you want to outsold Sony).

About the Wii I fully expect to be less than 200$ and Sega vice president(?) also said that too, meybe 150$.

 

[AlNom]

I'll say....Christmas 2010.

HDDs are pretty much a fixed cost AFAIK, so I'm thinking MS will stick with the Core/Premium packages. However, the % split availability in the future of either will be determined by statistics on purchases in the coming years. At least that's the impression I get from MS saying how they'll adapt to what the consumer wants.

Seeing as how the HDDVD add-on is not for gaming, there really is no need to increase the base cost of the unit by including it as a standard. *shrug* Again, this depends on the market demand and the acceptance of HD DVD in the home, cost of regular HD DVD players in 4-5 years....

 

[Guden Oden]

There had been a rumor a few months ago (they talked about the camera and such too) that the core version of the XB360 is to be 220$ and the Premium at 300$ in October

Prepostrous.

This is nothing but (fanperson) wishful thinking! MS is eating enough losses as it is - and will do the same in october I might add - without adding the financial burden of subsidizing their own hardware even more for no reason. MS has (wisely) stated they don't see the Wii as a direct competitor but rather a 2nd-hand choice complement, and is already cheaper than PS3 without Sony even having launched their hardware yet. They have little to no reason to lower prices, particulary to such a huge degree.

probably without many things to cut costs but great if you want to outsold Sony

It isn't so great however if you're already selling pretty much all the consoles you can manufacture/the market will absorb. Besides, shifting hardware units isn't the primary goal. Making money is, and taking it straight on the chin finance-wise by slashing prices for little reason other than to piss off a competitor makes no sense.

 

[TheChefO]

It isn't so great however if you're already selling pretty much all the consoles you can manufacture/the market will absorb. Besides, shifting hardware units isn't the primary goal. Making money is, and taking it straight on the chin finance-wise by slashing prices for little reason other than to piss off a competitor makes no sense.

True if they sell out and show strong demand there is little reason to pricedrop. However, their window of opportunity to lure publishers/devs to their platform by getting a large installed base quickly, is limited. Some would say they have only this fall to make a significant impact. And while I agree the point of all these companies is to make money, they can't do that if they don't have enough consoles on the market to gather enough royalties from game sales to cover manufacturing/r&d costs.

edit - On a side note it is interesting that MS/Sony view Nintendo as a "additional console" this gen when they had the same price difference last gen but nobody said anything to that effect. - interesting

 

[Acert93]

Short Answer: 2008 is when the 360 Core will reach $199 IMO.

Last go around the PS2 launched at $299 in Spring & Fall 2000 (depending on where you were at) and dropped to $199 in Spring (May) of 2002. So the first console out of the shoot took 18-24 months to drop in price. Sony got a head start on sales, had all the territories covered, production was at full speed, and they had a cheap back library of games all by the time MS and Nintendo started selling consoles and had to go through those growing pains. And MS was bleeding with every Sony price cut seeing as the Xbox1 was more expensive to manufacture than Sony's PS2.

In a lot of ways we have the same scenario, but the table is turned in some ways (and not in others). But in general just some tangents:

• Console with the middleground in production costs arrived 1 year before everyone else.
• Nintendo is launching a lower cost console in Year 2 of next gen.
• The console with the highest manufacturing costs is arriving in Year 2 as well.

Of course some of the bigger differences this time around (not exhaustive):

• Last gens market leader is shipping in Year 2.
• The consoles are much more diverse this time around from last time.
• Sony and MS have adopted different pricing strategies with a minimum of $100 between SKUs and as much as $300 between SKUs.

How I see it is all the reasons to adopt a price cut at 18-24 months, at the earliest, are there. But one of the big motivators for MS or Sony to reach $199 is not present this go around--the market leader is not forcing the competition to compete on price. Since there is a natural price gap already it gives less incentive for MS to cut the retail price--especially if they are losing money. (Note: They still should for market penetration purposes, but it all comes down to whether a strategist of bean counter is in control of this decision).

Looking at last gens price cuts may help:

PS2 Price Cuts
2000 Fall -- $299
2002 May -- $199
2003 May -- $179
2004 May -- $149
2005 April -- $129

Xbox Price Cuts
2001 Fall -- $299
2002 May -- $199
2003 May -- $179
2004 March -- $149

GameCube
2001 Fall -- $199
2002 May -- $149
2003 Sept -- $99

Tucked away in this I believe is one reason Sony went for a higher initial price this time around. We all know there are 6M rabid Playstation fans who would have put down $1,000 for a PS3. But Sony has presented, in the past, some interesting numbers that suggest they believe they can survive on the "above-$199" market:

http://www.findarticles.com/p/articles/mi_zdext/is_200405/ai_ziff127006

SCEA's Kaz Hirai noted that the PS2 sold almost 10 times as well as the original PlayStation at its initial $299 price point, and six times as well at the lower $199 price point. It also sold steadily for longer periods of time at those price points -- 20 months at the first price, compared to nine for the original PSX, and 22 at the $199 price, compared to only six for the original PSX. The PSX didn't become a breakout hit until the $149 price point -- some 90% of its installed base was bought at $149 or less. The PS2's fortunes at its new price point thus look fairly bright.

So Sony may be "opting out" of the aggressive price reduction game.

Now turn to MS. Why should they cut the retail price? They are selling every unit available (at least in my area). They are losing money. They have a significant price advantage over Sony. They probably cannot compete with Nintendo this fall. 65nm is not scheduled to be in mass production until Q1 2007.

Looking at the 18-24 month window (Spring 2007 and Fall 2007) you have to ask: Why should MS reduce the price, at least $100 to $199? Strategy and only if sales slow down.

On the other hand MS may be in a position where they are still selling every unit well into 2007 and into 2008. This fall looks solid, but 2007 is looking even better. Bioshock is a Winter title as are Medal of Honor and Brother in Arms. Spring will see Mass Effect. It seems likely MS will see Halo 3 in Summer or Fall 2007, and Fall will also be seeing GTA4. As long as Sony does not cut their price significantly & MS is selling all their units why would they cut their price significantly?

I could see a $30-$50 in 2007. I am guess $199 Core will be available in 2008 when MS's next go around of cost reduction on manufacturing goes into effect. That would put the $199 range in the 30 month range, which is only 6 months longer than last time around.

Of course things could mess that up. Nintendo could catch on fire. Sony may not only sell well but stall 360 sales, forcing MS to respond with price cuts, etc. It all really comes down to supply and demand.

As it is I am shocked MS is losing money considering they are charging $40 for a wired controller! Talk about robbery! With that kind of pricing MS should be able to give the 360 away!

 

[pc999]

Didnt say it is real, althought if they can have the production high enought I can see it happen as it could secure their position in console and meybe even win to PS3 in the long term. BTW the rumor also said free Live (with ads).

Plus Wii will be a direct competitor (but the other way can be true for some markets) as none will buy 2 consoles at the same time and given the conditions wii will probably be the one that many will get first and the later MS sells 360s the less suport they have etc...

This time units on the market will be vital for suport and suport is vital for get more units on the market real agressive pricing may be the best thing that MS can do IMO.

 

[sonyps35]

Prepostrous.

This is nothing but (fanperson) wishful thinking! MS is eating enough losses as it is - and will do the same in october I might add - without adding the financial burden of subsidizing their own hardware even more for no reason. MS has (wisely) stated they don't see the Wii as a direct competitor but rather a 2nd-hand choice complement, and is already cheaper than PS3 without Sony even having launched their hardware yet. They have little to no reason to lower prices, particulary to such a huge degree.

I sort of agree. One thing I think people underestimate this time around is MS is all about hitting profit goal timelines. Now, they're still microsoft and I think they'll slash prices if they deem it necessary.

It isn't so great however if you're already selling pretty much all the consoles you can manufacture/the market will absorb.
__________________

This is the real key. MS had somewhat lukewarm May sales of 360. The time for a pricecut to be effective is probably right now where demand is somewhat slow in the summer months. Yet, it's probably not going to happen anytime soon.

Most people expect a price cut in the fall if at all. I think the problem is in fall they'll probably be back in a sell all they can make mode. Due to holiday demand plus titles like Gears of War. Sure they'll have competition, but demand should keep all consoles selling well at that time. Typically non-PS2 consoles sell about 1.5 million in Nov-Dec USA NPD. About 500k Nov and 1 mil Dec. I think MS can easily meet those sales at the current price and even with new competition.

But here's the wildcard, what if MS floods the channel with 360's, and has the capacity to sell much more than the usual 1.5 mil in the holidays? We've heard rumors production is 1 million a month, yet they might be lucky to sell half that worldwide right now. If they have a huge amount of backstock that is not selling come fall, then they would need the pricecut even in fall's heavier demand.

It's basically really simple of course. You need a pricecut when supply exceeds demand. MS will avoid a pricecut as long as they can.

Personally I think, if they do one this year, they will compromise and go halfway, to a 249/349 price, not the 199/299 people would want. I think they're very loath to do a price cut, so if they do it'll be a compromise.

Personally I think MS should drop the premium. The idea is sheer madness, yet sheer brilliance. Just make sure you have enough HDD's in the channel. Then everybody who wants to can buy the HDD anyway, so they cant complain too much. What's the big deal if it's in the box or not? The advantages of a built in HDD are already gone anyway since devs cannot assume it is there. All it is is a dumb data storage device for Xbox live.

Drop the premium, slash the core to $249. Now you're psychological price difference over PS3 looks absolutely stunning, when really it isn't any different than before (except for the minor $50 price cut).

Two SKU's confuses people. As another person said, they dont like it on PSP either. The 360 core pack is perceived as a joke, yet the premium is perceived as too expensive. At the same time, people want to know they bought the "right" one. In that sense two SKU's isn't a good idea.

So dropping the premium also has the added advantage of getting rid of all the problems of two SKU's.

Problems would be, people like the premium better so there would be backlash. Another issue is, MS is probably making less loss on the premium, because it's basically a $40 HDD for a $100 premium. You'd get less HDD attach rate overall if you dropped the premium, hence MS might lose more money since instead of 80% of people buying the HDD, if it's entirely optional that might drop to 50% or something.

But overall, the idea is brilliant. One sku. $249, against a $500/$600 PS3 that is confusing people with two SKU's. The appeal is immediatly apparant. And I think MS would be hard pressed top not sell hand over fist in that enviroment. Hell, it would probably nearly be priced as low as a wii, but when people see Gears of War running on a machine the same price as Wii, the temptation would be obvious.

 

[TheChefO]

So Sony may be "opting out" of the aggressive price reduction game.

Now turn to MS. Why should they cut the retail price? They are selling every unit available (at least in my area). They are losing money. They have a significant price advantage over Sony. They probably cannot compete with Nintendo this fall. 65nm is not scheduled to be in mass production until Q1 2007.

Looking at the 18-24 month window (Spring 2007 and Fall 2007) you have to ask: Why should MS reduce the price, at least $100 to $199? Strategy and only if sales slow down.

On the other hand MS may be in a position where they are still selling every unit well into 2007 and into 2008. This fall looks solid, but 2007 is looking even better. Bioshock is a Winter title as are Medal of Honor and Brother in Arms. Spring will see Mass Effect. It seems likely MS will see Halo 3 in Summer or Fall 2007, and Fall will also be seeing GTA4. As long as Sony does not cut their price significantly & MS is selling all their units why would they cut their price significantly?

I could see a $30-$50 in 2007. I am guess $199 Core will be available in 2008 when MS's next go around of cost reduction on manufacturing goes into effect. That would put the $199 range in the 30 month range, which is only 6 months longer than last time around.

Of course things could mess that up. Nintendo could catch on fire. Sony may not only sell well but stall 360 sales, forcing MS to respond with price cuts, etc. It all really comes down to supply and demand.

As it is I am shocked MS is losing money considering they are charging $40 for a wired controller! Talk about robbery! With that kind of pricing MS should be able to give the 360 away!

Great post as usual Acert

I agree with everything you said but there may be some holes in the oil pan:

Sony opting out of the low price game at this point appears mandetory based on the standard components in the box. While the hdd may be replaced with a flash drive, the dual bus structure along with rambus royalties, cell, and bluray seem to put the base price of manufacturing ps3 significantly higher than 360 core throughout its lifespan. As you said whether they need to hit the $200 pricepoint is another question but I think there is a substantial portion of the market that will not spend more than $200 for a game/movie system. Specificly most parents.

To meet this price point will be difficult given the high initial price. Even assuming a $100 price cut once a year would put them three years out before hitting $200 and I don't think they will have the means to be this financially aggressive.

Why MS would want to price drop?

Agreed financially it doesn't make sense for them to drop the price if they are selling everything they can make at existing prices. The issue is the market is showing a bit less demand at the moment and rolling into this fall without hype/desire could be disastrous for them. They have no games coming until late fall/Christmas that draw gamers and by that time ps3 and Wii are all over the place. A price drop (now) could spur demand early and carry the demand on through to the end of this year. Even something as simple as including a memory card or a minor $279 drop could be enough to at least spark interest and let those who have missed out on the system up til now feel their wait was justified.

The other thing a price drop could do is if it gets the system to a cheap enough price point, gamers could feel comfortable in purchasing the 360 as a stop-gap measure to let them play some next gen games and wait for the ps3 availability/price situation to become a bit more favorable.

The window of opportunity for MS is unknown but I would say it is there. Whether the end of the opportunity is this year or 18 months from now, I don't know, but I do know they need to take maximum advantage of what time they have.

 

[TheChefO]

But overall, the idea is brilliant. One sku. $249, against a $500/$600 PS3 that is confusing people with two SKU's. The appeal is immediatly apparant. And I think MS would be hard pressed top not sell hand over fist in that enviroment. Hell, it would probably nearly be priced as low as a wii, but when people see Gears of War running on a machine the same price as Wii, the temptation would be obvious.

You've got a real interesting point there. Although if you're not interested in wired controllers you're stuck buying them with the core. Same for hd cables etc. Perhaps a true "Core" where it is only a 360 and the psu. Let this be painfully obvious on the box that it comes with nothing and you the consumer must "customize" their box to their spec. This approach along with a ~$200 price could do very well this fall as the add-ons are never thought of at purchase time.

Sort of like a camera. You buy the camera for x cost but then you buy the case, the memory stick(s), the battery(s), etc. But when someone asks or you reflect back, the cost of the camera is thought of outside of the cost of its accessories.

 

[sonyps35]

Perhaps a true "Core" where it is only a 360 and the psu

I dont support that idea, nor would it fly. A core console must still include the basics, which are console, PSU, at least the most common type of A/V cable, and one controller. I suppose one could argue the memory card as "basic" but traditionally they have not been included.

This goes back to SNES/Gen days. The core console tends to force the others out of the market. Back then it was a core with one controller and no game or a deluxe with two controllers and a pack in game for more money. The core systems quickly took over demonstrating market superiority.

I'm not worried about dropping the wireless controller. People can pay $50 for that if they want as an extra. Or you could include the wireless controller in the core if the BOM was sufficiently similar to the wired controller. Whatever, I dont see it as a big issue. Most likely they would go with the wired controller.

 

[scooby_dooby]

There's nothing wrong with the premium, what they need to do is make the core attractive.

I propose 2 simple changes that would make the core package a huge seller this holiday season.
1. Drop price of HDD to $60
2. Add wireless controller

The only reason whatsoever to get the premium package would be to get the HD cables, and the headset, making it a better deal by $20-30 which is about right. People can easily buy a core+hdd and feel good about the deal they got (percieved value is key), especially if they don't have an HDTV.

The SDTV owner would actually save money buy buying the Core and a hdd+headset ($390), or they can get the complete 360 package(which imo is, 360, wireless controller, and hdd) for $360, that's a system that will sell, and that's true choice. Right now, Peter Moore's vision of 'choice' is pathetic.

edit - I guess I should answer the OP! I predict MS to $199 in Q4 2007, and a drop to $250 in Q2 2007.

 

[TheChefO]

I dont support that idea, nor would it fly. A core console must still include the basics, which are console, PSU, at least the most common type of A/V cable, and one controller. I suppose one could argue the memory card as "basic" but traditionally they have not been included.

This goes back to SNES/Gen days. The core console tends to force the others out of the market. Back then it was a core with one controller and no game or a deluxe with two controllers and a pack in game for more money. The core systems quickly took over demonstrating market superiority.

I'm not worried about dropping the wireless controller. People can pay $50 for that if they want as an extra. Or you could include the wireless controller in the core if the BOM was sufficiently similar to the wired controller. Whatever, I dont see it as a big issue. Most likely they would go with the wired controller.

Perhaps a hybrid between the two then. In the box it is the bare minimum but it comes with a "coupon" to pick up the controller and cables of your choice.

 

[TheChefO]

There's nothing wrong with the premium, what they need to do is make the core attractive.

I propose 2 simple changes that would make the core package a huge seller this holiday season.
1. Drop price of HDD to $60
2. Add wireless controller

The only reason whatsoever to get the premium package would be to get the HD cables, and the headset, making it a better deal by $20-30 which is about right. People can easily buy a core+hdd and feel good about the deal they got (percieved value is key), especially if they don't have an HDTV.

The SDTV owner would actually save money buy buying the Core and a hdd+headset ($390), that's a system that will sell, and that's true choice. Right now, Peter Moore's vision of 'choice' is pathetic.

Agreed the accessory pricing is out of line. I don't think you'll see a $60 hdd though. I could see $69.99 -74.99 but anything cheaper and they're getting to close to cost. A price drop of $10/controller would be welcomed as well.

 

[sonyps35]

There's nothing wrong with the premium, what they need to do is make the core attractive.

I propose 2 simple changes that would make the core package a huge seller this holiday season.
1. Drop price of HDD to $60
2. Add wireless controller

The only reason whatsoever to get the premium package would be to get the HD cables, and the headset, making it a better deal by $20-30 which is about right. People can easily buy a core+hdd and feel good about the deal they got (percieved value is key), especially if they don't have an HDTV.

There's no reason for the premium either. Buy the HDD seperatly. What's the complaint? The only issue I can see is if HDD's are in short supply. You need to make dead sure there are PLENTY of those to go around. Which at 360 launch, there weren't plenty. The other stuff, I think BOM is low on what are essentially plastic trinkets. The wired/wireless controller debate is irrelevant to me. The remote is not needed. The headset, is more iffy. But including it in the new one-sku core, as a "plastic trinket" , is not going to break the bank. They probably cost $5 to make in China somewhere. So basically I go with normal core pack stuff, wired controller, the POSSIBLE exception being I might throw in the headset as standard, just because I want high adoption of voice on live.

I just have come to realize that it seems with two SKU's, you default to the higher price for some reason. I thought the 360 core would eventually force the premium out of the market, and it still probably will, but so far it hasn't happened.

Sony probably needs to realize this too. I've just become not a fan of two SKu's. Although if they'd just included HDMI with the low SKU I'd be all set. Things like integrated wireless dont matter to me, my consoles sit right next to my router.

Sony needs to cull everything uneccesary out of the system and target one lowest price that they can imo. They should pull the HDD as well imo.

What they should have done was, one SKU, with HDMI, no integrated wireless unless the BOM on that feature was low, and price it out at $449 imo. When I looked at their pricing structure that's what jumped out at me.

I mean, sell the 60GB HDD as an extra.

The only reason it may not be possible for them to do this is if they require a lot of systems to be sold at the $600 point to make budget numbers and avoid losing too much money. If in effect, the $500 system is a red herring that they dont intend to produce much of in the short term.

But shoot, I guarentee pulling the HDD alone saves them nearly 50 bucks. There you go. $449. Or even failing that, $499 for one HDDless SKU makes more sense to me.

 

[pc999]

Probably a (big enought) memory card would be enought for the Core version starting to become atractive (for me is ready to play).

 

[Bigus Dickus]

It's basically really simple of course. You need a pricecut when supply exceeds demand.

Well, it's not quite that simplistic. Supply isn't what MS can make, but what they ship. Artificial supply restrictions are a common occurance, and a tactic used successfully by many companies... even when much larger production capacity is available or even in use.

 

[scooby_dooby]

There's no reason for the premium either. Buy the HDD seperatly. What's the complaint?

THe complaint is for the HDTV owner who likes to play on live(i.e. a huge target demographic), Core+HDD+Headset+HD Cables = $440.

The idea is to have each sku look attractive to it's target demographic. It's a good idea but you have to execute it properly. The premium works, the core is broken.

Right now, in theory, the core is appealing to 'budget minded' gamers, but budget minded gamers like to get good value for their money, with the overpriced peripherals and the ridiculous inclusion of a wired controller, the core is presented as a horrible value. It might as well not even exist.

Make it a good value, suddenly the price of the 360 truly becomes $299 for SDTV owners, without any need for a pricedrop on the SKU's themselves.

 

[Nesh]

As most, I expect Wii will launch for either $200 or at most $250 as Nintendo has stated publicly. But the other two Major players are significantly above this historical sweetspot of console sales. When do you think this price piont will be met by MS/Sony and how will they get there?

ie:
What die process would be necessary?
Will features be cut/reduced?
Will features be increased? (standard hdd/hd-dvd on 360?)
etc.

I am expecting christmass 2008(not very likely though), or during 2009. No need of cutting features. Actually you might see more features implemented in the future.

The development process and architecture technology will be simplified. Increase in supply will also reduce price.

What bnothers me though is how MS will do this since the console parts are manufactured by other firms. The same case happened with XBOX, so modifications were non-existence.

Sony does have rights on Cell and they manufacture it for theirselves, as well as the BR-drive. It seems that RSX is the only thing Nvidia is manufacturing for Sony. Except if Sony produce it in their factories and have the right to change it under Nvidia's agreement.

 

[standing ovation]

As most, I expect Wii will launch for either $200 or at most $250 as Nintendo has stated publicly. But the other two Major players are significantly above this historical sweetspot of console sales. When do you think this price piont will be met by MS/Sony and how will they get there?

I saw an Atari Classics 10-in-1 Joystick the other day for around $50. I'm certain this technology was considerably more expensive back in the day.

Technology is the key word here.

Like Atari, the technology in next-gen consoles is too expensive to retail at, around, or below $250. Barring sweeping advances in related fields, costs aren't likely to hit rock bottom for another generation or so.

But technology isn't the only hurdle. Product lines suspend prices too. And do you know what? They're probably more effective. After all, the last thing a company needs is similar products and services fighting each other over the same customer base. Price differentiation is an effective deterrent.

Software content is another area that buoys hardware prices. But, alas, I do not have time to write about this right now.