For a top game publisher to abandon a console platform before the midway point in the hardware’s lifecycle is extremely unlikely. Hardware makers and software publishers have a sometimes conflicted but always mutual need for each other’s services. It’s symbiotic; especially once they’re both invested. Even so, the two aren’t above venting frustrations.
That happened Friday. In an interview with the UK Times, Activision’s CEO Bobby Kotick went to the press for leverage. Like a diplomat threatening war (with no real intention of starting one) he fired a shot at Sony to let the company know in no uncertain terms there’s concern about the PS3 platform’s anemic sales.
According to Kotick, Activision paid Sony in the neighborhood of $500m last year in fees and he wants a better, make that much better, return on investment. He wants Sony to cut the price on the console to help stimulate demand. He thinks it’s too expensive to develop for and too expensive for consumers. He wants change.
“They have to cut price, because if they don’t, the attach rates are likely to slow. If we are being realistic, we might have to stop supporting Sony,” he said.
“Might” being the key word. “Might” isn’t “will” or even close to it.
Complaints about the PS3’s pricing are not new. Concerns similar to Kotick’s have echoed around the industry since the PS3 launched in 2006 but it’s a complex situation.
For all its power, the PS3’s always been expensive to produce. At the time of its debut, introducing the technologically sophisticated platform with Blu Ray onboard was believed to cost Sony somewhere in the neighborhood of $800 to $900 a unit. The console was sold at a loss, but even with the a subsidy, it was still pricey for consumers.
Today, manufacturing costs have come down, but Sony’s remains reticent to pare back the retail numbers to a more affordable entry point because that would mean they’d likely be selling the consoles at a loss again.
It’s hard to blame the company for its position. They’re in business to make money over the life of the console not put themselves in an inescapable hole early in its life.
The question is: is momentum (and addressable marketshare) being lost that can’t be recovered?
Kotick and others argue flatly yes. Costs, they say, are keeping buyers away. The view is that once invested deeply in another console, some customers will be harder to lure. And of those that do buy, the higher pricing still means fewer dollars available for software.
There’s a certain amount of opinion to whether pricing is that big a factor. Buying preferences are not solely built on price. Available games and other criteria play into the calculus too. But measured by installed base (the number of consoles in the market), or which consoles win the head to head battle each month for the tops in game sales, the publisher’s concerns aren’t unfounded.
Despite recent gains in some international markets (including Japan), in the US, the PS3 is still the laggard. Fewer consumers have bought the console, and games built for it are putting up weaker numbers when matched against the same offering on the rival Xbox 360 (see updated chart).
Looking back at last year and this year’s NPD US sales data, in 2008 only one PS3 title ranked in annual US top ten for unit sales. That was Grand Theft Auto IV which finished 8th with 1.89m units sold; a great result until you note the Xbox 360 version of the same game sold 3.29m units.
In 2008, as a platform the Xbox 360 had four top ten hits. So did Nintendo’s Wii. The PS3 had only 1.
This year, so far, has played out in a similar fashion. In January no PS3 title made the hit list. In February there were only two. April had one. March and May were better, but month to month, the strength generally hasn’t been evident.More telling than that, looking at the first half, every time the PS3 and Xbox 360 have gone head to head with a title offered on both platforms, the Xbox has won handedly. (see the updated chart).
A price break for the console might not make up the difference, but it could be a momentum generating boost; especially if timed to coincide with a hot slate of game releases. Then again, Sony’s got to look out for its own numbers.
[Update: Rumors of a smaller PS3 model dubbed the PS3 slim continue to circulate along with speculation a price cut will go with the eventual announcement. As of the latest round, the call is for an August or September release. Retail bundles combining the PS3 with games at the current price point are also expected
Update, July 7: Sony’s Sir Howard Stringer countered Kotick’s comments at the Allen and Co Conference in Sun Valley. "He likes to make a lot of noise," Stringer said, "He's putting pressure on me and I'm putting pressure on him. That's the nature of business." Regarding price cuts, he said the logic isn’t there “I (would) lose money on every PlayStation I make -- how's that for logic."].
Ed. Note – The Head to Head Chart has also been updated to reflect another month of sales.
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